Solid Second Half of 2023 Expected for Acme United

Acme United Corporation (US:ACU – $37.56), the leading consumer products company with a focus on first aid and safety products, as well as cutting solutions, had an excellent second quarter of 2023, with net income increasing to $3.4 million, or $0.96 per diluted share, compared to net income of $2.7 million, or $0.71 per diluted share, for the same period of 2022, an increase of 26% in net income, and 35% in earnings per share.

The main reason for this significant improvement is a strong reduction in costs. In 2022, the cost of shipping a container from Shanghai to California increased sharply to as high as $19,000 while Acme had budgeted a cost $12,500 per container. This resulted in additional expenses in 2022 of approximately $4 million. In 2023, however, container costs have declined again to about $5,000 each. Moreover, the Company implemented a $5 million cost savings plan in September of 2022, and it is now reaping the rewards of that effort.

Acme United has not yet provided guidance for 2023. However, the Company did mention that it anticipates performance in 2023 to far exceed that of 2022. Although sales in the second half of 2023 may still be somewhat impacted by continued inventory reductions, Mr. Johnsen did mention in the conference call that sales so far in July were up compared with last year. Moreover, earnings are expected to thrive because shipping costs have pretty much normalized and the Company’s cost savings program will be in full execution.

Acme reduced its inventory by $9.1 million during the past 12 months. Thanks to the lower inventory, as well as its strong earnings, the Company was able to reduce its bank debt less cash by $12.3 million during the past year. As a result, the Company is in a strong position to pursue further growth opportunities, as well as a new acquisition.

We reiterate our buy recommendation for Acme United Corp. with a price target of $48.91 for 2023, which is 30% above today’s stock price.

Smallcaps.us Advice: Buy	Price Target: $59.86	Latest Company Report (pdf)
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