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ARTS WAY MANUFACTURING CO INC (ARTW)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue was $6.34M, down 5.8% year over year, but up 23.3% sequentially; consolidated gross margin expanded to 32.5% vs. 28.3% a year ago, and operating income rose to $0.51M as cost reductions took hold .
  • Net income surged to $1.48M ($0.29 diluted EPS) largely due to a one-time Employee Retention Credit (ERC) refund booked in other income; underlying operations improved but the EPS print includes non-recurring benefits .
  • Segment mix: Agricultural Products revenue fell 11.6% YoY amid weak row crop prices and elevated rates, while Modular Buildings grew 6.3% YoY with sharply higher margins from strong execution on research projects .
  • Management tone: cautiously optimistic; plans to build inventory in Q3 to capture second-half retail opportunities, continue product programs to unlock cash, and expand modular markets via sales leadership transition .
  • Street estimates: S&P Global consensus appeared unavailable for ARTW this quarter; thus no formal beat/miss vs. Wall Street can be determined (see Estimates Context).

What Went Well and What Went Wrong

What Went Well

  • Modular Buildings segment delivered higher sales ($2.31M, +6.3% YoY) and materially stronger gross margin (41.7%), driven by project performance under budget on large research builds and improved processes and tools .
  • Consolidated operating expenses declined (YoY) and operating income improved to $0.51M (from $0.17M YoY), reflecting cost actions enacted in fiscal 2024 and leaner SG&A/engineering .
  • Management message: “We are pleased to show operational progress and improved profitability during our second quarter despite challenging market conditions in the ag equipment space… we are on firm footing… with cautious optimism” — Marc McConnell, CEO .

What Went Wrong

  • Agricultural Products revenue fell 11.6% YoY to $4.03M with gross margin down to 27.2% amid weak row crop prices, high interest rates, and dealer destocking; many dealers hesitant to restock at current rate levels .
  • Backlog declined 39% YoY (consolidated), with Agricultural backlog at $0.86M and Modular at $3.87M as of July 7, 2025; immediate post-planting season softness weighed on ag demand .
  • Some suppliers passed through tariff charges; rising steel prices and tariff uncertainty pressured gross profit; management expects minor impact on margin from tariffs .

Financial Results

Key P&L (Continuing Operations)

MetricQ2 2024Q1 2025Q2 2025
Revenue ($USD)$6,730,268 $5,141,000 $6,336,690
Operating Income ($USD)$168,768 $2,000 $510,654
Net Income ($USD)$(4,657) $(56,000) $1,482,069
Diluted EPS ($)$0.00 $(0.01) $0.29

Margins

MetricQ2 2024Q1 2025Q2 2025
Gross Profit Margin %28.3% 29.1% 32.5%
EBIT Margin %2.51%*0.05%*8.06%*
EBITDA Margin %5.87%*4.10%*11.05%*

Values with asterisk retrieved from S&P Global.

Segment Breakdown (Q2)

SegmentRevenue ($USD)Gross Profit ($USD)Operating Income ($USD)
Agricultural Products (Q2 2024)$4,555,000 $1,323,000 $(158,000)
Agricultural Products (Q2 2025)$4,025,000 $1,095,000 $(49,000)
Modular Buildings (Q2 2024)$2,175,000 $584,000 $327,000
Modular Buildings (Q2 2025)$2,312,000 $965,000 $559,000

KPIs and Operating Metrics

KPIQ2 2024Q2 2025
Consolidated Backlog ($USD)$7,784,000 (as of July 7, 2024) $4,728,000 (as of July 7, 2025)
Agricultural Backlog ($USD)$1,348,000 (July 7, 2024) $863,000 (July 7, 2025)
Modular Backlog ($USD)$6,436,000 (July 7, 2024) $3,865,000 (July 7, 2025)
Line of Credit Balance ($USD)$1,928,437 (Nov 30, 2024) $1,062,437 (May 31, 2025)
Net Inventory ($USD)$10,327,913 (Nov 30, 2024) $10,775,803 (May 31, 2025)
Floorplan Receivables >30 days ($USD)$995,000 (May 31, 2024) $102,000 (May 31, 2025)
Cash from Operations (6M) ($USD)$1,147,622 (6M FY24) $1,252,373 (6M FY25)
Consolidated Gross Margin %28.3% 32.5%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2025Not providedNot provided; management expects modular demand to remain strong; plans inventory build in Q3 to capture H2 retail Maintained (no formal numeric guidance)
Gross MarginFY 2025Not providedModular margins expected to remain strong due to project execution; minor tariff-related headwind to ag gross profit Maintained (narrative only)
OpExFY 2025Not providedContinued lower SG&A and engineering vs. FY24 after right-sizing Maintained (narrative only)
Liquidity/LeverageFY 2025Not providedRenewed $4.0M revolver; lowered rate; $1.06M drawn at Q2; adequate liquidity expected Maintained (narrative only)
Tax RateFY 2025Not providedNet operating losses and credits expected to offset fiscal 2025 cash tax Maintained

No formal numeric guidance ranges were issued; commentary provided in MD&A and press release.

Earnings Call Themes & Trends

No Q2 2025 earnings call transcript was filed; themes below reflect press release and 10-Q narrative.

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Tariffs/Steel costsAnticipated tariff impacts; steel rising then leveling in late FY24 Steel prices rising again; tariff uncertainty; minor gross profit impact expected Worsening pressure near term
Interest rates & dealer destockingElevated rates and oversaturated dealer lots drove downturn; expected destocking in FY25 Dealers hesitant to restock at current rates; destocking continues; bottom of cycle view Slowly improving through 12–18 months
Modular demand/executionStrong FY24 execution and backlog; momentum into FY25 Strong demand, high margins (41.7%); leadership transition adds sales capacity Improving/Sustained strength
Livestock vs. row cropStrength in beef/dairy supported specific ag categories Record livestock prices driving grinder mixer demand; row crop weak Mixed: livestock strong; row crop weak
Cost actions & SG&A/engineeringRight-sizing of workforce; reduced debt; improved cashflow Lower SG&A/engineering YoY; supporting profitability Benefiting margins
Backlog visibilityFY24 modular backlog strong; ag backlog lower Backlog down YoY in both segments; expects modular closings to sustain results Softer backlog; pipeline healthy

Management Commentary

  • “We are pleased to show operational progress and improved profitability during our second quarter despite challenging market conditions in the ag equipment space… we are on firm footing to work through the uncertainty of the current environment with cautious optimism.” — Marc McConnell, President, CEO & Chairman .
  • Agricultural outlook: “Weakened row crop prices and high interest rates continued to make for a difficult agricultural market… we anticipate that conditions will improve in the next 12 to 18 months… we expect to be building stock inventory in Q3 to react to retail opportunities in the second half.” .
  • Modular execution: “Demand for our modular buildings continues to be strong… our expertise and execution in the custom research and laboratory market has established us as an industry leader… leadership transition provides additional sales capacity.” .

Q&A Highlights

  • No Q2 2025 earnings call transcript was filed; no Q&A highlights available [ListDocuments earnings-call-transcript returned none].

Estimates Context

MetricS&P Global ConsensusActual
Revenue ($USD)N/A (coverage unavailable)$6,336,690
Diluted EPS ($)N/A (coverage unavailable)$0.29

Values with no consensus reflect unavailable S&P Global coverage for ARTW this quarter.

Key Takeaways for Investors

  • EPS was significantly aided by a non-recurring ERC refund booked in other income; underlying operations improved, but normalize EPS expectations accordingly for future periods .
  • Modular Buildings is the profit engine with higher sales and materially stronger margins due to execution on research projects; the segment’s demand and margin profile support consolidated profitability even if ag remains soft .
  • Agricultural Products likely near cycle bottom; management expects gradual improvement over 12–18 months, with Q3 inventory build to capture H2 seasonality and targeted programs to unlock cash from high-inventory lines .
  • Backlog declined YoY in both segments; watch conversion of modular leads to contracts and ag order trends into harvest season to gauge H2 trajectory .
  • Cost discipline (lower SG&A/engineering) and improved liquidity (lower revolver balance at 7.5% rate floor) provide cushion; covenant compliance and working capital remain key monitoring points .
  • Tariff/steel cost dynamics pose minor gross margin headwinds for ag; the modular margin gains may offset part of this near term .
  • With no Street coverage, price discovery may hinge on operational updates and modular contract wins; near-term catalysts include Q3 inventory build, modular contract closures, and seasonal ag demand inflections .
Notes:
- All figures reflect continuing operations unless stated otherwise.
- Values marked with asterisk were retrieved from S&P Global.

References:

  • Q2 2025 8-K press release and exhibit
  • Q2 2025 Form 10-Q financial statements and MD&A
  • Q1 2025 8-K press release
  • FY 2024 8-K press release