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ARTS WAY MANUFACTURING CO INC

ARTW
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Business Summary

Art's-Way Manufacturing Co., Inc. operates in two distinct industries: agricultural equipment manufacturing and modular building construction. The Agricultural Products segment manufactures specialized farm machinery including portable and stationary animal feed processing equipment, forage equipment, manure spreaders, sugar beet harvesting equipment, and dirt work equipment. The Modular Buildings segment produces custom-designed modular buildings for academic research institutions, government research and diagnostic centers, public health institutions, and private research and pharmaceutical companies, with buildings ranging from basic swine buildings to complex containment research laboratories. The company's business is dependent on the farming industry for the bulk of its sales revenues, and it is affected by fluctuations in net farm income, commodity prices, government farm programs, interest rate fluctuations, and rising input costs.

The Agricultural Products segment competes in a highly competitive agricultural equipment industry against larger manufacturers with broader product offerings and significant resources. Management believes the company competes effectively by serving niche markets in specific product areas rather than directly competing across an extensive range of products, and states there is no direct competitor with the same product offerings. The Modular Buildings segment faces competition from conventional design/build firms and new entrants into the modular building market, but management believes barriers to entry include established customer relationships, industry knowledge, access to capital, access to a qualified labor pool, and the bidding process. The company's competitive strength in Modular Buildings is the ability to design and produce high-tech modular buildings more quickly than conventional design/build firms, with modular laboratories deliverable in as little as six months versus two to five years for conventional construction.

The company generates revenue through two operating segments. The Agricultural Products segment manufactures and distributes farm equipment under the Art's-Way name and provides after-market service parts, with revenue recognized upon shipment of goods. The Modular Buildings segment produces, sells, and leases modular buildings, with revenue generally recognized using the percentage of completion method based on input methods measuring progress toward satisfaction of performance obligations. The Agricultural Products segment offers variable consideration in the form of discounts depending on participation in yearly early order programs, while the Modular Buildings segment does not offer discounts, rebates, or credits. The company's return policy allows for new and saleable parts to be returned subject to inspection and a restocking charge, while whole goods are not returnable.

The Agricultural Products segment accounted for 55.5% of net revenue in fiscal 2025 and 59.9% in fiscal 2024. This segment manufactures specialized farm machinery including portable and stationary animal feed processing equipment, forage equipment consisting of forage boxes, bale processors, running gear, and dump boxes, manure spreaders, sugar beet harvesting equipment, and dirt work equipment. The segment sells labeled products through independent farm equipment dealers throughout the United States, Australia, Canada, Japan, and the United Kingdom, with a network of approximately 500 U.S. and Canadian independent dealers plus overseas dealers. The segment also provides after-market service parts. In fiscal 2025, the segment had net sales of $12,749,000 compared to $14,663,000 in fiscal 2024, a decrease of $1,914,000 or 13.1% . Gross profit percentage was 23.4% compared to 28.3% in fiscal 2024. Operating expenses were $4,439,000 compared to $5,665,000 in fiscal 2024, a decrease of $1,226,000 or 21.6% . The segment had an operating loss of $1,462,000 compared to an operating loss of $1,510,000 in fiscal 2024, and benefited from an employee retention credit refund of approximately $1,235,000 that brought net loss to $341,000 for this segment.

The Modular Buildings segment accounted for 44.5% of net revenue in fiscal 2025 and 40.1% in fiscal 2024. This segment produces, sells, and leases modular buildings custom-designed for research needs, with a focus on providing research facilities for academic research institutions, government research and diagnostic centers, public health institutions, and private research and pharmaceutical companies. The segment provides services from start to finish by designing, manufacturing, delivering, and installing these facilities, and also offers a lease option to customers in need of temporary facilities. In fiscal 2025, the segment had net sales of $10,226,000 compared to $9,836,000 in fiscal 2024, an increase of $390,000 or 4.0% . Gross profit percentage was 32.2% compared to 32.1% in fiscal 2024. Operating expenses were $1,539,000 compared to $1,184,000 in fiscal 2024, an increase of $355,000 or 30.0% . The segment had operating income of $1,751,000 compared to $1,971,000 in fiscal 2024, and benefited from an employee retention credit refund of approximately $226,000 and recorded net income of $1,376,000 .

In fiscal 2025, the company developed a new head for its 12-row beet harvester that provides a clear view of the inner workings of the equipment, designed to be backwards compatible with older harvesters. The company also spent engineering time revamping its 8-row beet head with the new clear view design, developed a sack cutter for grinders, and tested improvements to make grinders unload faster. The company undertook a reshoring project in fiscal 2025 to prepare for potential tariff activity on manure spreader beaters imported from Italy. The company's Tools segment, which ceased operations in July 2023, completed the sale of remaining real estate on October 21, 2024 for $1,800,000 , and the assets and liabilities of this segment were gone prior to November 30, 2025. The company has a licensing and royalty agreement with Spreader, LLC to produce a loader mounted spreader in exchange for royalty payments until December 2026 . On December 19, 2025, subsequent to fiscal year end, the company entered into a Solar System Purchase Agreement and a Solar System Purchase Loan.

Consolidated net sales from continuing operations totaled $22,975,000 for fiscal 2025, a 6.2% decrease from $24,499,000 in fiscal 2024. Consolidated gross profit as a percentage of net sales decreased to 27.3% from 29.8% in fiscal 2024. Consolidated operating expenses from continuing operations decreased by 12.7% , from $6,849,000 in fiscal 2024 to $5,977,000 in fiscal 2025. Consolidated operating income was $289,000 , a 37% decrease from $461,000 in fiscal 2024. Consolidated net income was $1,035,000 compared to $307,000 in fiscal 2024. The effective tax rate was 28.0% for fiscal 2025 compared to 30.3% in fiscal 2024. Working capital increased to approximately $8,343,000 with a current ratio of 2.30 , up from $6,492,000 in working capital and a current ratio of 1.98 in fiscal 2024.

Business Outlook

The Agricultural Products segment is expected to benefit from recent product developments on beet equipment, which management believes will help overcome negative market pressure from American Crystal Sugar's announcement in December 2025 of a 44% decline in payment per ton of sugar beet crop compared to the prior year. Management expects the high price of beef will continue to fuel demand for livestock products and is optimistic that interest rate cuts will continue to occur. The company expects to improve upon current product lines and increase margins through R&D work in 2026. The Modular Buildings segment continues to close contracts and is expected to have similar results in fiscal 2026 compared to fiscal 2025, with strong demand on the research side and continued success expected. The company's reputation as an industry leader in the research modular building industry is gaining traction, garnering attention from repeat customers, including companies renowned for being leaders in xenotransplantation and cancer research.

The company expects to expand into international markets, having exported products to five foreign countries in fiscal 2025, with international sales accounting for 4.0% of consolidated sales compared to 3.3% in fiscal 2024. The company intends to develop new international markets and strengthen existing relationships. The Agricultural Products segment's backlog was approximately $3,224,000 as of February 2, 2026 compared to $3,486,000 on February 2, 2025, with strong demand for the majority of agriculture products for the 2025-2026 early order period compared to last fiscal year, with the exception of beet equipment. The Modular Buildings segment had approximately $4,882,000 of backlog as of February 2, 2026 compared to $2,403,000 on that date in 2025.

The company expects steel prices to remain elevated in fiscal 2026 due to continued strong demand for steel, but anticipates that recent declines in oil price could help slow fiscal 2026 price increases. The price of steel was up 26% from fiscal 2024 year end to the end of fiscal 2025, which had a major impact on gross profit. The company also experienced rising insurance costs, utility costs, and supply costs, and incurred tariffs on imported products that were not present in fiscal 2024. The company expects operating expenses not to vary significantly from fiscal 2025 unless orders slow down significantly in the Agricultural Products segment.

The company expects to utilize favorable billing schedules in the Modular Buildings segment in fiscal 2026 to help fund operations moving forward along with similar operating results based on strong early backlog numbers. The company also expects inventory reductions in the Agricultural Products segment to provide cash in fiscal 2026 as it begins to turn the whole good inventory built up in the fourth quarter of fiscal 2025. If backlog does not strengthen through the first quarter of fiscal 2026, the company plans to utilize the Iowa Workforce Development Voluntary Workshare program to conserve cash on wages. The company has seen a small uptick in demand at the start of the first quarter of 2026 in the Agricultural Products segment compared to the first quarter of fiscal 2025. The company expects to use available cash or financing in fiscal 2026 to acquire equipment that improves efficiency in the manufacturing process.

The company expects primary capital needs for fiscal 2026 to be operating expenses and continued retirement of debt. The company does not expect to pay a dividend, as no dividend was paid during fiscal 2025 or fiscal 2024. The company had $747,563 available on its line of credit and $4,012,816 of collateral in excess of borrowing as of November 30, 2025. The company expects to continue to rely on cash from financing activities to supplement cash flows from operations to meet liquidity and capital expenditure needs in the near future. The company believes it will continue to be able to procure financing upon reasonable terms as necessary.

The Agricultural Products segment experienced a 13.1% decline in revenue in fiscal 2025 as commodity prices remained depressed from highs in 2023 coupled with high borrowing rates and rising input costs. Commodity prices, particularly on row crops, dropped below five-year averages in fiscal 2024 and continued to be weak in fiscal 2025, leading to a second straight fiscal year of decreased demand. The company's agriculture business is highly cyclical, and management believes things could begin to improve in fiscal 2026 with forecasts of continued interest rate relief for farmers, continued increases in commodity prices, and easing of rising input costs. The company is subject to trends and uncertainties including fluctuations in net farm income, changes in commodity prices, crop damage caused by weather and insects, government farm programs, interest rate fluctuations, and rising input costs.

The company's business is dependent on the farming industry for the bulk of sales revenues, and as such tends to reap benefits of increases in net farm income while suffering when farmers forgo purchases in less profitable years. Direct government payments over the past few years and costs of agricultural production are increasing; further increases in the value of production will benefit the business, while any future decreases will decrease net farm income and may negatively affect financial results. The company depends on its network of dealers to influence customers' decisions, and dealer influence is often more persuasive than a manufacturer's reputation or the price of the product. Sales of agricultural products are seasonal, though the company has tried to decrease the impact through development of beet harvesting machinery with different peak periods. Modular building sales are somewhat seasonal due to budgeting and funding cycles of universities, which the company believes can be offset by building backlogs of inventory, increasing sales to other public and private entities, and creating repeatable business opportunities.

Risk Factors

The company faces material risks from its dependence on the farming industry, as fluctuations in net farm income from changes in commodity prices, government farm programs, and interest rates directly impact demand for agricultural equipment. The Agricultural Products segment experienced a 13.1% revenue decline in fiscal 2025 as commodity prices remained depressed. The company is exposed to steel price volatility, with steel prices up 26% from fiscal 2024 year end to fiscal 2025 year end, materially impacting gross profit. The company relies on a single foreign supplier for manure spreader beaters imported from Italy, creating tariff and supply chain risk, though a reshoring project was undertaken in fiscal 2025. The company had $3,252,437 drawn on its line of credit as of November 30, 2025, and its loans require compliance with various covenants including maintaining certain financial ratios. The company's backlog of orders fluctuates significantly, with the Agricultural Products segment backlog at $3,224,000 and Modular Buildings at $4,882,000 as of February 2, 2026, and these figures are not necessarily indicative of future revenue. The company's business is seasonal, with agricultural product sales affected by farming cycles and modular building sales affected by university budgeting and funding cycles.

Management Priorities

Management's message to shareholders emphasizes that despite a 13.1% decline in Agricultural Products segment revenue due to depressed commodity prices, high borrowing rates, and rising input costs, the company recorded $289,000 of operating income and approximately $1,035,000 of consolidated net income for fiscal 2025. Management highlights that working capital increased by approximately $1,851,000 primarily driven by increased inventory levels in the Agricultural Products segment as the company prepared for anticipated year-end tax-motivated purchases and potential market improvement. The strategic priorities emphasized for the period ahead include: continuing to build inventory in the Agricultural Products segment to ensure minimal lead times when farmers are ready to buy, which management identified as a key factor for funding operations in slower economic times; utilizing favorable billing schedules in the Modular Buildings segment to help fund operations; and continuing to retire debt while maintaining a positive banking relationship. Management states, "We believe that our current cash and financing arrangements will provide sufficient cash to finance operations for the next 12 months" and expects to continue to rely on cash from financing activities to supplement cash flows from operations.

View Source Annual Report on SEC.gov ↗

References

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Analysis on 6/21/2026