Acme United On Track To Realize Savings Of $5.0 Million In 2023
Acme United Corp. (US: ACU – $26.24), the leading consumer products company with a focus on first aid and safety products, as well as cutting solutions, reported an important improvement in its financial results for the quarter ended March 31, 2023.
Sales in Q1 2023 reached $45.8 million compared to $43.3 million last year, an increase of 6%. This result was achieved despite ongoing reductions in inventory levels by its customers. Even better, net income for the quarter ended March 31, 2023 was $990,000 versus $830,000 in 2022, an increase of 19%. Earnings per share were $0.28 versus $0.22 or a 27% increase.
The main reason for these inventory reductions is that Acme’s customers bought significant quantities of supplies in the second quarter of last year, as they feared supply chain issues. Remember that in the first quarter of 2022, the ports of Shenzhen and Shanghai closed due to COVID; the war in Ukraine began; and the ports of Los Angeles, Long Beach and Rotterdam were overwhelmed and clogged.
Because customers are still reducing their inventory from those purchases, sales in the second quarter of 2023 may not be as strong as last year. However, earnings are bound to go up as the Company faced several economic and operational challenges last year, which had a significant impact on earnings. These issues won’t reoccur this year.
During the first quarter, Acme’s gross margin benefited from productivity improvements. In addition, the expense reductions that the Company began in 2022 are becoming evident. With sales up and SG&A down, the Company’s operating income increased to an impressive 60% in Q1 of 2023.
We expect this trend to continue in the current quarter. We also foresee a significant rise in operating income in the second half of the year, as the Company incurred over $4 million in one-time expenses in 2022. These expenses were mostly related to supply chain issues at ports in Asia, the US and Europe; the war in Ukraine; rapidly increasing container expenses; product costs that continually increased; wage inflation; rising interest rates; and shortages of workers. Most of these issues have more or less stabilized or are largely in the past.
Chairman and CEO Walter C. Johnsen commented, “We are successfully executing our growth and productivity plans. Our net sales growth reflects expansion of our customer base and new product introductions in the first aid and medical segment, offset in part by continued inventory reductions by some large mass market customers. We realized over $0.5 million in productivity savings during the quarter. The Company is on track to realize projected annual savings of $5.0 million in 2023 due to the many productivity improvements we have been implementing.”
We reiterate our buy recommendation for Acme United Corp. with a price target of $40.98 for 2023, which is 56% above today’s stock price.
|Smallcaps.us Advice: Buy||Price Target: $48.91||Latest Company Report (pdf)|
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