Acme United Achieves Remarkable Q2 Growth Despite COVID-19 Impact

Acme United (ACU – $23.89), the worldwide supplier of cutting devices, measuring instruments and first-aid products for school, home, office, industrial and hardware use announced that sales for the second quarter ended June 30, 2020, reached $44.0 million, an increase of 9% compared with sales of $40.2 million in the second quarter of 2019.

First Aid Central (FAC), which was acquired by Acme in January of 2020, contributed about US$1.1 million to second quarter revenues. FAC, which is based in Laval, Canada, expanded Acme‘s ability to provide safety products which meet Health Canada regulations through the Company’s existing Canadian customer base as well as its large multinational customers.

Similar to Acme’s first quarter results, Q2 also benefitted from sales of first aid and safety products due to market share gains and a surge of approximately $1.5 million of sales of COVID-related supplies.

Some of the first aid kits being sold by First Aid Central.

Net income in the second quarter of 2020 reached $3.2 million, or $0.92 per diluted share, compared to $2.6 million, or $0.77 per diluted share, for the same period in 2019, increases of no less than 20% and 19%, respectively.

The major contributor to this result was strong sales of first aid and safety products, primarily due to continued market share gains in the industrial, safety, home improvement, mass market, and ecommerce channels. In addition, there was growth from a surge in demand for first aid and safety products related to COVID-19.

 

Three Months Ended
June 30
Six Months Ended
June 30
Amounts in $000’s
2020
2019
2020
2019
Net Sales
44,042
40,220
79,817
71,590
Cost of Goods Sold
27,989
25,449
50,234
45,016
S, G & A Expenses
11,670
11,003
23,191
21,271
Income From Operations
4,383
3,768
6,392
5,303
Interest Expense
245
502
554
994
Other Expense (Income)
(1)
14
36
12
Pre-Tax Income
4,150
3,263
5,802
4,297
Income Tax Expense
951
592
1,326
819
Net Income
3,199
2,672
4,476
3,478
Earnings Per Share
0.92
0.77
1.28
1.01
Shares Out. – Diluted
3,482
3,485
3,499
3,429
Selected income statement data for the quarters and six months ended June 30, 2020 and June 30, 2019. Source: Company Press Release

 

For the six months, ended June 30, 2020, net sales were $79.8 million, compared to $71.6 million in the same period in 2019, an increase of 11%. First Aid Central contributed $2.1 million in sales during the first six months of the year. Net income for the six months ended June 30, 2020 was $4.4 million or $1.28 per diluted share, compared to $3.4 million or $1.01 per diluted share in the comparable period last year, increases of 29% and 27%, respectively.

Chairman and CEO Walter C. Johnsen said, “This was a very difficult quarter that ended with good results. We benefited from the diversification during the past 5 years of our customer base and product lines. I am incredibly proud of our team. They are working under difficult conditions with a sense of purpose, and delivering results.”

Gross margin was 36.5% in the second quarter of 2020 versus 36.7% in the comparable period last year. Gross margin was 37.1% in the each of the six months ended June 30, 2020 and 2019.

U.S. and European Segments Shine

Acme United reports financial information on three separate business segments: the United States (including Asia), Canada and Europe.

Net sales for the second quarter and the first six months of 2020 in the U.S. segment increased 10% compared to the same periods in 2019 again thanks to strong first aid sales.

European net sales for the second quarter of 2020 increased 4% in U.S. dollars and 6% in local currency compared to the second quarter of 2019. Net sales for the six months ended June 30, 2020 increased 9% in U.S. dollars and 12% in local currency compared to the first half of 2019. The increases for both the quarter and six months were mainly due to growth in sales of Westcott and Camillus products in the ecommerce channel and continued growth of DMT sharpening products.

Net sales in Canada, excluding First Aid Central products, for the second quarter of 2020 declined 44% in U.S. dollars and 42% in local currency compared to the same period in 2019. Net sales for the six months ended June 30, 2020 decreased 27% in U.S. dollars and 25% local currency compared to the first half of 2019. These decreases reflected declines in sales of office products due to office and store closings as a result of COVID-19.

Balance Sheet as of June 30, 2020

The Company’s debt less cash on June 30, 2020 was $37.3 million compared to $41.0 million on June 30, 2019. During the twelve-month period ended June 30, 2020, the Company paid approximately $2.1 million for the acquisition of the assets of First Aid Central, distributed $1.6 million in dividends on its common stock, and generated $9 million in free cash flow.

It is especially noteworthy that Acme was able to increase its cash position by more than $3 million, while at the same time also increase its inventories by almost $5 million. An impressive achievement!

 

Amounts in $000’s
June 30, 2020
June 30, 2019
Cash and Cash Equivalents
5,239
1,924
Accounts Receivable
33,720
35,462
Inventories
44,311
39,615
Total Current Assets
85,708
79,086
Property and Equipment
14,278
14,200
Total Assets
123,536
117,030
 
 
 
Accounts Payable
8,733
9,931
Other Current Liabilities
10,680
6,865
Total Current Liabilities
20,613
18,050
Bank Debt
35,742
39,388
Total Liabilities
64,529
62,228
Total Stockholder Equity
59,007
54,802
Selected balance sheet data for the quarters ended June 30, 2020 and June 30, 2019. Source: Company Press Release

 

Also note that Acme received a loan of $3.5 million from the Paycheck Protection Program during the second quarter of 2020. These proceeds were applied to payroll expenses. The loan enhanced the Company’s ability to maintain its entire payroll during uncertain times.

Conclusion

Despite all the COVID-19 issues , Acme United achieved a solid second quarter. The Company’s extensive first aid line, was of course the major contributor to this success. The SmartCompliance business, for example, is becoming a bigger success every day. This is a typical razor/razorblade sales model, as Acme initially benefits from the placement of the first aid kits, and then as people use the components, there’s a strong resale business. In fact, revenues from refills about equal sales of the kits.

In addition, Camillus knives and also DMT continue to outperform. The diamond sharpener brand has expanded its production capacity in recent quarters and is running at full capacity.

Moreover, Acme has a solid balance sheet with over $14 million additional borrowing capacity under its $50 million line of credit with HSBC Bank.

Because COVID-19 will play an important role the coming quarters, we expect Acme’s first aid sales to continue to outperform. Smallcaps Recommendation: BUY.

Smallcaps.us Advice: BuyPrice Target: $29.39Latest Company Report (pdf)
For important disclosures, please read our disclaimer.

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