Henry Bros. thinks they're past the trough - is the market?

Henry Bros. reported earnings today, and though the numbers don't look “good,” there are some interesting positive signs coming out of their statement.

First the bad news:

The Company reported revenue of $12.4 million for the first quarter of 2010, representing a 19% decrease over revenue of $15.3 million for the same period a year ago.

I mean, really? Worse than 1Q 2009? But Henry Bros. operates on long sales cycles and they didn't necessarily bottom out in 1Q last year like a lot of companies did. Their bottom came later, possibly in 1Q 2010 if you're to follow the reasoning of the rest of this release.

Revenue in the first quarter of 2010 includes a 59% increase in the Texas market offset by a revenue shortfall across the company's other U.S. markets as a number of larger projects included in the company's backlog had scheduled start dates beginning in the Company's second quarter.

Texas is a new territory, so it better be up, and it looks as though Henry Bros. just had some of that ultra-lumpy revenue we hear about so often in the rest of the integration industry.

The Company's backlog as of March 31, 2010 was $30,365,525, compared to $20,133,794 on March 31, 2009 representing a 51% increase over the prior year and $28,021,794 at December 31, 2009 representing an 8% increase sequentially.

That seems like a good thing, right?

The company even manged to make a few bucks:

The Company reported net income of $57,387 or $0.01 per diluted share for the first quarter ended March 31, 2010, compared to net income of $166,122, or $0.03 per diluted share in the comparable period of 2009. The Company's decrease in net income is principally the result of reduced revenues.

Here's the trough quote from the headline:

Jim Henry, CEO of Henry Bros. Electronics, commented, “We are confident that the first quarter of 2010 is the trough in revenue and net income due to the difficult economic environment we experienced throughout 2009; and we believe our business is now on the upswing. There are several factors that make us cautiously optimistic about 2010. The first factor is that our base integration business revenues are inline with the fourth quarter of 2009. While on the surface revenue in this segment appears to be flat, that is actually not the case when factoring in seasonality. Normally we would see lower revenue in the first quarter in comparison to the fourth quarter. Another key factor is our backlog execution schedule. Our current backlog is up as compared with the fourth quarter and same period of the prior year. Finally, we reduced our SG&A by $414k by reducing payroll and related costs allowing us to turn a small profit.”

Is Henry Bros. any sort of barometer? If their business is on the upswing, can we make assumptions about the rest of the market? I think probably not. They've got a somewhat weird mix of government and commercial/industrial work, and the NYC market they play in a lot is somewhat unique. They hunt big jobs and they still haven't realized a huge amount of service revenue, though they know they need to get less lumpy.

See how the outlook for 2010 relies on big deals and thin operating margins:

Henry continued, “Looking ahead, we are expecting the second half of the year to be strong. Our 2010 second quarter bookings are expected to exceed that of the first quarter as stimulus money begins to flow into the public sector and other enterprises start to release projects previously in the planning stage. Having only completed one of the TVCS projects through 2009, we are planning to complete three to six in 2010 with most of the revenue being weighted to the second half of the year. For these reasons we are guiding towards a 4%-5% operating margin on consolidated revenue of $60 million-$65 million in 2010.”

There just isn't much room for error there.