Record Sales and Earnings for Acme United in Second Quarter 2012

The Les Stroud SK Jungle

Les Stroud, a.k.a. Survivorman, combines the essence of survival and innovative thinking with the best material and craftsmanship of Camillus knives. The result is the Les Stroud Signature Survival Knives.

Acme United’s (ACU – $10.59) second quarter, ended June 30, 2012 was very strong. Net sales for the quarter reached $27.6 million, compared with $24.0 million in the same period last year, or an increase of 15%. Net income for the second quarter of 2012 was $2.06 million, or $.66 per share, up 18% compared with $1.74 million, or $.56 per share, in the second quarter of 2011.

These are the highest quarterly sales and earnings numbers Acme United ever achieved.

Top Performance by all Brands

Acme’s five brands Westcott, Clauss, Camillus, Physicians Care and Pac-Kit all contributed to the Company’s success as each one had record quarterly sales.

Westcott, the school and office products brand of the Company, outperformed thanks to excellent iPoint pencil sharpener and Trim Air paper trimmer sales. Scissors continue to do well and also newer items like the Scissor Mouse contribute nicely to sales.

Clauss, which primarily manufactures cutting instruments for professionals in the hardware & industrial, lawn & garden, food processing, sewing and housewares markets, had strong results from heavy duty shears being sold at Home Depot and other cutting tools.

Camillus is one of the best known brands in the hunting, fishing, sporting and tactical knives industries. Although Camillus contributed about $1.5 million in sales in Q2, the second half of the year is expected to be even much better thanks to the Les Stroud product family, which is now shipping to several mass market retailers like WalMart and many major sporting goods chains like Cabellas, Academy Sports, Bass Pro, etc.

Finally, PhysiciansCare and Pac-Kit, which offer a wide assortment of first aid kits, emergency and disaster kits, each set new sales highs with market share gains and new products releases.

The fact that all brands are doing well, is very good news as it spreads the risk for the Company and for investors. If one brand, for example, performs a little weaker than expected the other ones are still there to make up for it.

 
Three Months Ended
June 30
Six Months Ended
June 30
Amounts in $000’s
2012
2011
2012
2011
Net Sales
27,594
24,029
44,472
38,430
Cost of Goods Sold
17,773
15,346
28,707
24,439
S, G & A Expenses
6,743
6,223
12,229
11,348
Income From Operations
3,078
2,460
3,536
2,643
Other Income (Expense)
(105)
(77)
(203)
(99)
Pre-Tax Income
2,973
2,383
3,333
2,544
Income Tax Expense
912
640
1,013
681
Net Income
2,061
1,743
2,320
1,863
Earnings Per Share
0.66
0.56
0.74
0.60
Shares Out. – Diluted
3,144
3,117
3,142
3,111
Most important income statement data for the second quarter and six months ending June 30, 2012 and June 30, 2011. Source: Company Press Release

C-Thru Acquisition: Sizeable Impact on Bottom Line

During the conference call yesterday, Acme’s Chairman and CEO, Mr. Walter Johnsen gave some more financial details about C-Thru Ruler, which was acquired a few weeks ago. C-Thru’s sales last year were about $2.5 million while generating gross margins of approximately 40%. Because most of C-Thru’s business was absorbed by Acme’s existing operations, only one person had to be added in customer service.

Moreover, thanks to Acme’s existing customer base, C-Thru’s products will be placed in many more stores. There are obvious synergies with the Westcott brand for the crafts and school markets and gross margins may even be increased thanks to the combined purchasing power.

It’s clear C-Thru will have a very positive impact on Acme United’s bottom line in the quarters to come.

European Segment

The one imperfection in Acme United’s second quarter was the decrease in net sales in Europe by 21% compared with the second quarter of last year, due to the bankruptcy of Schlecker, one the Company’s largest customers in Europe. The impact for the next six months is limited to about $200,000 in lost gross margins.

On the other hand, the loss of Schlecker as a customer, opens up new possibilities in Europe for Acme United as it can now offer the products it sold to Schlecker to other mass market retailers like Aldi, Lidl and Norma, with which it already has good relationships.

Chinese Margins

Also interesting to note was Mr. Johnsen’s comment on margins in China, where almost all of Acme’s products are manufactured. He said that because Chinese factories are less busy than they used to be, turnaround times on orders have decreased substantially from about 120 days in the past to around 80 days today.

Additionally, raw material costs have somewhat stabilized in China and the Chinese RMB has weakened compared with the US dollar. These are all positive facts from China. Nevertheless, the Company will continue to seek margin improvements in its factories.

Balance Sheet As of June 30, 2012

Amounts in $000’s
06/30/12
06/30/11
Cash and Cash Equivalents
7,141
4,234
Accounts Receivable
23,857
23,481
Inventories
26,681
23,575
Total Current Assets
59,535
52,588
Total Assets
69,154
61,064
 
 
 
Accounts Payable
9,968
8,210
Other Current
Liabilities
5,612
5,145
Total Current Liabilities
15,580
13,355
Bank Debt
23,005
18,601
Total Liabilities
39,715
33,539
Total Stockholder Equity
29,439
27,525
Most important balance sheet data for the quarters ending June 30, 2012 and June 30, 2011. Source: Company Press Release

Noteworthy in Acme’s balance sheet is the increase in bank debt of close to $4.5 million. This is attributable to the rise in inventory of about $3 million and the cost for the C-Thru acquisition of approximately $1.5 million.

In April Acme entered into a new five-year loan agreement with HSBC Bank for borrowings of up to $30 million at an interest rate of LIBOR plus 1.75%. At today’s interest rates that means the Company pays approximately 2 percent interest on it borrowings.

Also important is the increase in cash of close to $3 million on June 30, 2012 compared with a year ago, generated from the Company’s profits.

Conclusion

Acme United’s performance is really good. With a relatively small team of only 180 employees, the Company is able to produce attractive products that sell. Innovative products are constantly released and distribution keeps expanding.

The outlook for the coming quarters is bright.

We will start work on a new Company Report shortly. Based on the numbers for the first six months of 2012 and the positive outlook for the remainder of the year, it’s already clear though we’ll increase our current revenue guidance of $82.5 million and our earnings guidance of $1.02 per share.

Even when you already own shares of Acme United, this is a good time to add to your position.

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For important disclosures, please read our disclaimer.

For important disclosures, please read our disclaimer.

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