Acme United Reaches $10 Million Net Profit in 2021

Despite all the challenges with inflation, product availability and shipping issues, Acme United Corp. (US: ACU – $34.90) delivered its 12th consecutive year of record sales. Moreover, earnings reached more than $10 million, also an all-time high for the Company.

As for 2022, Acme United is again projecting substantial growth with sales expected to reach well over $200 million.

Acme’s net sales for the fourth quarter of 2021 were $45.8 million compared to $40.9 million in the same quarter in 2020, an increase of 12%. Net income for the fourth quarter of 2021 was $2.3 million, or $0.60 per diluted share, compared to a net income of $2 million, or $0.54 per diluted share, for the same period of 2020, an increase of 14% in net income and 11% in earnings per share.

For the year ended December 31 2021, sales reached $182.1 million, compared to $164.0 million in the year ended December 31, 2020, an increase of 11%. Net income, excluding the impact of the PPP loan forgiveness for the year ended December 31, 2021, was $10.1 million, or $2.57 per diluted share, compared to $8.1 million, or $2.31 per diluted share, in the comparable period last year, an increase of 25% in net income and 11% in earnings per share.

The above graph showing 12 consecutive years of record sales by Acme United, driven by new products and market share gains.

Including the PPP loan forgiveness, net income for the year ended December 31, 2021, was $13.7 million, or $3.45 per diluted share, increases of 69% and 49%, respectively.

Chairman and CEO Walter C. Johnsen commented, “Acme United performed at record levels during 2021. We delivered our 12th consecutive year of sales growth and generated the highest profits in the Company’s history. Our team effectively managed significant cost increases, labor shortages, and supply chain delays. We also integrated the Med-Nap and First Aid Central acquisitions. With on our operational improvements, our expanded first aid and medical product lines, and market share gains, we believe Acme United is positioned for another outstanding year in 2022.”

 
Three Months Ended
December 31
Year Ended
December 31
Amounts in $000’s
2021
2020
2021
2020
Net Sales
45,793
40,871
182,088
164,003
Cost of Goods Sold
29,737
25,824
117,287
104,408
S, G & A Expenses
12,999
12,151
52,030
48,182
Income From Operations
3,057
2,896
12,771
11,413
Net Interest Expense
237
195
908
919
PPP Loan Forgiveness
3,508
Other Income (Expenses)
18
(667)
(196)
(667)
Pre-Tax Income
2,838
2,034
15,175
9,827
Income Tax Expense (Benefit)
500
(9)
1,519
1,728
Net Income (Loss)
2,338
2,043
13,656
8,099
Earnings Per Share – Diluted
0.60
0.54
3.45
2.31
Shares Out. – Diluted
3,915
3,753
3,955
3,509
Most important income statement data for the quarters and full year ended December 31, 2021 and December 31, 2020. Source: Company Press Release

Gross margin was 35.1% in the fourth quarter of 2021 versus 36.8% in the comparable period last year. The decline was primarily due to cost inflation pressures, higher catenation costs and labor costs. Price increases partially offset the cost increases. Gross margin for the year ended summer 31, 2021, was 35.6% compared to 36.3% for 2020.

Segments Run On All Cylinders

Acme United reports financial information on three separate business segments: the United States (including Asia), Canada and Europe. Exact revenues per segment for 2021 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 compared with last year. Based on those numbers, we provide the following estimate.

 
Year Ended
December 31
Amounts in $000’s
2021
2020
U.S.
152,371
140,191
Canada
14,416
10,986
Europe
15,301
12,826
Estimated sales per segment for the year ended December 31, 2021 (Source: Smallcaps Investment Research) and actual sales per segment for the year ended December 31, 2020 (Source: Company Filing)

For the fourth quarter of 2021, net sales in the U.S. segment increased 11% compared to the same period in 2020. For the year ended December 31, 2021, net sales in the U.S. segment increased 9% compared to the same period in 2020. The growth for both periods was primarily attributable to strong sales of first aid and medical products, as well as Westcott craft products.

European net sales for the fourth quarter of 2021 increased 11% in U.S. dollars and 15% in local currency compared to the fourth quarter of 2020. Net sales for the year ended December 31, 2021 increased 19% in U.S. dollars and 15% in local currency compared to the year ended December 31, 2020. The growth for both periods was mainly due to sales growth in the ecommerce channel across all product lines and market share gains in Westcott school and office products.

Net sales in Canada for the fourth quarter of 2021 increased 22% in U.S. dollars and 17% in local currency compared to the same period in 2020. Net sales for the year ended December 31, 2021 increased 31% in U.S. dollars and 22% in local currency compared to the year ended December 31, 2020. The growth for both periods was primarily due to higher sales of first aid products.

The Canadian team successfully integrated First Aid Central, which Acme acquired early 2020. Since the acquisition, they substantially grew the e-commerce business, attracted new English and French-speaking customers and converted business from the office and industrial customers in Canada and the U.S.

Fourth Quarter Financials and Balance Sheet

SG&A expenses for the fourth quarter of 2021 were $13 million, or 28.4% of sales, compared with $12.2 million, or 29.7% of sales, for the same period of 2020. SG&A expenses for the year ended December 31, 2021, were $52 million, or 28.6% of sales, compared with $48 million, or 49.4% of sales, in 2020.

 
Year Ended
December 31
Amounts in $000’s
2021
2020
Cash and Cash Equivalents
4,843
4,167
Accounts Receivable
34,221
27,173
Inventories
53,552
50,704
Total Current Assets
95,251
83,686
Property and Equipment
24,027
20,239
Total Assets
144,439
129,867
 
 
 
Accounts Payable
8,977
7,601
Other Current Liabilities
9,880
11,460
Total Current Liabilities
20,246
20,201
Long Term Debt
33,037
38,767
Total Liabilities
67,357
67,151
Total Stockholder Equity
77,082
62,716
Most important balance sheet data for the periods ended December 31, 2021 and December 31, 2020. Source: Company Press Release


Acme’s bank debt less cash on December 31, 2021 was $39.7 million compared to $41.3 million on December 31, 2020. During the twelve-month period ended December 31, 2021, the Company distributed $1.8 million in dividends on its common stock and repurchased $1.5 million of common stock.

The Company in fact improved its balance sheet during 2021. It obtained a fixed rate mortgage of $11.8 million on its plants in Rocky Mount, North Carolina and Vancouver, Washington, with a rate of 3.8% and a term of 7 years. The new mortgage replaced variable rate debt.

In addition, the U.S. small Business Administration forgave a $3.5 million Paycheck Protection Program (PPP) loan. Remember that in 2020, Acme United encountered numerous business and operational uncertainties resulting from the COVID-19 pandemic. The PPP loan was a key factor in enabling Acme to successfully meet the significant challenges that resulted from these uncertainties, including the Company’s ability to avoid laying off any of its employees during the pandemic.

Conclusion

Acme United had an astonishing year. It achieved record sales and earnings while facing some serious headwinds. For example, production costs increased due to inflation in China and higher cost of shipping containers. Wages had to be increased at its own factories and distribution sites to attract and keep personnel, but it also had to deal with inefficiencies due to testing, quarantine and illness. Finally, the U.S. dollar declined in global markets, which again increased costs.

Amidst all this, the U.S., Canadian and European segments showed record sales and the Company successfully managed the tight balance between raising selling prices of its products and managing underlying costs.

In addition, in 2021, the Company installed new warehouse management software at its Rocky Mount, North Carolina facility, its largest distribution center in the United States. Thanks to the new software, products are located more easily, picking and shipping has improved, and importantly, it provides the backbone to more operating efficiencies in 2022.

Also last year, Acme integrated the First Aid Central and Med-Nap acquisitions. At Med-Nap, which was acquired in December 2020, enterprise software, quality control and regulatory programs were installed. New equipment was brought in to increase production capacity, new customers were added for the consumer and medical markets, and next generation products were developed for use in first aid kits.

With the expected sales growth to over $200 million in 2022, earnings should follow accordingly. As a result, Acme United is in for another record year. Smallcaps Recommendation: BUY.

Smallcaps.us Advice: BuyPrice Target: $36.38Latest Company Report (pdf)
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