Acme United Again Achieves Record Sales and Earnings in Second Quarter

Acme United (ACU – $17.00) achieved record sales and earnings during its second quarter ended June 30, 2014. The Company’s sales reached $33.4 million in the second quarter, compared to $28.4 million in the comparable period of 2013, an increase of 18%. Net income in the second quarter of 2014 rose by 15 percent to $2,543,000, or $.72 per diluted share, versus $2,210,000, or $.68 per diluted share, in the comparable quarter last year.

This strong performance was both driven by the First Aid Only (FAO) acquisition, which the Company concluded on June 2 of this year, as well as by organic growth. As a matter of fact, even excluding the $1.7 million sales generated by FAO in June, Acme reached record sales in the second quarter. Especially a strong back-to-school season, increased Pac-Kit and PhysiciansCare first aid products sales, and a record performance by Clauss and Camillus generated organic growth.

During the six months, ended June 30, 2014, net sales were $52.5 million, compared to $46.1 million in the same period in 2013, an increase of 14%. Net income for the six months ended June 30, 2014 was $2,911,000, or $.83 per diluted share, compared to $2,520,000, or $.78 per diluted share in the comparable period last year, a 16% increase in net income.

During the conference call, following the announcement of the second quarter results, Walter C. Johnsen, Acme United’s Chairman and CEO, increased the Company’s guidance for 2014 thanks to the strong organic performance and the First Aid Only contribution. Sales are now expected to reach $108 million in 2014, up from between $97 and $102 million. In addition, the Company now foresees earnings in 2014 of between $1.35 to $1.38 per share, up from between $1.26 and $1.33 per share.

 
Three Months Ended
June 30
Six Months Ended
June 30
Amounts in $000’s
2014
2013
2014
2013
Net Sales
33,396
28,412
52,548
46,063
Cost of Goods Sold
21,875
18,331
34,150
29,554
S, G & A Expenses
7,983
6,889
14,235
12,803
Income From Operations
3,538
3,192
4,163
3,706
Other Income (Expense)
(204
25
(184)
28
Pre-Tax Income
3,636
3,093
4,159
3,535
Income Tax Expense (benefit)
1,093
883
1,248
1,015
Net Income
2,543
2,210
2,911
2,520
Earnings Per Share
0.79
0.70
0.91
0.80
Shares Out. – Diluted
3,539
3,266
3,487
3,234
Most important income statement data for the quarters and six months ending June 30, 2014 and June 30, 2013. Source: Company Press Release

Gross margins in the second quarter of 2014 were 34.5% compared to 35.5% in the second quarter of 2013. Margins were lower mostly because of one-time costs. In the first quarter of 2014, for example, the Company successfully completed the consolidation of its U.S. warehousing operations, moving from Fremont, NC to its new 340,000 sq. ft. facility in Rocky Mount, NC. In this regard, the Company incurred approximately $250,000 of one-time moving, training and ramp up costs in the second quarter of 2014.

Because these were one-time items, margins are expected to return to regular levels in the current quarter. Moreover, margins should benefit from increased efficiencies in regards with the FAO acquisition.

First Aid Only Immediately Accretive

Acme United acquired First Aid Only, Inc, a supplier of first aid kits, refills, and safety products, less than two months ago for $13.8 million in cash. In 2013, First Aid Only reached revenues of $17.4 million and operating income of $1.1 million. The acquired net assets totaled approximately $3.5 million, which included inventory, equipment and accounts receivable. The purchase price also included intangible assets of approximately $10.3 million.

FAO employs 100 people and operates a modern, 54,000 square-foot facility in Vancouver, WA. It boasts a distributor network of more than 1,000 people and supplies first aid goods to well-known businesses such as McDonalds, Subway and Costco. All first aid kits sold by First Aid Only are built in the United States and sold under the First Aid Only brand.

Adding First Aid Only to Acme’s existing first aid brands, Pac-Kit and PhysiciansCare, should lead to lower freight costs and increased purchasing power due to higher combined volumes. In addition, the brands will have access to each other’s customers.

In the first month after its acquisition, FAO was immediately accretive to Acme’s earnings. Acme’s management aims to achieve $40 million in sales from its first aid division in 2014. About $17 million should come from First Aid Only and $23 million from Pac-Kit and PhysiciansCare combined.

All Segments Contribute to Success

Acme United reports financial information on three separate business segments: the United States (including Asia), Canada and Europe. All three segments contributed nicely to Acme’s success in the second quarter.

In the US, sales in the second quarter increased 19% compared to the same period in 2013 due to increased sales of first aid products, additional sales resulting from the acquisition of First Aid Only, Inc., and higher sales of pencil sharpeners.

Net sales in Canada for the three months ended June 30, 2014 increased 17% in U.S. dollars and 24% in local currency compared to the same period in 2013, primarily due to strong back to school sales and the introduction of new lawn and garden products.
European sales for the three months ended June 30, 2014 increased 5% in U.S. dollars but were constant in local currency compared to the same period in 2013. Especially office tools, manicure sets and Camillus knives sold well.

 
Three Months Ended
June 30
Amounts in $000’s
2014
2013
U.S.
27,925
23,496
Canada
3,639
3,139
Europe
1,832
1,777
Estimated sales per segment for the second quarter ending June 30, 2014 (Source: Smallcaps Investment Research) and actual sales by segment for the second quarter ending June 30, 2013 (Source: Company Filing)


Solid Balance Sheet Despite Acquisition and Purchase of Warehouse

The Company’s bank debt less cash on June 30, 2014 was $28.9 million compared to $17.6 million on June 30, 2013. During the 12 month period the Company purchased and made capital improvements to its new distribution facility in Rocky Mount, NC for $4.5 million and paid approximately $13.8 million for First Aid Only, Inc. In addition, Acme paid $1.0 million in dividends on its common stock.

During the same 12 month period, the Company also generated $6.1 million in cash flow from operations, sold its Fremont, NC plant for $0.8 million and received $1.7 million from early repayment of a mortgage receivable.

Noteworthy is Acme’s strong performance with its inventory. Despite the Company’s sales growth, the increase of available products and the acquisition of First Aid Only, its inventory only rose by $1.4 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.

 
Three Months Ended
June 30
Amounts in $000’s
2014
2013
Cash and Cash Equivalents
2,426
8,458
Accounts Receivable
30,794
25,420
Inventories
30,885
29,450
Total Current Assets
66,075
65,443
Property and Equipment
6,576
2,353
Total Assets
87,987
74,736
 
 
 
Accounts Payable
10,919
9,092
Other Current Liabilities
7,466
5,401
Total Current Liabilities
18,385
14,493
Long Term Debt
31,325
26,012
Total Liabilities
50,150
41,526
Total Stockholder Equity
37,838
33,210
Most important balance sheet data for the periods ending June 30, 2014 and June 30, 2013. Source: Company Press Release

Cuda Fishing Tools Launched at ICAST

Acme United recently launched an entire line of fishing knives and tools under the new brand Cuda. About 30 tools, specifically designed for rigorous inshore, offshore and freshwater fishing, were shown to the public for the first time in Orlando, Florida at the International Convention of Allied Sportfishing Trades (ICAST), the largest sportfishing trade show in the world.

Similar to what Camillus did with Les Stroud, Cuda partnered with six professional fishermen to be Cuda Pros, each hand-picked for their fishing accomplishments and dedication to the fishing community.

Bob Izumi, known from the syndicated television show Real Fishing, Mariko Izumi of the World Fishing Network’s Hookin’ Up, and four captains seen on National Geographic Channel’s hit series Wicked Tuna: TJ Ott, Tyler McLaughlin, Dave Marciano, and Dave Carraro, will be using Cuda tools on upcoming episodes of their respective television shows.

The Cuda fishing gear, which includes snips, wire cutters, scale/skin grippers, knives and scissors, was developed and tested in cooperation with some of the Cuda Pros in fresh and saltwater environments, to ensure the highest quality and reliability.

We heard there was lots of interest at the Cuda booth at ICAST from media and potential buyers. Backed by the Cuda Pros, and knowing that fishing is a $48 billion annual industry, we’re anxious to find out about the first sales results in a few months.

Conclusion

Acme United’s second quarter results are very strong thanks to significant internal growth and a nice contribution from First Aid Only. The First Aid Only acquisition is off to a good start, and it has already become accretive to the Company’s earnings.

The current third quarter, is the first one in which we’ll see the full impact of First Aid Only on revenues. And as FAO becomes fully integrated in the coming quarters, Acme’s bottom line will also continue to benefit thanks to improved efficiencies.

Mr. Johnsen noted that the third quarter already looks good thanks to FAO and a strong order flow with the other brands. New products are in the pipeline and we also expect to see positive results from the Cuda fishing tools.

The Company increased its sales guidance for 2014 from between $97 and $102 million to $108 million. And for 2015, Acme expects to achieve revenues of between $125 million and $130 million.

This is an excellent time to add shares of Acme United to your portfolio.

Smallcaps.us Advice: BuyPrice Target: $53.75Latest Company Report (pdf)
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