TX Rail Products, Inc
Key statistics
from XBRL data in SEC filingsAI briefing
from the latest 10-K, 10-Q and 8-K eventsTX Holdings, Inc. (OTC PINK: TXHG) is a Kentucky-based distributor of mining and rail products to U.S. coal mining companies that reported a small net profit in fiscal 2019 but a 40.6% revenue decline in fiscal 2020.
What they do
The company supplies and distributes drill bits, augurs, related tools, and mining supplies, as well as rail products including rail, switches, and ties, to U.S. coal mining companies and operators. Products are purchased from domestic and overseas manufacturers and suppliers, warehoused in Ashland, Kentucky, and distributed to customers primarily in Ohio, Pennsylvania, Kentucky, and West Virginia. Sales are made through independent sales agents compensated on commission and directly to customers, with shipping costs borne by the customer.
Revenue drivers
- Rail products — Includes rail, switches, ties, and related materials. In the third quarter of fiscal 2019, higher rail product sales drove a 2.6% revenue increase, attributed to renewed operations at previously downsized or shut-down coal mines.
- Mining supplies — Includes drill bits, augurs, and related tools sold to U.S. coal mining companies for extraction processes. The company purchases these from domestic and overseas manufacturers and distributes them from its Ashland, Kentucky warehouse.
- Commission-based sales network — The company uses independent sales agents compensated on commission. In the third quarter of fiscal 2019, commission expense was $28,256, down 36.4% from $44,418 in the prior-year period.
Recent performance
For fiscal year 2020, revenue fell 40.6% to $2,335,590 from $3,934,689 in fiscal 2019. Net income was $4,128, down from $42,444 in the prior year. Gross profit margin improved to 19.4% from 15.8% due to higher-margin product mix. Operating expenses decreased 8.4% to $505,793. Cash and cash equivalents were $24,082 at September 30, 2020, up from $17,098 a year earlier.
Strategy
The company increased inventory to $2,039,391 at September 30, 2020, up 37.6% year-over-year, in anticipation of higher sales in fiscal 2021. It relies on financing from CEO William Shrewsbury, including a $2 million consolidated note and additional advances, to fund operations. The company continues to distribute mining and rail products through independent sales agents. Management noted a positive change in the current quarter with some mines reopening and an increase in orders.
Risks
- Going concern doubt — The independent auditor's report for fiscal 2019 included an explanatory paragraph expressing substantial doubt about the company's ability to continue as a going concern.
- Coal industry decline — Continued distress in the U.S. coal mining industry, including reduced demand from the electric power sector and competition from natural gas, materially affects demand for the company's products.
- Customer concentration and geography — The company's customers are primarily coal mining companies in Ohio, Pennsylvania, Kentucky and West Virginia, making it vulnerable to regional coal production declines.
- Dependence on CEO financing — The company relies on financing from CEO William Shrewsbury, including a $2 million consolidated note and additional advances, which are subordinate to bank debt and repayable upon demand.
Outlook
Management stated that fiscal 2020 was "very disappointing" due to reduced coal consumption from COVID-19 and mitigation efforts. However, they noted a positive change in the current quarter with some mines reopening and an increase in orders. The EIA expects U.S. coal production to rise 19% in 2021 to 625 million short tons, which could support demand for the company's products.