PAOS - One to keep an eye on. From their Aug 10-Q. I'm impressed that they're nimble enough to raise prices to pass through increased sourcing costs due to lower order volumes. Additionally they're guiding for resumption of more normal ordering volumes for several customers that had disruptions as well as additional sales for a new product they've developed.
Government purchasing has declined during this quarter as the Defense Department has dealt with uncertainties regarding its funding and the Company had raised some of its offering prices to accommodate transient higher goods costs necessitated by required purchases of smaller lots. Longer term, although a reduced Government purchasing schedule will impact sales to manufacturers, the pace of operations of the military and prescribed maintenance schedules are the driving forces behind the consumption of the parts supplied by the Company to the Government and reallocation of inventory investment will generally maintain present government sales levels. Repair and maintenance to equipment no longer immediately required for combat requirements will take an extended time. Additionally possible restrictions of new purchases will mitigate toward additional repair and refurbishment of existing equipment.
During the first quarter, the Company opened a warehouse facility in Denton Texas to serve one of its customers. This facility allows the customer to anticipate just in time delivery from the now closely located facility, rather than to be concerned about shipping delays, and will result in additional sales of additional products to the customer, the initial impact during the first quarter and a portion of this quarter was to reduce the Company's sales to the customer as the customer absorbed its safety stock of materials in its inventory. The Company has seen sales return to anticipated levels in the last part of the second quarter.
The Company has also experienced delay in shipment of orders to the Navy Department as a result of its consolidation, and anticipates restoration of these shipments when the facilities are inspected. The inspection is anticipated to occur in the third quarter.
During the third quarter 2013 the Company anticipates starting shipment of a unique sealing product that it has developed in conjunction with one of the major manufacturers and its customer to fulfill specific customer needs. The product should fulfill similar needs with other customers. The product addresses current product offering technical shortfalls by increasing resistance to torque out and providing an optional self-sealing feature.
The Company believes based on discussions it has had with customers related to sales that its gross profit will improve as 2013 progresses.
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