Acme United On Track For 9th Consecutive Year of Record Sales

Acme United Corp. (US: ACU – $20.21) reached net sales of $37 million in the third quarter ended September 30, 2019, compared to $34.7 million for the same period of 2018, an increase of 7%. Net income for the three months ended September 30, 2019 was $1.1 million, or $0.30 per diluted share, compared to $.8 million, or $0.23 per diluted share, for the same period in 2018, increases of 31% and 30%, respectively.

Especially Acme’s SmartCompliance first aid cabinets, which provide comprehensive safety products to employers, showed strong growth. This is encouraging and demonstrates how much employers value the fast and easy to requisition first aid system.

In addition, the Westcott school and office products brand had a solid back-to-school performance as it expanded categories and products with e-commerce retailers. Acme also noted substantial growth with mass market customers. The office superstore market in the U.S. on the other hand was weaker than last year, reflecting overall trends. However, that is a decreasing proportion of Acme’s overall business.

100 quick-serve restaurants which were previously serviced by van delivery have reduced their monthly cost to $18 for each location after switching to SmartCompliance, totalling savings of $50,400 annually for the chain.

Moreover, the Camillus hunting, Cuda fishing, Clauss industrial cutting, and DMT sharpening product lines showed good performance. Acme recently increased the production capacity of its DMT diamond sharpening business, which is helping to propel its growth.

All of these items helped grow Acme’s top line. Significantly contributing to the bottom line was the cost savings program that the Company instituted a year ago. It let go of a number of people, cut back on print advertising, and put more focus on social media. Also, the Company started shipping and productivity initiatives at its Rocky Mount warehouse in North Carolina. These savings total about $2 million annually. Acme continues to identify cost-saving opportunities and is formulating new targets for 2020.

Chairman and CEO Walter C. Johnsen commented, “We expect continued good performance in the fourth quarter of 2019, particularly as our focus on productivity and sales growth continues. Based on the trends we are currently seeing, we are updating our financial guidance for the year. We now expect net sales of approximately $142 million; net income of approximately $5.2 million; and earnings per share of approximately $1.48.

Achieving those numbers would be another solid performance for Acme United, as in fiscal year 2018 the Company reached sales of $137.3 million, net income of $4.6 million, and earnings per share of $1.30.

China Trade War

Mr. Johnsen, who just returned from three weeks in China, Taiwan, and Hong Kong, mentioned during the third quarter conference call that the Company’s Chinese suppliers are very supportive of Acme’s business. Many of them have reduced their sales price because of the weakened Chinese currency. That will help to somewhat reduce the impact of the tariffs.

Another trend that is becoming noticeable, is that Chinese suppliers are looking to move some of their operations to places nearby China, such as Myanmar, Pakistan, or Thailand in order to avoid the U.S. tariffs. Once these factories are in operation, Acme would be able to import products from these countries and so avoiding Chinese import tariffs.

Third Quarter Financials and Nine Months Financials

Acme’s net sales for the nine months ended September 30, 2019, were $109 million compared to $106 million in the same period in 2018, an increase of 2%. Net income for the first nine months ended September 30, 2019 was $4.5 million, or $1.32 per diluted share, compared to $4 million or $1.12 per diluted share in the comparable period last year, increases of 13% and 18%.

Gross margin was 35.5% in the three months ended September 30, 2019, compared to 35.8% in the same period in 2018. Gross margin was 36.6% in the nine months ended September 30, 2019, compared to 37.0% in the same period in 2018.

 

Three Months Ended
September 30
Nine Months Ended
September 30
Amounts in $000’s
2019
2018
2019
2018
Net Sales
36,995
34,731
108,585
106,191
Cost of Goods Sold
23,861
22,281
68,877
66,905
S, G & A Expenses
11,408
11,078
32,679
32,923
Income From Operations
1,726
1,372
7,029
6,363
Interest Expense
469
495
1,463
1,347
Other Income (Expense)
(40)
(518)
(52)
(1,431)
Pre-Tax Income
1,217
854
5,514
4,932
Income Tax Expense
158
47
977
926
Net Income
1,059
807
4,537
4,006
Earnings Per Share
0.30
0.23
1.32
1.12
Shares Out. – Diluted
3,486
3,551
3,445
3,574
Selected income statement data for the quarters and nine months ended September 30, 2019 and September 30, 2018. Source: Company Press Release

 

SG&A expenses for the third quarter of 2019 were $11.4 million or 31% of sales compared with $11.1 million or 32% of sales for the same period of 2018. SG&A expenses for the first nine months of 2019 were $32.7 million or 30% of sales compared with $32.9 million or 31% of sales in 2018.

Balance Sheet

Acme United’s bank debt less cash on September 30, 2019 was $35.9 million compared to $46.8 million on September 30, 2018. The reduction of net debt by nearly $11 million provides new capital for growth and perhaps an acquisition.

During the twelve-month period ended September 30, 2019, the Company distributed $1.6 million in dividends on its common stock, repurchased $0.4 million in treasury stock and generated $14 million in free cash flow, including a $2.3 million reduction in inventory.

 

Amounts in $000’s
September30, 2019
September30, 2018
Cash and Cash Equivalents
5,698
4,021
Accounts Receivable
30,635
30,869
Inventories
38,970
41,274
Total Current Assets
77,090
78,434
Property and Equipment
14,006
14,488
Total Assets
114,224
115,183
 
 
 
Accounts Payable
7,217
6,654
Other Accrued Liabilities
8,202
4,417
Total Current Liabilities
16,606
11,338
Bank Debt
38,125
47,028
Total Liabilities
59,200
62,692
Total Stockholder Equity
55,024
52,491
Selected balance sheet data for the quarters ended September 30, 2019 and September 30, 2018. Source: Company Press Release

 

The Company reduced its inventory by $2.3 million, or 6% while growing overall sales by 7%. Acme’s management expects to end 2019 with approximately $35 million of net debt and to generate $7 million to $8 million in free cash flow for the year.

At the end of the third quarter of 2019, Acme had over $60 million in working capital and an impressive current ratio of 4.64.

Solid Third Quarter Results in All Segments

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

Exact revenues per segment for the third quarter will be available in the 10-Q, which will be filed mid-November. However, Acme announced for each segment the percentage by which revenues increased or decreased compared with last year’s third quarter. Based on those numbers, we can give a fair estimate.

 

Three Months Ended
September 30
Amounts in $000’s
2019
2018
U.S.
32,770
30,913
Canada
1,777
1,691
Europe
2,448
2,127
Estimated sales per segment for the third quarter ended September 30, 2019 (Source: Smallcaps Investment Research) and actual sales per segment for the third quarter ended September 30, 2018 (Source: Company Filing)

 

In the U.S. segment, net sales for the three months ended September 30, 2019 increased 6% compared to the same period in 2018. Sales of first aid and safety products were strong, more than offsetting softness in the sales of certain school and office products. Net sales for the first nine months of 2019 in the U.S. segment increased 2% compared to the same period in 2018.

The international business was excellent. In Europe, net sales for the three months ended September 30, 2019 increased 15% in U.S. dollars and 21% in local currency compared to the same 2018 period. Net sales for the nine months ended September 30, 2019 increased 14% in U.S. dollars and 22% in local currency compared to the first nine months of 2018. The sales increases in the quarter and nine months were mainly due to new customers in the office products channel and continued growth of DMT sharpening products. In addition, the segment continues to grow significantly online in most product groups.

Net sales in Canada for the three months ended September 30, 2019 increased 5% in U.S. dollars and 6% in local currency compared to the same 2018 period. Sales in the third quarter mainly increased due to a strong back-to-school. Net sales for the nine months ended September 30, 2019 decreased 6% in U.S. dollars and 3% in local currency compared to the first nine months of 2018.

Conclusion

Acme United’s first aid business continues to be its main growth driver. Especially the SmartCompliance cabinets are gaining traction thanks to their convenient automatic replenishment system. Every time the Company places a new SmartCompliance unit, the SafetyHub app is capturing an increasing percentage of the refill business.

As more and more companies understand that they need to become, and stay, OSHA compliant, and can do so at a fraction of the cost of the “old” van delivery model, the choice is obvious. Consequently, First Aid Only and its SmartCompliance cabinets have plenty of room to grow in an estimated a $1 billion US market.

Also the Camillus, Cuda, and DMT brands are doing well. They continue to gain market share, and are expected to grow again in 2020.

Acme United is well on track to achieve its ninth consecutive year of record sales. In addition, the Company has reduced its net debt by close to $11 million during the past 12 months. A solid achievement, which provides capital for a potential acquisition. Smallcaps Recommendation: BUY.

Smallcaps.us Advice: BuyPrice Target: $29.39Latest Company Report (pdf)
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