Unfortunately, I don’t think I’ll be able to dial into AEY’s conference call. So I wanted to follow up on yesterday’s post featuring questions I would ask AEY’s management with a red flag I picked up from their earnings release. If any fellow shareholder asks them any of these questions, I’d be grateful!
AEY’s 4th quarter was, to say the least, terrible. Sales were down 25%, but despite that the company managed to turn an operating profit. However, if you look at the balance sheet, their reserve for obsolete inventory went down to $1m. If you look at their 3q balance sheet, it was sitting at over $1.9m just three months ago.
So the question is: what changed? Because without that inventory reserve release, AEY reports an operating loss for the fourth quarter. And it seems strange that a company would release inventory reserves in the face of a 25% year over year sales decline unless they were forecasting stronger sales for the upcoming.
For what’s it worth, if I was asking questions (and maybe I’ll be able to dial on, who knows) I would lead off asking about that and then push them on the why no share buybacks / why the focus on acquisitions question, especially given their cash balance is now ~25% of their market cap.
Disclosure: Long AEY
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