Core Viewpoint - Northern Technologies International Corporation (NTIC) reported a decrease in net sales and net income for the second quarter of fiscal 2025, attributing the decline to various headwinds including changes in U.S. trade policies and seasonality in its industrial and oil and gas businesses. The company anticipates a rebound in sales for its Natur-Tec® and ZERUST® products in the latter half of the fiscal year [1][2][3]. Financial Performance - NTIC's consolidated net sales decreased by 8.5% to $19,072,000 for the three months ended February 28, 2025, compared to $20,843,000 for the same period in 2024 [3][5]. - For the first half of fiscal 2025, consolidated net sales decreased by 1.5% to $40,410,000, down from $41,024,000 in the prior year [3][6]. - The gross profit margin decreased by 440 basis points to 35.6% [5]. - Net income attributable to NTIC was $434,000, or $0.04 per diluted share, compared to $1,701,000, or $0.17 per diluted share, for the same period last year [9][10]. Product Category Performance - ZERUST® industrial net sales decreased by 3.7% to $12,562,853, while ZERUST® oil and gas net sales fell by 28.5% to $1,549,164 [4][5]. - Total Natur-Tec® net sales decreased by 11.8% to $4,960,049 [4][5]. - NTIC China net sales increased by 8.1% to $3,735,000 [5]. Operating Expenses and Income - Operating expenses increased by 2.4% to $8,820,000 for the three months ended February 28, 2025, with operating expenses as a percentage of net sales rising to 46.2% [7][22]. - Joint venture operating income decreased by 31.8% to $1,691,000 [6][9]. Cash Flow and Working Capital - Cash provided by operating activities was $3,199,000 for the six months ended February 28, 2025 [5]. - NTIC had working capital of $21,416,000 as of February 28, 2025, including $5,091,000 in cash and cash equivalents [11]. Strategic Outlook - The company is temporarily adjusting its quarterly dividend to $0.01 per share and prioritizing debt reduction to position itself for future growth opportunities in its oil and gas and compostable plastics businesses [2][17].

Group 1 - Northern Technologies International Corporation (NTIC) will release its fiscal 2025 second-quarter financial results on April 10, 2025, before the market opens [1] - A conference call with management will take place on April 10, 2025, at 9:00 a.m. Eastern Time to discuss the financial results and outlook [2][3] - The audio-only webcast of the conference call will be available, and a replay will be accessible for approximately one year [4] Group 2 - NTIC develops and markets environmentally beneficial products and services in over 65 countries, primarily focusing on corrosion prevention under the ZERUST® brand [5] - The company has been selling its proprietary rust and corrosion inhibiting products for nearly 50 years and has recently expanded into the oil and gas industry [5] - NTIC also offers bio-based and biodegradable polymer resin compounds marketed under the Natur-Tec® brand [5]

Financial Performance - For the three months ended November 30, 2024, the Company reported net income attributable to NTIC of $561,091, a decrease of 37.3% from $895,521 in the same period of 2023[51]. - Total net sales for the three months ended November 30, 2024 were $21,338,393, representing an increase of 5.7% compared to $20,181,675 in 2023[57]. - The basic net income per share for the three months ended November 30, 2024 was $0.06, down from $0.09 in 2023[51]. - NTIC's consolidated net sales increased by 5.7% to $21,338,393 for the three months ended November 30, 2024, compared to $20,181,675 for the same period in 2023[75]. - Net income attributable to NTIC decreased to $561,091, or $0.06 per diluted common share, for the three months ended November 30, 2024, down from $895,521, or $0.09 per diluted common share, in the prior year[94]. Sales and Revenue - ZERUST® segment net sales increased slightly to $15,475,803 in 2024 from $15,405,745 in 2023, while Natur-Tec® segment net sales rose significantly by 22.7% to $5,862,590 from $4,775,930[57]. - Net sales inside the U.S. increased to $13,088,319 in 2024 from $12,097,843 in 2023, while sales outside the U.S. also saw an increase[59]. - Sales of Natur-Tec® products surged by 22.8% to $5,862,590, accounting for 27.5% of total net sales, up from 23.7% in the prior year[82]. - ZERUST® product sales increased slightly by 0.5% to $15,475,803, representing 72.5% of total net sales[78]. - Net sales at joint ventures rose by 1.2% to $23,837,010 for the three months ended November 30, 2024, compared to $23,560,661 for the same period in 2023[85]. Expenses and Costs - Cost of goods sold as a percentage of net sales decreased to 61.7% from 63.7% year-over-year, primarily due to lower raw material prices and insourcing[83]. - Total operating expenses increased by 14.0% to $9,469,994, attributed to strategic investments in ZERUST® oil and gas sales infrastructure[75]. - Selling expenses increased by 15.8% for the three months ended November 30, 2024, with selling expenses as a percentage of net sales rising to 20.0% from 18.3% in the prior year[86]. - General and administrative expenses rose by 9.7% for the three months ended November 30, 2024, with these expenses as a percentage of net sales increasing to 18.1% from 17.4%[87]. - Research and development expenses increased by 21.5% for the three months ended November 30, 2024, reflecting continued investment in new product development[88]. Assets and Liabilities - As of November 30, 2024, total inventories amounted to $14,337,384, a slight decrease from $14,390,844 as of August 31, 2024[34]. - Property and equipment, net increased to $17,053,239 as of November 30, 2024, compared to $16,265,653 as of August 31, 2024, with depreciation expense decreasing to $267,155 from $307,010 year-over-year[35]. - Total intangible assets, net were reported at $5,573,945 as of November 30, 2024, down from $5,682,945 as of August 31, 2024, with amortization expense remaining stable[36]. - As of November 30, 2024, borrowings under the Credit Facility amounted to $4,518,734, an increase from $4,291,608 as of August 31, 2024[41]. - Working capital was $22,183,428 as of November 30, 2024, down from $23,682,276 as of August 31, 2024[98]. Cash Flow - Net cash provided by operating activities was $2,395,066 for the three months ended November 30, 2024, compared to $3,076,892 for the same period in 2023[111]. - Net cash used in investing activities for the three months ended November 30, 2024, was $1,258,336, compared to $423,871 for the same period in 2023[115]. - Net cash used in financing activities for the three months ended November 30, 2024, was $393,341, a significant decrease from $2,019,836 in the prior year[116]. Dividends and Share Repurchase - The Company declared a cash dividend of $0.07 per share on October 16, 2024, payable on November 13, 2024[49]. - As of November 30, 2024, $2,640,548 remains available for share repurchase under the stock repurchase program, with no repurchases occurring during the three months ended November 30, 2024[117]. Future Outlook and Strategic Initiatives - The Company anticipates adopting new accounting standards related to segment reporting and income tax disclosures for the fiscal year ending August 31, 2025[30][32]. - The Company is evaluating the impact of new SEC rules on climate-related disclosures, which will begin phasing in for fiscal years starting January 1, 2025[33]. - NTIC anticipates continued volatility in quarterly net income due to factors such as inflation and supply chain disruptions[95]. - NTIC expects to invest in joint ventures, research and development, and marketing efforts throughout fiscal 2025, although specific amounts are not yet determined[99]. - NTIC is enhancing its North American distribution network for Natur-Tec® products to capitalize on the growing demand for biodegradable plastics[72].

Group 1 - The core investment strategy focuses on long-only investment, evaluating companies from an operational and buy-and-hold perspective rather than market-driven dynamics [1] - The articles emphasize understanding the long-term earnings power of companies and the competitive dynamics within their industries [1] - The majority of recommendations will be holds, indicating a cautious approach to investment opportunities [1] Group 2 - A very small fraction of companies are considered suitable for a buy recommendation at any given time, highlighting a selective investment strategy [1] - Hold articles are intended to provide valuable information for future investors and introduce skepticism in a generally bullish market [1]

Financial Data and Key Metrics Changes - For the first quarter ended November 30, 2024, total consolidated net sales increased 5.7% to a record $21.3 million compared to the same period last year [10] - Net income attributable to the company was $561,000 or $0.06 per diluted share, down from $896,000 or $0.09 per diluted share in the first quarter of fiscal 2024 [23] - Total operating expenses increased 14% to $9.5 million, primarily due to increased personnel costs and strategic investments [20][22] Business Line Data and Key Metrics Changes - Natur Tec net sales increased 22.8% year-over-year to a record $5.9 million [16] - ZERUST oil and gas net sales increased by 0.7%, with trailing twelve-month sales at $9.2 million, a 20.3% increase from the previous year [14] - Xerox industrial net sales saw a slight increase of 0.4% [10] Market Data and Key Metrics Changes - NTIC China experienced its highest quarterly sales in nearly three years, with an 8.6% year-over-year increase to nearly $4 million [12] - Joint venture sales increased by 1.2% year-over-year to $23.8 million, indicating stabilization despite challenging market conditions [11] Company Strategy and Development Direction - The company is focused on expanding its oil and gas sales infrastructure to support anticipated growth in the second half of fiscal 2025 [9] - NTIC is committed to long-term opportunities in the Chinese market, particularly in industrial and bioplastics segments [13] - The company expects to see continued growth in Natur Tec due to robust market demand for compostable plastics [17] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for fiscal 2025, anticipating further sales growth and improved profitability despite a fluid economic environment [9] - The company noted that while the oil and gas sector is subject to seasonal fluctuations, it is well-positioned for growth [15] - Management acknowledged the challenges in the German market but indicated stability in other European joint ventures [72] Other Important Information - The company declared a quarterly cash dividend of $0.07 per common share, payable on November 13, 2024 [26] - As of November 30, 2024, working capital was $22.2 million, with outstanding debt of $7.3 million [24] Q&A Session Summary Question: What percentage of new tanks are treated with Northern Technology? - Management indicated that currently, it is not even 1% of the total market for new and replacement tanks [34] Question: What is the cost comparison between existing technology and Northern Technology's option? - Northern Technology's solution is roughly a third of the cost of traditional cathodic protection [38] Question: What is the ongoing revenue from installations? - Ongoing revenue typically occurs five plus years after installation, with recharges expected to be around ten percent of the original treatment cost [42][46] Question: What is the growth outlook for Natur Tec? - Management expects Natur Tec to sustain roughly 20% growth this year [80] Question: How is the sales pipeline for oil and gas progressing? - The sales pipeline is primarily from existing customers, with new customer additions ongoing, and it typically takes six months to a year for new salespeople to become effective [91][93]

Earnings Performance - Northern Technologies reported quarterly earnings of $0 07 per share, missing the Zacks Consensus Estimate of $0 12 per share and representing a -41 67% earnings surprise [1] - The company's earnings were $0 10 per share a year ago, indicating a decline in earnings performance [1] - In the previous quarter, the company posted earnings of $0 20 per share, surpassing the expected $0 19 per share with a 5 26% surprise [1] Revenue Performance - Northern Technologies reported revenues of $21 34 million for the quarter ended November 2024, surpassing the Zacks Consensus Estimate by 1 61% [2] - This compares to year-ago revenues of $20 18 million, showing a year-over-year increase [2] - The company has topped consensus revenue estimates two times over the last four quarters [2] Stock Performance and Market Comparison - Northern Technologies shares have lost about 4% since the beginning of the year, while the S&P 500 has gained 0 5% [3] - The company's stock is expected to underperform the market in the near future, with a Zacks Rank 4 (Sell) [6] Earnings Outlook and Estimate Revisions - The current consensus EPS estimate is $0 16 on $22 3 million in revenues for the coming quarter and $0 70 on $92 6 million in revenues for the current fiscal year [7] - The estimate revisions trend for Northern Technologies is unfavorable ahead of the earnings release [6] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions [5] Industry Context - Northern Technologies belongs to the Zacks Chemical - Diversified industry, which is currently in the bottom 9% of the 250 plus Zacks industries [8] - The top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1 [8] - Methanex (MEOH), another company in the same industry, is expected to post quarterly earnings of $0 84 per share, representing a year-over-year change of +61 5% [9] - Methanex's revenues are expected to be $1 02 billion, up 11 1% from the year-ago quarter [9]

Net Sales Performance - Consolidated net sales increased 5.7% to a first quarter record of $21,338,000[6] - ZERUST® industrial net sales increased 0.4% to $13,962,000[6] - ZERUST® oil and gas net sales increased 0.7% to $1,514,000[6] - Natur-Tec® product net sales increased 22.8% to a quarterly record of $5,863,000[6] - NTIC China net sales increased 8.6% to $3,995,000[6] - Net sales for the three months ended November 30, 2024, were $21,338,393, compared to $20,181,675 in the same period in 2023, representing a 5.7% increase[21] Gross Profit and Margins - Gross profit, as a percent of net sales, increased 200 basis points to 38.3%[6] - Gross profit for the three months ended November 30, 2024, was $8,162,953, up from $7,334,274 in the same period in 2023, reflecting an 11.3% increase[21] Operating Expenses and Investments - Operating expenses increased 14.0% to $9,470,000, primarily due to investments in ZERUST® oil and gas sales infrastructure[3][6] - Research and development expenses for the three months ended November 30, 2024, were $1,343,397, up from $1,105,921 in the same period in 2023, a 21.5% increase[21] Net Income and Profitability - Net income attributable to NTIC decreased to $561,000, compared to $896,000[6] - Net income attributable to NTIC for the three months ended November 30, 2024, was $561,091, compared to $895,521 in the same period in 2023, a decrease of 37.3%[21] - Non-GAAP adjusted net income for the three months ended November 30, 2024, was $666,874, compared to $1,001,304 in the same period in 2023, a decrease of 33.4%[25] Joint Venture Performance - Joint venture operating income increased 2.7% to $2,414,000[7] - Total joint venture operations income for the three months ended November 30, 2024, was $2,413,712, up from $2,351,199 in the same period in 2023, a 2.7% increase[21] Balance Sheet and Financial Position - NTIC's consolidated balance sheet remains strong with working capital of $22,183,000 as of November 30, 2024[10] - Total current assets as of November 30, 2024, were $40,302,350, down from $41,579,219 as of August 31, 2024, a decrease of 3.1%[19] - Total liabilities as of November 30, 2024, were $19,730,606, compared to $19,501,181 as of August 31, 2024, an increase of 1.2%[19] - Total equity as of November 30, 2024, was $74,307,049, compared to $75,175,321 as of August 31, 2024, a decrease of 1.2%[19] Dividends - Cash dividends declared per common share for the three months ended November 30, 2024, were $0.07, consistent with the same period in 2023[21]

Core Insights - Northern Technologies International Corporation (NTIC) reported record first-quarter consolidated sales of $21,338,000 for fiscal 2025, representing a 5.7% increase year-over-year from $20,182,000 in the same period last year [3][5] - The growth was primarily driven by strong sales in Natur-Tec® products, which saw a 22.8% increase, and stable performance in ZERUST® oil and gas and industrial sales [3][5] - NTIC's CEO expressed cautious optimism regarding the continued improvement in global trends within ZERUST® industrial markets throughout fiscal 2025 [1] Financial Performance - Consolidated net sales increased to $21,338,000, with ZERUST® industrial net sales at $13,962,000 (up 0.4%) and ZERUST® oil and gas net sales at $1,514,000 (up 0.7%) [5][21] - Natur-Tec® product net sales reached a record of $5,863,000, marking a significant increase of 22.8% [5][21] - NTIC China reported its highest quarterly sales in nearly three years, amounting to $3,995,000, an increase of 8.6% [5] Operating Expenses and Profitability - Operating expenses rose by 14.0% year-over-year to $9,470,000, primarily due to strategic investments in ZERUST® oil and gas sales infrastructure [2][5] - Gross profit margin improved by 200 basis points to 38.3%, reflecting successful quality system improvement initiatives [2][5] - Net income attributable to NTIC decreased to $561,000, or $0.06 per diluted share, compared to $896,000, or $0.09 per diluted share in the prior year [8][21] Joint Ventures and Cash Flow - Joint venture operating income increased by 2.7% to $2,414,000, with net sales from joint ventures rising by 1.2% to $23,837,000 [6][21] - Cash provided by operating activities for the first quarter was $2,395,000, indicating strong operational cash flow [5] Balance Sheet Strength - As of November 30, 2024, NTIC's working capital stood at $22,183,000, with cash and cash equivalents of $5,570,000 [9][18] - The company maintained a strong balance sheet, with total assets of $94,037,655 and total liabilities of $19,730,606 [9][19]

Financial Data and Key Metrics Changes - For fiscal 2024, total consolidated net sales increased by 6.5% to a record annual figure, with fourth quarter net sales rising by 12.7% to $23.3 million compared to the same quarter last year [21][10] - Gross profit for fiscal 2024 increased by nearly $6 million or 21.5% year-over-year, with gross profit as a percentage of net sales improving to 39.7% from 34.8% in the prior fiscal year [6][24] - Net income for the fourth quarter was $1.8 million or $0.19 per diluted share, compared to $939,000 or $0.10 per diluted share for the same quarter last year [24] Business Line Data and Key Metrics Changes - ZERUST Oil and Gas net sales surged by 76.6% in the fourth quarter, reaching $4.2 million, while Natur-Tec sales increased by 16.4% to $5.7 million [10][15] - ZERUST Industrial net sales saw a marginal increase of 0.1% [10] - Sales from joint ventures decreased by 3.6% in the fourth quarter, with EXCOR Germany experiencing a 15% decline due to softer demand [10][11] Market Data and Key Metrics Changes - Demand in North America for ZERUST industrial products remains stable, while the company is cautiously optimistic about improving demand and profitability in Europe for fiscal 2025 [8][7] - The Chinese market has shown signs of stabilization with a 1.1% increase in sales from NTIC's China subsidiary, and the company expects further growth in fiscal 2025 [11][12] Company Strategy and Development Direction - The company is focused on strategic investments in workforce and infrastructure to support growth opportunities across global markets [8] - NTIC is committed to enhancing operations in China and expanding its presence in the bioplastics market, particularly in India and Brazil [12][17] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for fiscal 2025, anticipating further sales growth and improved profitability despite a fluid economic environment [28] - The company is navigating challenges in Europe, particularly related to the transition to electric vehicles affecting demand [34] Other Important Information - As of August 31, 2024, working capital was $23.7 million, with outstanding debt of $7.1 million, reflecting a strategic focus on reducing debt through positive operating cash flow [26] - The Board of Directors declared a quarterly cash dividend of $0.07 per common share payable on August 14, 2024 [27] Q&A Session Summary Question: Insights on Natur-Tec wins - Management noted growth across all regions and market segments, particularly in North America and India, with increased demand for compostable products [32] Question: Trends in ZERUST Industrial in Europe - Management indicated ongoing headwinds in Europe, particularly due to macroeconomic conditions and the transition to electric vehicles [34] Question: Future gross margin expectations - Management expects gross margins to remain stable, with improvements driven by higher sales in the Oil and Gas business [36] Question: Growth expectations for Oil and Gas in fiscal 2025 - Management anticipates significant growth in the Oil and Gas sector, projecting a year-over-year increase of 20% to 30% [39] Question: Certification timeline for Oil and Gas ZERUST technology - Management confirmed an API change expected to take effect in late fiscal 2025, which may impact adoption rates in the U.S. market [43]

Core Insights - Northern Technologies (NTIC) reported quarterly earnings of $0.20 per share, exceeding the Zacks Consensus Estimate of $0.19 per share, and significantly up from $0.03 per share a year ago, indicating a 566.67% year-over-year increase [1] - The company achieved revenues of $23.35 million for the quarter ended August 2024, surpassing the Zacks Consensus Estimate by 3.77% and up from $20.71 million in the same quarter last year, reflecting a 7.88% increase [2] - Northern Technologies has seen its shares increase by approximately 12.3% since the beginning of the year, while the S&P 500 has gained 23.6%, indicating underperformance relative to the broader market [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.17 on revenues of $22.2 million, and for the current fiscal year, it is $0.80 on revenues of $93.9 million [7] - The estimate revisions trend for Northern Technologies is mixed, resulting in a Zacks Rank 3 (Hold), suggesting that the stock is expected to perform in line with the market in the near future [6] Industry Context - The Chemical - Diversified industry, to which Northern Technologies belongs, is currently ranked in the bottom 18% of over 250 Zacks industries, indicating potential challenges ahead [8]