Record 2013 Revenues for Acme United – Stock Reaches 52-Week High
Acme United (ACU – $15.93) had an excellent 2013. It achieved record revenues of $89.6 million, compared to $84.4 million in 2012, an increase of 6%. Net income for the year ended December 31, 2013 was $4,003,000, or $1.22 per diluted share, compared to $3,549,000, or $1.13 per diluted share last year, a 13% increase in net income and 8% increase in diluted earnings per share.
During the fourth quarter of 2013, net sales reached $21.4 million, compared with $19.5 million in the fourth quarter of 2012, an increase of 9%. Net income for the fourth quarter of 2013 was $524,000, or $.15 per diluted share, compared to $431,000 or $.14 per diluted share, for the comparable period of 2012, an increase of 22% in net income and 7% in diluted earnings per share.
Walter C. Johnsen, Chairman and CEO said, “We performed well throughout the year, and I am pleased with the financial results. We achieved record sales, strengthened our product offerings across all our brands, and acquired a superb facility in North Carolina to consolidate many of our operations. Mr. Johnsen added that the company has continued to build its balance sheet, and is positioned to finance continued growth.”
For 2014, Acme expects to increase its sales to between $97 and $102 million, an increase of between 8 and 14 percent. As for its earnings in 2014, the Company gave an estimate of between $4.3 million and $4.6 million, or earnings per share between $1.26 and $1.33.
Thanks to the strong 2013 results and the good outlook for 2014, Acme United’s stock reached a new 52-week high.
| Three Months Ended December 31 | Twelve Months Ended December 31 | |||
| Amounts in $000’s | 2013 | 2012 | 2013 | 2012 |
| Net Sales | 21,379 | 19,534 | 89,577 | 84,370 |
| Cost of Goods Sold | 14,004 | 12,979 | 57,753 | 54,623 |
| S, G & A Expenses | 6,612 | 6,090 | 25,945 | 24,386 |
| Income From Operations | 763 | 465 | 5,879 | 5,361 |
| Other Income (Expense) | (128) | (69) | (385) | (364) |
| Pre-Tax Income | 635 | 396 | 5,494 | 4,997 |
| Income Tax Expense (benefit) | (111) | (35) | 1,491 | 1,448 |
| Net Income | 524 | 431 | 4,003 | 3,549 |
| Earnings Per Share | 0.15 | 0.14 | 1.22 | 1.14 |
| Shares Out. – Diluted | 3,395 | 3,175 | 3,1283 | 3,133 |
| Most important income statement data for the quarters and twelve months ending December 31, 2013 and December 31, 2012. Source: Company Press Release | ||||
Growth Across the Board
All of Acme’s brands contributed to the record achievement in 2013. The first aid business, under the Pac-Kit and PhysiciansCare brands, showed strong growth in the office channel, and industrial safety market. Several kits are available for office, home and outdoor use. Camillus Knives gained distribution in a number of large outdoor sporting goods chains, hunting stores, as well as with mass market retailers such as Wal-Mart. Camillus was also launched in Europe in the course of 2013 and immediately attracted a number of distributors.
Westcott, the school and office products brand, registered market share gains with its titanium and non-stick scissors and continued growth of its iPoint pencil sharpeners. In addition, the industrial cutting tools brand Clauss gained wider distribution with hardware and mass markets thanks to the introduction of a new line of gardening tools, marketed in partnership with The Scotts Miracle-Gro Company (NYSE: SMG). These tools will shortly be available at Wal-Mart and Sam’s Stores.
European Segment Profitable
Acme United reports financial information on three separate business segments: the United States (including Asia), Canada and Europe.
In the U.S. segment, sales for the fourth quarter and full year of 2013 increased 11% and 9%, respectively, compared to the same periods in 2012. The increases for both periods were primarily due to higher sales of Camillus knives and back to school products as well as increased distribution of first aid kits.
In Canada, sales in the fourth quarter of 2013 decreased 7% in U.S. dollars (even in local currency) and were 8% lower in U.S. dollars and local currency for the full year, mainly due to general softness in the office products industry. The Company is addressing this decline by introducing new cutting and measuring tools in the office channel. It’s also putting more emphasis on sales of hunting knives and survival tools. Additionally, it will introduce first aid kits in the Canadian market, although this is tougher than it sounds because of many regulations that have to be taken into account.
European net sales in the last three months of the year climbed 8% in U.S. dollars (2% in local currency) compared to the same period last year and decreased 2% in U.S. dollars (5% in local currency) for the full year. Although the results are about even, this is a strong achievement by the European team knowing that a year and a half ago it lost its biggest customer Schlecker, due to its bankruptcy and liquidation. The lost business was replaced by strong sales to the office channel and increased mass market sales of innovative kitchen knives, manicure sets and other cutting tools. Overall, the European segment achieved profitability in 2013.
Strong Balance Sheet
Acme’s balance sheet is very strong. Its bank debt less cash and cash equivalents on December 31, 2013 was $11.3 million compared to $14.6 million on December 31, 2012.
Noteworthy is that despite Acme’s sales growth and the increase of new products, its inventory declined by more than $2 million. This is mainly because the Company lowered the safety stock it holds in its warehouses by one week. So instead of having x number of weeks of inventory for each product, it now has x minus one week of inventory. Additionally, the minimum order quantity for many products was reduced, which increased the cycle time but also reduced inventory some more.
Another item the Company worked on to reduce inventory was to remove duplicated products. For example, in some cases the same product had two types of packaging. So they standardized the packaging. Managing inventory well continues to be a true balancing act. Acme did a great job by reducing it by this much. Money, which now can be spent on, for example, acquisitions.
During the year ended December 31, 2013, Acme purchased a new distribution facility in North Carolina for $2.8 million, added $.9 million in refurbishments to the facility (see below), and paid $.7 million in dividends on its common stock. On August 21, 2013 the Company received $1.7 million from early repayment of a mortgage receivable. The Company also generated $5.5 million in free cash flow in 2013.
| Amounts in $000’s | 12/31/13 | 12/31/12 |
| Cash and Cash Equivalents | 11,644 | 9,750 |
| Accounts Receivable | 15,629 | 16,442 |
| Inventories | 28,219 | 30,292 |
| Total Current Assets | 56,986 | 58,409 |
| Other Assets | 5,936 | 5,364 |
| Total Assets | 68,079 | 67,828 |
| | | |
| Accounts Payable | 4,789 | 6,480 |
| Other Current Liabilities | 5,087 | 5,250 |
| Total Current Liabilities | 9,876 | 11,730 |
| Long Term Debt | 22,912 | 24,320 |
| Total Liabilities | 33,074 | 36,962 |
| Total Stockholder Equity | 35,005 | 30,866 |
| Most important balance sheet data for the periods ending December 31, 2013 and December 31, 2012. Source: Company Press Release | ||
Warehouses Consolidated, More Savings Expected
Late August 2013, Acme purchased a 340,000 square feet manufacturing and distribution center in Rocky Mount, North Carolina. Before that, the Company had two distribution centers, which, combined, were only half the size of the new one. As a result, it provides a lot of space for additional growth at almost zero extra cost.
The consolidation of the warehouses has progressed on plan and all goods have now been moved to Rocky Mount. One old warehouse was leased, so the Company will automatically save those expenses and the second one was owned by Acme and is now on the market for $900,000. The Company expects to close the sale soon.
Duplicate operating costs and moving expenses amounted to about $130,000 in the fourth quarter of 2013. In the current quarter there will be a final cost of about $70,000. As of the next quarter, the Rocky Mount facility will generate efficiencies and cost savings, which will be beneficial to Acme’s profitability.
Even more operating leverage is expected later this year when the production of Pac-Kit first aid kits, which is currently handled in a leased facility in Norwalk, Connecticut, is moved to Rocky Mount.
In addition, the Company is in negotiations with the State of North Carolina about an incentive package to create jobs in the new facility. More news is expected about this shortly.
Conclusion
Acme United constantly introduces new tools and gains market share with its existing products, leading to growth in both revenues and earnings. The Company’s balance sheet is healthy and can handle an acquisition when the right opportunity comes along.
With many new products, such as Camillus knives and first aid kits, lined up to enter stores, we’re confident the Company’s guidance will be achieved again in 2014. Profile Page
| Smallcaps.us Advice: Buy | Price Target: $59.86 | Latest Company Report (pdf) |
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