Although we believe that long term investors in Smith-Midland Corp. (OOTC:SMID) will reap the benefits of the company’s successful implementation of key initiatives, it appears that one of the biggest frustrations investors have with SMID is believing that management has turned a corner to put the company on a path of consistently profitable growth. Q1 2016 financial results illustrate this point.  While the top-line revenue for the quarter was up a strong 92%, we were somewhat surprised the company was not able to generate a profit on that level of revenue, at least in the same way it had done on Q4’s lower sales.

This quarter, Smith-Midland reported an EPS loss of $0.02 on sales of $8.0 million, compared to a profit of $0.05 on sales of $7.7 million in the fourth quarter.

Another area of concern is management’s grip on business conditions it normally outlines in its 10-Q and 10-K filings:

• The Q3 2015 management discussion & analysis was decidedly bullish, accompanied with what appeared to be some good visibility out to June 2016.
• The Q4 2015 management discussion & analysis introduced some less robust commentary.

Smith-Midland – Top Line Outlook Positive, Margin Clarity Needed

After reading through SMID’s Q1 2016 filing it seems management paints a bright outlook for 2016, at least from a top line perspective. There is less clarity on how margins will play out. One thing is clear to us, investors in SMID will need to exercise patience and deal with volatility in sales and earnings along a path to growth.

We encourage you to the read the segment by segment breakdown for Q1 2016.  Management expects nearly every segment to increase slightly to meaningfully in 2016.  See the full breakdown here.

We will continue to actively track the story as the passage of the recent highway bill could still lead to a significant increase in demand for the company’s products.