(CTIB) research, news, and more from GeoInvesting

Company description

Wed, 30 Jul 2008 04:00:00 GMT

CTI Industries Corp. is one of the leading manufacturers and sellers of mylar balloons in the world. The company also sells latex balloons, novelty and 'message' items, such as mugs and banners, and toy products, such as inflatable masks, punch balls and water bombs, and produces laminated and specialty films for food packaging and other commercial uses. The company's products are sold throughout the United States and in foreign countries through a wide variety of retail outlets including grocery, general merchandise and drugstore chains.

Research

Thu, 12 May 2016 16:45:29 GMT

CTIB ($6.65) - Yesterday we stated we closed out our long position in CTIB ahead of its Q1 earnings. In our May 6, 2016email we stated that given seasonality concerns and an anticipated capital raise to pay down its mezzanine debt, we did not feel comfortable holding an aggressive position into the company’s Q1 2016 earnings release. CTIB reported Q1 results:

Sales of $15.2 million vs $14.9 million in the prior year period.
Non-GAAP EPS $0.06 vs $0.10

The Q1 conference call was full of bullish commentary, reiterating management expectations of a strong fiscal 2016, particularly in the second half of the year. While we plan to summarize the conference call shortly, we encourage you to read the transcript here. We still plan on having management present to the Geo community early next week. We will issue you an alert if we decide to re-establish a long position.

The conference call indicates they may be able to pay down its debt through operations, possibly minimizing the need for a near-term capital raise which it had discussed in previous calls. Another bullish take away from the call:

“We would expect that our EBITDA would increase pretty substantially over the EBITDA that we have last year which was $5 million.”

Research

Wed, 11 May 2016 15:36:02 GMT

Closed out our long position in CTIB

We have closed out our long position in CTIB ($6.37). In our May 6, 2016 email we stated that with the seasonality and the likely capital raise that we did not feel comfortable holding an aggressive position into the company’s Q1 2016 earnings release. We have decided to close out our position and will re-visit the story as we gain more clarity on the capital raise.

Research

Fri, 06 May 2016 16:10:11 GMT

I just arrived back from the Growth Expo Conference in Vegas where I had the pleasure of meeting a few management teams of companies that seem to have long term investment appeal. It is important to note that these companies have circumstances that could affect investor appetite in the near term. If you are a long term investor these 3 stocks may have multi-bagger potential. First one is CTIB.

CTIB ($6.45) – We have been talking about CTIB the last several weeks, you can see our prior researchnotes here. All the Company’s major product divisions have catalyst that should lead sustainable growth on annual basis for the next couple years. As we stated in our previous notes, we are extremely excited about the growth prospects of the Company’s new direct sales division (container products). But it is still a small contributor to overall sales. As we discussed in original research, there were several caveats that investors should be aware of if investing in CTIB.

Caveat 1:

Seasonality will continue to be an issue for the Company, which could lead to some volatility in the stock price. Specifically, the Company’s second and third quarters may not consistently show year over year growth. The good news is that it appears that management is doing a good job disclosing this reality to investors. We expect that the direct sales business will eventually help mitigate weakness in Q2 and Q3 since management believes that revenue from this division is strongest in those quarters.

Caveat 2:

The Company has been transparent on its conference calls that it plans to raise capital in the near term but it’s not all bad news. The capital raise will be used to fund an anticipated large order from Wal-Mart in Q4 2016 and retire its outstanding mezzanine debt. We estimate that when the Company does retire this debt it could be accretive to EPS to the tune of $0.15. The Company reported $0.30 EPS in fiscal 2015, we expect that this event will be more of a 2017 catalyst.

Given these circumstance we are not taking an aggressive position in CTIB heading into its upcoming Q1 2016 results. We will look to definitely re-visit as we gain more clarity on the long term story and the Company completes its capital raise. The Company plans on presenting to the Geo community via a web presentation.

Research

Tue, 26 Apr 2016 14:58:39 GMT

Maintaining Our Position In CTIB Until Further Talks Next Week

$CTIB ($6.37) - On March 28, 2016 westated we were Initiating a starter long position in CTIB based on a bullish Q4 2015 conference call, strong Q4 sales/earnings growth plus the Company’s new distributor-based model that may contribute to significant growth in sales. See our full reasons fortracking here.

Yesterday, wediscussed the possibility of closing out our long position in CTIB if we did not have the opportunity to speak with management prior to the company’s Q1 2016 earnings. During the trading day yesterday, we were able to have a quick call with management which addressed some of our questions.

We learned more about the Company and feel the mid-term story is still intact. However, seasonality, specifically in Q1, remains a concern. We hope to learn more about the Company’s future growth plans when we meet with management in Las Vegas next week at theGrowth Capital Expo. (If you are in Vegas, reach out to us if you’d like to meet our team).

Here is a summary of our brief call with management yesterday:

Over time, the Company has been transitioning to focus more on serving its consumer market opportunities rather than its commercial markets. This transition explains why its Film Product division (commercial products) is less than 10% of sales. 90% of sales come from serving consumers, categorized into 3 segments:

Novelty Products

Foil balloons - Manufactured in China but mainly sold in U.S. market.

Biggest customer is $DLTR.
Growth opportunity that exists in this segment currently arises from Dollar Tree’s purchase of Family Dollar on July 6, 2015, creating an organization of 13,600 stores across North America. (DLTR sold 330 Family Dollar stores as part of the completion of merger). Although it has not occurred yet, Dollar Tree will convert Family Dollar stores to its own brand. Obviously, we would expect Dollar Tree to sell CTIB products in the converted stores.

Latex balloons - manufactured and predominantly sold in Mexico. The Company is in the midst of expanding its Geographic footprint, mainly to Europe. In the recent past, this segment's margins were adversely affected by rising commodity costs. This is something we need to keep a close eye on.

Vacuum Sealing Products

One main caveat is that the product has a higher price point than traditional vacuum/Ziploc bags.

Ziploc Products - In 2011, the Company entered into a license agreement with S.C. Johnson for the use of the Ziploc brand vacuum sealer system for home use with vacuum sealing machines to seal and store food and household items. We remember this development as we were initially excited to see if it could positively impact the Company's long term growth rate. It appears that this relationship may not be a significant growth driver as originally hoped. (we need to find out why)
Non-Zipper Storage Pouches - The Company extended its vacuum sealing line through the introduction of a slightly similar product where the Company uses it technology to seal bags with no zipper or built in sealing mechanism. The products competes against Seal A Meal and FoodSaver. Their largest customer in this product line is Walmart. The key to growth and reducing the company’s risk profile will be to increase distribution outlets. One concern is that the product is much more expensive than traditional pouches.

Container Products

This is the segment we are most excited about which was introduced to the business through a recent acquisition. The acquisition adds a direct marketing sales model to the company which can add significant growth to a company especially when sales are in their infancy as is the case for CTIB (only $6M in 2015).

Caveats:

Customer concentration (Dollar Tree and Walmart; 27% and 15% respectively)
Commodity price inflation (specifically latex division)
Any fallout from new MLM regulations
Seasonality - While not an overwhelming topic of conversation, balloons and vacuum sealing products can experience stronger demand in the second half of the year
Main concern is the volatility in margins which we hope to gain more clarity on when we meet management at the Growth Expo Conference in Vegas next week.

Research

Mon, 25 Apr 2016 14:17:19 GMT

May Close Our Starter CTIB Position Pre-Earnings

On March 28, 2016 we stated we were Initiating a starter long position in CTIB based on a bullish Q4 2015 conference call, strong Q4 sales/earnings growth plus the Company’s new distributor based model that may contribute to significant growth in sales. See our full reasons for tracking here.

We have stated on several occasion that we have reached out to management to set up an interview to discuss possible seasonality as the Company stated it sees more strength in the second half of the year in its vacuum sealing product line. We also would like to learn more about the Company’s new distributor based model. We have been unsuccessful in our attempts so far with management cancelling one interview request. We will continue with our attempts to set up a call this week; worse case scenario, we can potentially touch base with management at the Growth Capital Expo in Vegas next week.

Q1 2016 results are expected the second week of May, so we believe there is still time. However, given the seasonality concerns we are uncomfortable holding shares without an interview.

Research

Mon, 28 Mar 2016 14:21:50 GMT

Initiated Starter Long Position In CTIB

CTIB ($6.10) is a manufacturer and marketer of novelty balloons, vacuum and flexible packaging and storage products. Shares hit a new high of $6.45 on Thursday March 24th 2016. We issued two tweets on Thursday stating we were taking a closer look at the company.

We said in our Tweets:

Been tracking $CTIB for years, waiting for a catalyst to indicate growth on horizon. Bullish conference call, strong sales and earnings growth.
Part of $CTIB optimism seems to be based on company's new distributor based model that may contribute to significantly to growth in sales.

CTIB Product Lines:

Novelty Products, principally balloons, including foil balloons, latex balloons and other inflatable toy items
Flexible Containers and Film, and Sealing Devices for home and consumer use to vacuum seal, store and preserve food and personal items, including devices for evacuating air from, and sealing, such containers
Flexible Films for food and other packaging and commercial applications.

We have attempted to contact management twice to learn more about the company’s growth prospects, but for now we here is some our initial due diligence. We took a very small position in CTIB, but we are approaching the story cautiously until we interview management due to some issues we discuss below.

This is not our first go ‘round with CTIB. We coded CTIB as a GeoBargain on the radar back in April of 2010 through March 2011. Shares rose 77% at their peak during its tenure.

Although the company has grown revenues from $37 million in 2004 to $59 million in 2015, the path to this revenue growth has been choppy and accompanied by a sporadic EPS history.

	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015
Rev	$37.2	$29.2	$35.4	$36.5	$44.9	$41.3	$47.7	$47.2	$49.5	$56.1	$57.8	$59.4
EPS	-$1.28	-$0.17	$0.85	$0.03	$0.40	$0.36	$0.60	$0.15	$0.03	$0.11	$0.15	$0.30

Sales for the full year 2015 and Q4 2015 were only up 2.5% and 3.9%, respectively. However, after a deeper look into the revenue, it looks like sales from its independent distributor model are gaining traction. Revenues from this segment doubled to $6 million and look like the primary reason why overall sales for 2015 were up.

Whether you agree with the legitimacy of the MLM model or not, finding these kind of stories in the microcap space at the right time can result in significant share price gains. One only needs to look at companies like $NHTC and $EDUC as prime examples.

NHTC, currently trading at $31, is a direct-selling and e-commerce company. Despite our take on the company, namely that they are operating illegally in their biggest market (China), the stock had risen from sub $1.00 to over $50 a share in a 4 year period purely fueled by the company’s MLM model.

We actually went long the stock in September 2013 when the stock was trading at $4 and saw the stock hit as high as $13 before we began to question the story. EDUC, currently trading at $12.38 and in the early stages of a transition to a partial MLM model, has seen sales and its stock skyrocket the past few quarters. EDUC recently reported record revenues for fiscal 2016 of $63.7 million vs. $32.5 in the prior year. We alerted premium members that we went long EDUC in August 2015 while the stock was trading at $5.29.

Along these same lines, a small information arbitrage opportunity may exist with CTIB. During its 2015 year end conference call management made the following statement:

“Based on indications we have received from these customers, we anticipate substantial increase in sales of vacuum sealing products during 2016, particularly in the second half of the year.”

This revenue segment is around 22% of overall revenue. Management's optimistic view of the vacuum sealing line combined with strong growth trends in its indirect sales line could indicate that the company will see strong growth in 32% of its product line.

It’s worth noting that this is the first instance we can recall the company being aggressively optimistic about its revenue outlook.

Caveats:

Exposure to Mexican peso and Euro which significantly impacted sales negatively in 2016
Potential dilution. Below are comments from the company’s conference calls regarding the need to raise capital:

Q4 2015:

“So our financial position going into 2016 is strong. As we'll discuss, though we do anticipate significant increases in sales during 2016, which we believe will require additional funding to finance increases in purchases of raw materials and inventory as well as the anticipated increases in receivables, particularly during the second half of the year. We are currently exploring means to finance these anticipated additional funding needs.”

In its Q4 2014, conference call the company expressed a desire to retire debt, possibly through an equity offering.

“We do have an effective S3 registration, which could result in the sale of some shares for the purpose of funding that – a portion at least for that pay-off.”

It’s worth noting that from this conference call, management does seem to be cognizant of the negative implications of dilution.

“And that would be great, I think if you were stock were $10, $20, $30 a share, I just – I personally hate to see additional shares being issued that would be so dilutive at this level. That’s just me personally saying that, I don't know what other choices you have though.”

Seasonality is another topic we will look to discuss with management, as they expect stronger growth in the second half of the year making it unclear to us how the quarters will play out this upcoming fiscal year.

We are attempting to contact management to discuss growth prospects and goals to improve margins as well as to gain clarity on need to raise capital. We have nibbled at shares.

Reasons For Tracking

Mon, 28 Mar 2016 04:00:00 GMT

Initiated Starter Long Position In CTIB

We said in our Tweets:

Been tracking $CTIB for years, waiting for a catalyst to indicate growth on horizon. Bullish conference call, strong sales and earnings growth.
Part of $CTIB optimism seems to be based on company's new distributor based model that may contribute to significantly to growth in sales.

CTIB Product Lines:

Novelty Products, principally balloons, including foil balloons, latex balloons and other inflatable toy items
Flexible Containers and Film, and Sealing Devices for home and consumer use to vacuum seal, store and preserve food and personal items, including devices for evacuating air from, and sealing, such containers
Flexible Films for food and other packaging and commercial applications.

This is not our first go ‘round with CTIB. We coded CTIB as a GeoBargain on the radar back in April of 2010 through March 2011. Shares rose 77% at their peak during its tenure.

Although the company has grown revenues from $37 million in 2004 to $59 million in 2015, the path to this revenue growth has been choppy and accompanied by a sporadic EPS history.

	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015
Rev	$37.2	$29.2	$35.4	$36.5	$44.9	$41.3	$47.7	$47.2	$49.5	$56.1	$57.8	$59.4
EPS	-$1.28	-$0.17	$0.85	$0.03	$0.40	$0.36	$0.60	$0.15	$0.03	$0.11	$0.15	$0.30

Along these same lines, a small information arbitrage opportunity may exist with CTIB. During its 2015 year end conference call management made the following statement:

“Based on indications we have received from these customers, we anticipate substantial increase in sales of vacuum sealing products during 2016, particularly in the second half of the year.”

It’s worth noting that this is the first instance we can recall the company being aggressively optimistic about its revenue outlook.

Caveats:

Exposure to Mexican peso and Euro which significantly impacted sales negatively in 2016
Potential dilution. Below are comments from the company’s conference calls regarding the need to raise capital:

Q4 2015:

“So our financial position going into 2016 is strong. As we'll discuss, though we do anticipate significant increases in sales during 2016, which we believe will require additional funding to finance increases in purchases of raw materials and inventory as well as the anticipated increases in receivables, particularly during the second half of the year. We are currently exploring means to finance these anticipated additional funding needs.”

In its Q4 2014, conference call the company expressed a desire to retire debt, possibly through an equity offering.

“We do have an effective S3 registration, which could result in the sale of some shares for the purpose of funding that – a portion at least for that pay-off.”

It’s worth noting that from this conference call, management does seem to be cognizant of the negative implications of dilution.

“And that would be great, I think if you were stock were $10, $20, $30 a share, I just – I personally hate to see additional shares being issued that would be so dilutive at this level. That’s just me personally saying that, I don't know what other choices you have though.”

Seasonality is another topic we will look to discuss with management, as they expect stronger growth in the second half of the year making it unclear to us how the quarters will play out this upcoming fiscal year.

We are attempting to contact management to discuss growth prospects and goals to improve margins as well as to gain clarity on need to raise capital. We have nibbled at shares.

Deal Flow

Sun, 05 Aug 2012 04:00:00 GMT

LAKE BARRINGTON, IL, Jul 17 (Marketwire) -- CTI Industries Corporation (NASDAQ: CTIB), today announced that, on July 17, 2012, the company completed an enhancement to its senior loan facility with BMO Harris and entered into a $5 million subordinated term loan agreement with BMO Equity. The enhancement to the BMO Harris senior loan facility increases the amount available under the revolving loan facility from $9 million to $12 million and also extends the term of the senior loan facility to July 17, 2017.

Stephen M. Merrick, Executive Vice President and Chief Financial Officer of the Company, said, "This enhancement to our senior loan facility and subordinated loan provide up to $8 million in additional working capital to CTI and we believe will be extremely important in providing capital to support our growth. This additional working capital will help to finance increased levels of inventory and receivables and general working capital needs as well as anticipated investments in production equipment and facilities."

Comments & Business Outlook

Mon, 21 Mar 2011 04:00:00 GMT

Fourth Quarter Highlights:

Consolidated net sales for the fourth quarter of 2010 were $11,701,000 compared to consolidated net sales of $10,738,000 for the fourth quarter of 2009, an increase of 9%.
For the fourth quarter of 2010, CTI had net income of $379,000, compared to net income of $296,000 for the fourth quarter of 2009, an increase of 28%.
Earnings per share for the fourth quarter of 2010 were $0.12 (basic and diluted), compared to $0.11 (basic and diluted) for the same period of 2009.

GeoSpecial Notes

Tue, 17 Aug 2010 04:00:00 GMT

On August 4, 2010 CTIB reported second quarter results:

Consolidated net sales were $12,964,000 compared to consolidated net sales of $10,779,000, an increase of 20.3%.
The Company earned net income of $607,000 or $0.21 per share (basic) and $0.20 per share (diluted) compared to net income of $409,000 or $0.15 per share (basic and diluted).

The company did not provide much insight into its future business outlook. However, we listened to the conference call which was very bullish and it appears that current levels of operations will at least be maintained for the near term. EPS consistency has been one of our concerns with this story. It will be interesting to see if management can continue to deliver

Special Situations

Fri, 30 Apr 2010 04:00:00 GMT

CTIB has haunted us from the first day it elusively crept its way into our portfolio. We have always seemed to get sucked into it after it reported a good quarter or two, only to be blindsided by several sub par quarters. The year 2008 was case and point. We were excited to follow the story in the beginning of 2009 due to the addition of a new product line and strong analyst estimates which resulted in a strong 2008 third quarter:

GeoInvesting Research Excerpt, January 6, 2009:

The recent Third Quarter report showed strong growth in sales and earnings. All segments seem to be performing well due to recession resistant components. In particular, their new product line of vacuum storage bags is benefiting from an exclusive long term contract with SC Johnson and may be able to give the company some needed earnings consistency.

Margin Picture Set to Improve:

"With the recent decline in the market price of oil and latex, we are now beginning to see reductions in our raw materials costs."

Our enthusiasm was quickly deflated when the company reported three straight quarters of reduced sales and EPS, while missing analyst estimates.

Once again, CTIB has snuck in two good quarter in row, culminating in a record 2010 first quarter:

	1st Quarter 2010 vs. 1st Quarter 2009	4th Quarter 2009 vs. 4th Quarter 2008
GAAP Revenue	$12.4 M vs 9.60 M	$10.74 M vs 9.83 M
GAAP EPS	$0.21 vs $0.03	$0.11 vs $0.05

Is this turn for real and sustainable?

We listened to the conference call for some answers:

The company has changed its product mix which has resulted in increased sales volumes and margins. When asked if this trend would continue, management did its best to sidestep the question. However, it seemed a slightly less non-committal than in previous calls, possibly inferring that EPS consistency may be in the cards. Management also commented that CTIB has a robust product pipeline that has yet to show up in the company's bottom line. Thus, we are going out on the limb once again. This time we will code CTIB as a GeoSpecial. In the slight chance that CTIB has turned the corner, the stock small float of 1 million shares could mean big rewards for risk tolerant investors with a strong stomach and a good sense of humor.

Research

Fri, 24 Apr 2009 04:00:00 GMT

CTIB has been removed from the GeoBargain® List. Recent updated analyst estimates show 2009 sales and EPS declining from 20089 levels. The GeoTeam® will be liquidating its position.

Potential Valuation Scenarios

Fri, 13 Feb 2009 05:00:00 GMT

Data Inputs: (As of March 6, 2009)

Price	$1.82
Trailing EPS	$0.30
2009 EPS analyst estimates.	$0.49
Future EPS growth based on 2009 analyst estimates.	39%
Trailing P/E Ratio	6.07
PEG Ratio	.16

EPS numbers have been adjusted to reflect a fully taxed scenario and any one time charges or gains. Future EPS numbers have been obtained from public sources. The GeoTeam® feels that an adjustment to net income to reflect a standard tax rate is necessary for investors to make proper investment decisions.

Short Term Scenarios

Price based on P/E of 25 on four quarters trailing EPS	$7.50
Price based on P/E of 20 on four quarters trailing EPS	$6.00
Priced based on P/E of 15 on 2009 analyst EPS estimates	$7.35

Long Term (12 Months Forward) Scenario

Price based on P/E of 25 on 2009 analyst EPS estimates	$12.25
Price based on P/E of 20 on 2009 analyst EPS estimates	$9.8

Peg Ratio Analysis (Aggressive): Common rule of thumb that the P/E should equal the future EPS growth rate

PEG Ratio less than 1?	yes
Priced based on Current Price/PEG	$11.63

These scenarios are not intended to be investment advice, but are scenarios based on some commonly used investment guidelines. They are provided to aid investors in making their own investment decisions.

Financials

Fri, 13 Feb 2009 05:00:00 GMT

Third Quarter Financial Results Ended September

3rd Quarter 2008 3rd Quarter 2007 Period Change

GAAP Revenue $11.95 million $8.67 million 37.83%

*GAAP EPS $0.10 -$0.18 NA

*CTIB has not paid a full United States tax rate in 2008.

Third Quarter Financial Table Adjusted for a Standard Tax Rate:

	3rd Quarter 2008	3rd Quarter 2007	Period Change
EPS	$0.08	-$0.18	NA

GeoBargain Notes

Mon, 09 Feb 2009 05:00:00 GMT

Tax Adjusted ROE is approaching 15%
Not sure if the company will be able to obtain 8% pre-tax margins.
The GeoTeam® would like to see a reduction in the company's long-term debt position, which stood at $5.34 million as of September 30, 2008.

Research

Tue, 06 Jan 2009 05:00:00 GMT

NewGeo feature: The GeoTeam® does not limit its research to just Asia, thus we will also be including some commentary on stocks based in the United States.

CTIB Quick Note:

The recent Third Quarter report showed strong growth in sales and earnings. All segments seem to be performing well due to recession resistant components. In particular, their new product line, vacuum storage bags,is benefiting from an exclusive long term contract with SC Johnson and may be able to give the company some needed earnings consistnency.

Margin Picture Set to Improve:

"With the recent decline in the market price of oil and latex, we are now beginning to see reductions in our raw materials costs."

The stock is selling at only 4 times the 2009 analyst earnings estimate of $.64 (5 times tax adjusted estimate of $.49). This is a significant discount to the 39% EPS growth rate implied for the coming year, assuming the company meets analyst expectations for 2008. (Tax Adjusted PEG Ratio is .16) Established a position.

	3rd Quarter 2008	3rd Quarter 2007	Period Change
GAAP Revenue	$11.95 million	$8.67 million	37.83%
*GAAP EPS	$0.10	-$0.18	NA