Acme United Delivers Blowout Fourth Quarter
During the first nine months of 2020, Acme United (ACU – $35.68) already set a strong performance, but the final quarter was truly the cherry on cake. The Company reported year-on-year revenue gains across every category and in every geography. It comes as no surprise that Acme achieved record sales for the 10th consecutive year.
Acme’s net sales for the fourth quarter were $40.9 million, compared to $33.9 million in 2019, an increase of 21%. Net income for the fourth quarter of 2020 was $2 million or $0.54 per share, compared to a net income of $1 million or $0.28 per diluted share for the same period of 2019, an increase of 109% of net income and 93% in earnings per share.
Note that the Company’s earnings could have been even higher, if it hadn’t been for a one-time charge of $750,000 for the termination of its Defined Benefit Pension Plan (see Financials below).
For the year ended December 31st, 2020, sales reached $164 million compared to 142.5 million in 2019, an increase of 15%. Net income for the year ended December 31, 2020 was $8.1 million or $2.31 per diluted share, compared to $5.5 million of net income or $1.60 per diluted share in the comparable period last year, an increase of 47% of net income and 44% in earnings per share.
Acme United’s revenues in the fourth quarter and year ended December 31, 2020 included approximately $1.2 million and $4.6 million, respectively, from sales of First Aid Central (FAC), which was acquired early 2020. All other growth was achieved organically.
This growth was seen in all of the Company’s brands. The major trigger was that Acme United had been investing resources in e-commerce teams and platforms for many years. In fact, in 2019, online sales already represented 16% of Acme’s revenues. As a result, when the COVID-19 epidemic occurred, the Company was positioned to quickly shift its sales focus to e-commerce and mass market retailers.
In addition, Acme’s outstanding sourcing team in Asia was able to get the products manufactured, shipped, and delivered, despite all the temporary factory closures and shortages of workers at the factories.
Chairman and CEO Walter C. Johnsen said, “Despite the pandemic, we delivered record sales and earnings, and made two strategic acquisitions during 2020. All of our business units and subsidiaries had outstanding performance. Our associates overcame COVID-19 related supply chain and production issues, worked safely through a difficult environment, and developed a pipeline of new products that will be shipped in 2021.”
Three Months Ended
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Cost of Goods Sold
S, G & A Expenses
Income From Operations
Net Interest Expense
Income Tax Expense
Net Income (Loss)
Earnings Per Share – Diluted
Shares Out. – Diluted
Most important income statement data for the quarters and full year ended December 31, 2020 and December 31, 2019. Source: Company Press Release
Gross margin was 36.7% in the fourth quarter of 2020 compared to 36.3% in 2019. The gross margin for the year ended December 31st, 2020 was 36.3% compared to 36.5% for 2019. The major contributor to the decline in gross margin percentage was COVID related expenses.
Outperformance from European Segment
Acme United reports financial information on three separate business segments: the United States (including Asia), Canada and Europe. Exact revenues per segment for 2020 will be available in the 10-K report, which will be filed in a few days. However, Acme announced for each segment the percentage by which revenues increased or decreased compared with last year. Based on those numbers, we provide the following estimate.
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Estimated sales per segment for the year ended December 31, 2020 (Source: Smallcaps Investment Research) and actual sales per segment for the year ended December 31, 2019 (Source: Company Filing)
For the fourth quarter of 2020, net sales in the U.S. segment increased 14% compared to the same period in 2019. Net sales for the year ended December 31, 2020 increased 12%. The sales increases for the fourth quarter and full year were mainly attributable to strong sales of first aid and safety products, which mainly resulted from continued market share gains in the industrial, safety, home improvement, mass market and e-commerce channels, and to a lesser extent gains from COVID-19 related service demand.
European net sales for the fourth quarter of 2020 increased no less than 65% in U.S. dollars and 55% in local currency compared to the fourth quarter of 2019. Net sales for the year ended December 31, 2020 increased 25% in both U.S. dollars and local currency compared to 2019. The sales increase for both periods was primarily due to an increased sales of Westcott and Camillus products in the e-commerce channel, as well as higher sales of DMT sharpening products.
Net sales in Canada, excluding First Aid Central products, for the fourth quarter of 2020 increased 23% in both U.S. dollars and local currency compared to the same period in 2019. This was primarily due to higher sales of Camillus knives and DMT sharpeners. Net sales for the year ended December 31, 2020 decreased 4% in U.S. dollars and 3% in local currency compared to the same period in 2019.
However, including First Aid Central, sales in Canada increased 56% for the year. During 2020, Acme began selling Health Canada registered first aid products through FAC to its traditional mass market, industrial and office products customers and expanded sales to multinational customers in Canada. The Company is convinced that it can continue to increase First Aid Central sales in the foreseeable future.
Fourth Quarter Financials and Balance Sheet
SG&A expenses for the fourth quarter of 2020 were $12.2 million or 30% of sales, compared with $10.9 million or 32% of sales for the same period of 2019. SG&A expenses for the year ended December 31st, 2020 were $48.2 million or 29% of sales compared to $43.6 million or 31% of sales in 2019.
Included in other expenses in the fourth quarter of 2020 is a one-time charge of $750,000 for the termination of the Company’s Defined Benefit Pension Plan. The plan had been frozen to employees since 1996 and its participants and obligations have gradually declined over the years. Acme had about 25 retirees in the plan at closure, with all the costs, audits, paperwork and oversights that are required.
The Company settled all outstanding liabilities related to the plan by purchasing annuities or paying lump sums to the participants. The charge represents accumulated losses on plan assets which would have been amortized over its remaining life. The Company’s past employees now have annuities from a major insurance company while Acme has transferred the pension risk, and will save approximately $75,000 annually.
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|Cash and Cash Equivalents|
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|Property and Equipment|
|Other Current Liabilities|
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Most important balance sheet data for the periods ended December 31, 2020 and December 31, 2019. Source: Company Press Release
The Company’s debt less cash on December 31, 2020 was $41.3 million compared to $30 million on December 31, 2019. During the year, the Company paid approximately $11.4 million for the acquisition of the assets of First Aid Central and Med-Nap LLC, distributed $1.6 million in dividends on its common stock, and generated $3.2 million in free cash flow.
Inventory increased approximately $10 million due primarily to anticipated growth in the business as well as the acquisition of product to offset the impact of potential supply chain interruptions related to COVID-19. As more people return to work post-COVID, demand for Acme’s products may increase. This may result in some further inventory growth.
At the end of the 2020, Acme had more than $63.4 million in working capital and a solid current ratio of 4.13.
Production Expansion at DMT and Med-Nap
In December 2020, the Company completed the acquisition of Med-Nap LLC, which is a US-based supplier of alcohol wipes, alcohol prep pads, BZK wipes and other items that are used in first aid kits and in healthcare. These products also have broad use of disinfecting wipes in homes, restaurants, offices and factories.
What makes the acquisition for Acme so interesting is that Med-Nap has an FDA-registered manufacturing facility where it produces all of its products. In fact, there are only a handful of companies that manufacture these types of products in the United States. This gives Acme two major advantages. First, it doesn’t have to import these products anymore from China. With the emphasis on sourcing local getting stronger, this is important. Second, having such a manufacturing facility at its disposal gives Acme the ability to manufacture all kinds of other tear-open packaging products, such as burn cream, etc.
Med-Nap had revenues of approximately $4.8 million in 2020, with EBITDA of $1 million. Currently, all machines at Med-Nap are running 7 days per week. But because there’s a lot of potential volume that can be generated through Acme’s sales efforts to industrial, retail, and mass market clients, production needs to be expanded rapidly. As a result, three additional machines will be installed this year, which, combined, can generate an additional $6 million worth in sales.
If sales continue to grow, which can be expected when Acme starts manufacturing its proprietary products, more equipment may be added.
Since Acme bought Diamond Machining Technology (DMT) in 2016, sales have continued to rise fast. New equipment and machinery was since installed to double its production capacity, but that still wasn’t enough to meet the rising demand.
Over $1 million worth of additional machinery will soon be installed at DMT. This will increase the potential output with another 33%. However, more orders are coming as well as the business continues to grow both in the U.S. and abroad.
Despite some serious headwinds in 2020 such as supply chain issues in the far east; and shops, schools, and offices that closed, Acme United gained market share in all its product categories. A truly outstanding achievement!
Although no guidance is given at the moment, the Company sees strength in sales and earnings growth so far in the first quarter of 2021. The brands keep picking up new distribution and winning new accounts. In addition, when America reopens, the Company will be able to immediately supply its existing office superstores and distributors with cutting tools and first aid supplies as it has built enough inventory.
Moreover, new production capacity is soon coming on stream at DMT and Med-Nap.
In anticipation of all that growth, Acme has leased new headquarters in Shelton, Connecticut. The office is about 35,000 square feet, which is double the size of the old office building. It features numerous offices, meeting rooms and cubicles. The employees will each have individual workspaces in a large modern facility. The cost of the new lease is comparable with the former space.
Thanks to the wonderful financials presented this week, Acme United’s stock reached a new all-time of almost $40. Smallcaps Recommendation: BUY.
|Smallcaps.us Advice: Buy||Price Target: $61.57||Latest Company Report (pdf)|
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