Acme United Confirms Growth Path During First Quarter 2013

Acme United first quarter sales in millions USD

Acme United first quarter sales in millions USD for the fiscal years 2010 through 2013. Source Company Filings

Acme United’s (ACU – $12.44) growth numbers continue to be solid. Sales for the three months ending March 31, reached $17.7 million, up 5% compared with sales of $16.9 million in the first quarter of 2012. Net income in the first quarter of 2013 rose by 19 percent to $309,000, or $0.10 per share, versus $260,000, or $0.08 per share, in the comparable quarter of 2012.

Increased sales of titanium scissors, Clauss cutting tools, Camillus knives and C-Thru Ruler products contributed to this success.

During the earnings conference call Walter C. Johnsen, the Company’s Chairman and CEO, said that Acme is on track to reach both its 2013 goals of revenues between $90 and $95 million and earnings per share between $1.20 and $1.25. In 2012, sales were $84.4 million and earnings per share were $1.13 per share.

Amounts in $000’s
03/31/13
03/31/12
Net Sales
17,651
16,878
Cost of Goods Sold
11,224
10,934
S, G & A Expenses
5,914
5,486
Income From Operations
513
458
Interest Expense
69
56
Other Income (Expense)
3
42
Pre-Tax Income
441
360
Income Tax Expense (Benefit)
132
100
Net Income
309
260
Shares Outstanding – Diluted
3,132
3,129
Earnings Per Share
0.10
0.08
Most important income statement data for the quarters ending March 31, 2013 and March 31, 2012. Source: Company Press Release

New Products on the Shelves

We also learned during the conference call that several new products have recently hit the shelves of major chains and that first results look very encouraging.

A couple of months ago, Clauss launched a family of titanium non-stick putty knives with blades that are both adhesive and corrosion resistant. Currently, the putty knives are only available in a limited number of stores at a major retailer. Early results are promising and may lead to chain wide distribution.

Acme also shipped a new series of private label first aid kits for heavy duty use to a large industrial distributor. Despite only being available online as a test, initial sales and feedback are good. Additional orders and placement in the chain’s physical stores could be a logical next step when sell through continues to be this good.

And a couple of weeks ago, Acme announced the partnership with Scotts Miracle-Gro Company by which Acme will market and sell two lines of lawn and gardening tools branded ‘Scotts’ and ‘Miracle-Gro’, ‘Powered by Clauss’. Although the tools won’t be available before the fourth quarter of this year, the deal may open up new distribution channels for Acme as Scotts is known worldwide for its fertilizers and pesticides. Mr. Johnsen added that he was encouraged by the early market interest after the partnership was announced.

US Strong, Europe Improvement Expected

Acme United reports financial information on three separate business segments: the United States (including Asia), Canada and Europe. Exact revenues per segment for the first quarter haven’t been made public yet. We’ll have to wait for those until the 10-Q is filed, which will be mid May.

The Company did announce by what percentage revenues increased or decreased compared with last year’s first quarter, which is sufficient to give us a good indication of the numbers.

Segment
Sales in $000’s
U.S.
14,227
Canada
1,625
Europe
1,789
Sales by segment for the first three months of 2013. Source: Source: Smallcaps Investment Research calculations.

In the U.S. segment, sales for the first quarter of 2013 increased by 12% compared with the same period last year. The increase can mainly be attributed to higher sales of Camillus knives and the acquisition of the C-Thru Ruler Company, which was completed in June of 2012.

In Canada, revenues decreased roughly 2% in the first three months of this year compared with 2012. And in Europe, sales declined 31% due to the bankruptcy and liquidation of Schlecker mid last year. The Company did indicate that there’s new business in the pipeline in Europe, which may offset the loss of sales to Schlecker. Additionally, these sales should have higher margins than the ones to Schlecker.

Overall gross margins slightly increased from 35% in the first quarter of 2012 to 36% in the comparable quarter of 2013, mainly due to customer and product mix.

Amended Loan Agreement

In other news, Acme announced that it has amended its loan agreement with HSBC Bank. The original agreement with HSBC was closed last year and provided for borrowings up to $30 million at an interest rate of LIBOR plus 1.75%. The amended agreement now provides for borrowings up to $40 million at the same interest rate. At today’s LIBOR rate, Acme pays approximately 2 percent interest.

Acme’s current long term debt is around $24.4 million. So the additional $10 million borrowing capacity, along with about $9 million in cash, gives the Company opportunities to fund its growth, pay dividends, buy back shares and finance potential acquisitions.

Conclusion

All in all, Acme United had a good first quarter and the rest of 2013 also looks promising. Distribution of the Company’s wide range of products continues to grow. Additionally, many new products will hit the shelves in the coming months and quarters.

As a result, Acme United expects to grow its revenues to between $90 and $95 million in 2013, an increase of between 7 and 13 percent compared with 2012. The Company gave an estimate of between $1.20 and $1.25 per share for 2013. Based on the current amount of shares outstanding, those numbers translate into net income of between $3.81 million and $3.97 million for the full year, which is a conservative estimate in our opinion.

We have a price target of $19.66 on the stock, which is close to 60% above today’s stock price. Not bad at all for a relatively low risk stock, which in addition, pays a 7 cents per share quarterly dividend.

Smallcaps.us Advice: BuyPrice Target: $36.20Latest Company Report (pdf)
For important disclosures, please read our disclaimer.

For important disclosures, please read our disclaimer.

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