Virco's Q2 Shows Clear Signs Of Deterioration, But Stock Is Still A Hold

Core Viewpoint - Virco Manufacturing reported a revenue increase of 1% in 2Q25, which is a surprise given a 14% decline in backlog compared to the previous year, indicating potential inefficiencies and challenges ahead for the company [1][2][5] Revenue Performance - The company experienced a revenue surprise, with a 1% year-over-year increase, contrasting sharply with previous growth rates of up to 40% [2] - The backlog from 1Q25 was down 14% compared to 1Q24, leading to concerns about future sales performance [2][5] - Management noted improved efficiency in order processing, suggesting that backlogs may not accurately reflect business volume [2] Future Trends - Management acknowledged that future trends are becoming more challenging, with indications that the post-pandemic recovery may be slowing [2][3] - The removal of the non-GAAP 'Shipments plus backlog' figure from earnings releases raises concerns about the company's future outlook [3] External Factors - The ESSER program, which provided $200 billion for school infrastructure, has significantly influenced demand, but the remaining funds are minimal, impacting future growth [4] - Shipping costs have surged, with the China container index up 100$240 million, but this valuation may not reflect the company's long-term growth potential [5] - Future earnings may stabilize around $14 million, yielding 5.8%, which is only slightly above Treasury yields, indicating limited investment appeal [5]