Acme United Releases Q3 2010 Results

Clauss Pruner

An entire family of Clauss Garden Tools is set to enter stores later this year and early 2011.

Acme United (NYSE Amex: ACU – $9.80) released positive third quarter 2010 results. Revenues reached $16.1 million, a 5% increase compared with $15.3 million revenues in the comparable period last year.

The Company enjoyed strong back to school sales, especially to mass market retailers like Wal-Mart and Target where double digit sales growth was recorded. iPoint pencil sharpener sales again excelled.

Sales to the office channel on the other hand were slow. Although they were higher compared with the third quarter last year, they were weaker than the Company wanted them to be. Sales to Staples were good, but sales to Office Depot were pretty soft. The reason for this is simple, companies aren’t hiring, so they need less new equipment.

 
Three Months Ended September 30
Nine Months Ended September 30
Amounts in $000’s
2010
2009
2010
2009
Net Sales
16,083
15,269
49,789
45,727
Cost of Goods Sold
10,426
9,771
31,468
28,827
S, G & A Expenses
5,000
4,864
15,418
14,166
Income From Operations
657
634
2,903
2,734
Other Income (Expense)
3
461
(36)
480
Pre-Tax Income
613
1,088
2,762
3,187
Income Tax Expense
1
360
371
1,076
Net Income
612
728
2,391
2,111
Shares Out. – Diluted
3,192
3,353
3,218
3,362
Earnings Per Share
0.19
0.22
0.74
0.63
Most important income statement data for the quarters ending September 30, 2010 and September 30, 2009. Source: Company Press Release

Net income for the third quarter of 2010 was $612,000, compared with $728,000 earnings in the third quarter of 2009. This is a decline of 16%.

At first glance, this looks pretty bad, but there’s a little catch to these numbers. See, both the third quarter of 2010 and 2009 include an extraordinary item.

In 2009, third quarter earnings include a one time pre-tax income of $458,000. This was a bonus because the remediation of the Company’s old Bridgeport property, which was sold in December 2008, went much better than originally projected.

 
On a small side note, that was a pretty neat deal by Acme United in 2008. What happened was, the Company took a 4 acres property with a 48,000 sq feet warehouse on it, where the original Acme United scissor factory used to be, and they sold it to B & E Juices, Inc. for $2.5 million.

Part of the deal was that Acme United would remediate the property, which was estimated at $1.8 million. A few months later, it turned out that the remediation would cost less than first anticipated. So almost half a million dollars was taken back into earnings in the third quarter of 2009.

At the same time, Acme United provided B & E Juices with a mortgage of $2 million bearing six percent interest per year. This mortgage is due one year after the remediation and monitoring of the property have been completed.

So bottom line is that Acme United turned a possible liability (a property with an old warehouse on it that they weren’t going to use anyway) into a very nice amount of money.

And the third quarter of 2010 includes a one-time $100,000 tax benefit due to the Company’s donation of land to the City of Bridgeport , CT in the fourth quarter of 2009. During the first nine months, about $300,000 tax benefits have been included in ACU’s earnings and a final $60,000 tax benefit will be included in its fourth quarter 2010 earnings.

Striping out these one-time items, earnings for the third quarter of 2010 are $510,000 compared with $440,000 for the same period last year. That’s a 16% increase, or a 23% diluted earnings per share increase.

That’s a whole lot better than a 16% decline, which is what you get when you simply look at the numbers and don’t dig a little deeper.

Balance Sheet – Affected By Back To School And China

Amounts in $000’s
09/30/10
09/30/09
Cash and Cash Equivalents
7,232
6,599
Accounts Receivable
14,943
11,846
Inventories
19,972
17,850
Total Current Assets
43,321
37,502
Total Assets
49,769
44,071
 
 
 
Accounts Payable
4,490
3,305
Bank Debt
9,324
Total Current Liabilities
7,414
17,308
Bank Debt
15,420
Total Liabilities
24,555
19,299
Total Stockholder Equity
25,213
24,772
Most important balance sheet data for the period ending September 30, 2010 versus September 30, 2009. Source: Company Press Release

Two items on the above balance sheet stand out.

The accounts receivables increased by more than $3 million. This number is expected to drop as the back to school accounts receivables are collected in the fourth quarter.

More important, because it isn’t a momentary increase, are the Company’s inventories. They are more than $2 million higher compared with last year and are most likely to increase some more.

The reason is that Acme United, like most other companies, continues to experience labor shortages in its Chinese factories and is therefore increasing its inventories. Although this is a burden on the Company’s cash position, it also has three big advantages.

  • The Company is able to maintain its high delivery metrics, especially in light of the peak production period after Chinese New Year in February.
  • Also, it reduces Acme’s expedited shipping costs. Remember that the Company had to pay about $250,000 in the previous quarter to airfreight some products that couldn’t be shipped in time.
  • Third, ACU is capable of fulfilling more unexpected promotional offers from mass market retailers. That wasn’t always the case in the past, simply because the products couldn’t be manufactured in time.

Q4 and Beyond

A few noteworthy trends for the fourth quarter and first half of 2011.

  • The Company experiences higher costs. The weak U.S. dollar buys fewer goods. Steel and plastic are becoming more expensive. Transportation and labor costs also continue to increase. To offset these higher costs, the Company has announced price increases to all its customers effective January 1st, 2011.
  • Secondly, because the iPoint pencil sharpener continues to be a phenomenal success, its product family will be expanded.
  • There’s also growing acceptance of the new Clauss garden tools, which are scheduled to enter stores later this year. The tools show some strong international interest as well.
  • The Camillus knives will be carried at about 150 additional stores as of 2011.
  • And finally, new websites are coming which the company will use as promotional and sales channels.


For important disclosures, please read our disclaimer.

0 comments… add one

Leave a Comment