Acme United Buys Warehouse Facility To Meet Expected Growth – Cost Savings Expected As Of 2014

Acme United (ACU – $14.24) purchased a 340,000 square feet manufacturing and distribution center in Rocky Mount, North Carolina (see large image below). The facility was acquired for $2.8 million, and will be used to consolidate the Company’s two current distribution centers in North Carolina, which are only half the size of the new building.

Acme needed more inventory space because all its brands are growing. For example, the new Scotts gardening tools, which will be shipped before the 2014 gardening season, will take up a lot of space.

The goal is to take the facility in operation by January 1, 2014. It will start generating savings very quickly thereafter, which will be beneficial to Acme’s profitability.

Current Facilities

At this moment Acme United leases a 116,000 square feet warehouse in North Carolina. Exact numbers aren’t available, but even it only costs $2 per foot to lease, which is an absolute minimum, then it amounts to a cost of $240,000 annually. The lease on this property expires at the end of this year, just in time to move all the goods to the Rocky Mount warehouse, thus saving lease costs.

The Company also owns a 58,000 square feet warehouse in the same state. As soon as this building is empty, it can be sold or leased to another party, thus generating extra cash.

The new building is 340,000 square feet and is located on a 33 acres property. It was acquired from the Chapter 7 bankruptcy liquidation of RoomStore, Inc. and has 40 foot ceilings with 27 bay doors. Acme paid $2.8 million for it, but building it from scratch would cost up to five times as much. The purchase price will be paid out of the Company’s line of credit.

Because the Rocky Mount building is almost double the size of the two current facilities, it provides a lot of space for additional growth at almost zero extra cost. Moreover, the new building is only 30 miles away from the current facilities, which means that moving expenses will be limited and that most employees will stay. Acme will also benefit from local and state tax incentives.

The purchase will have a short term impact on earnings in the coming quarters as Acme will need to spend about $500,000 to upgrade the buildings and buy equipment, and about $300,000 in one-time, double running costs and moving expenses through year end. After that there will be cost savings.

Conclusion

Acme United bought a up-to-date facility with quick access to railroad, highways and ports. The Company has paid a fraction of what an identical new warehouse would cost and it will start generating cost savings as of 2014.

Due to the growing business, Acme only had two options, it could either lease more space at $2 to $7 per square foot, or it could buy something. Acme went for the best option, as it increases shipping and operational efficiencies while generating cost savings.

Smallcaps.us Advice: Buy	Price Target: $59.86	Latest Company Report (pdf)
For important disclosures, please read our disclaimer.

For important disclosures, please read our disclaimer.