Acme United Sets New Sales & Earnings Record for Second Quarter

Acme United (US:ACU – $42.30), the leading consumer products company with a focus on first aid and safety products, as well as cutting solutions, for commercial and industrial markets worldwide reported record sales and earnings for its second quarter ended June 30, 2021.

Acme’s net sales for the second quarter were $44.8 million compared to $44 million in 2020, an increase of 2%. Net income for the second quarter, excluding the impact of the PPP loan forgiveness, was $3.7 million or $0.94 per diluted share compared to net income of $3.2 million or $0.92 per diluted share for the same period of 2020, an increase of 16% in net income and 2% in EPS.

Remember that on June 9, 2021 the Company’s PPP loan of $3.5 million was fully forgiven by the Small Business Administration (SBA), and that amount was remitted by the SBA to the company’s lender, HSBC Bank USA, NA. As a result, net income for the second quarter including the loan forgiveness was $7.2 million, or $1.82 per diluted share.

The new warehouse management system, which was installed at Acme’s largest distribution center in the United States, has truly prepared the Company for rapid shipping, which is crucial with ever increasing online sales. (Picture shown is for illustration purpose only)

Net sales for the six months ended June 30, 2021 were $88.4 million, compared to $79.8 million in the same period in 2020, an increase of 11%. Net income for the six months ended June 30, 2021, excluding the impact of the PPP loan forgiveness, was $5,769,000, or $1.46 per diluted share, compared to $4,476,000, or $1.28 per diluted share in the comparable period last year, increases of 29% and 14%, respectively. Net income for the six months ended June 30, 2021 including the loan forgiveness was $9.3 million, or $2.34 per diluted share.

The gross margin was 36% in the second quarter of 2021 compared to 36.5% in 2020. The year-to-date gross margin was 36% compared to 37% in 2020. The decline in gross margin was mainly due to increased labor and transportation costs.

New Warehouse Software

Despite achieving record financials in the second quarter, results could have been even stronger. Especially the installation of a new warehouse management system in Acme’s largest distribution center in the United States impacted results negatively. Previously, the Company had an older management system in place, which wasn’t up-to-date anymore. The new system has truly prepared the Company for rapid shipping, which is crucial with ever increasing online sales.

As the new software was being installed however, nothing was shipped during ten days out of the Rocky Mount, North Carolina warehouse. In addition, after the system was online, the Company wasn’t able to hire enough new personnel for the warehouse. As a result, unshipped orders at the end of June reached approximately $5 million, while in normal circumstances this would only have been about $1 million.

Meanwhile, Acme has hired ten additional people in the North Carolina distribution site and shipping has returned to more normal levels so that the backorders can be addressed.

So while this was a painful event during the second quarter, the customer service levels and fill rates are now much higher and the backorders will be shipped and added to the third quarter sales.

European and Canadian Segments Shine

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

Exact revenues per segment for the second quarter of 2021 will be available in the Company’s 10-Q, which will be filed mid-August. 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.

 
Three Months Ended
June 30
Amounts in $000’s
2021
2020
U.S.
36,837
38,472
Canada
4,013
2,388
Europe
3,997
3,182
Estimated sales per segment for the second quarter ended June 30, 2021 (Source: Smallcaps Investment Research) and actual sales per segment for the second quarter ended June 30, 2020 (Source: Company Filing)

Net sales in the U.S. segment decreased 4% in the second quarter due to delays caused by the implementation of the new warehouse management system. Sales increased 6% for the 6 months ended June 30, mainly due to market share gains in first aid and safety products.

In Europe, net sales for the second quarter of 2021 increased 26% in U.S. dollars and 16% in local currency compared to the second quarter of 2020, mainly due to re-opening of offices and growth in the e-commerce channel across all product lines. Net sales for the six months ended June 30, 2021 increased 34% in U.S. dollars and 23% in local currency compared to the first half of 2020, mainly due to sales growth in the ecommerce channel across all product lines and continued growth of DMT sharpening products.

Net sales in Canada for the second quarter of 2021 increased 68% in U.S. dollars and 49% in local currency compared to the same period in 2020, due to higher sales of First Aid Central products, principally in the e-commerce channel as well as increased sales of school and office products compared to the COVID-19 lockdowns in the second quarter of 2020. Net sales for the six months ended June 30, 2021 increased 53% in U.S. dollars and 40% in local currency compared to the first half of 2020.

Financials & Balance Sheet

 
Three Months Ended
June 30
Six Months Ended
June 30
Amounts in $000’s
2021
2020
2021
2020
Net Sales
44,847
44,042
88,372
79,817
Cost of Goods Sold
28,694
27,989
56,632
50,234
S, G & A Expenses
12,364
11,670
24,983
23,191
Income From Operations
3,789
4,383
6,757
6,392
Interest Expense
222
234
443
554
Other Expense (Income)
68
(1)
145
36
PPP Loan Forgiveness
3,508
3,508
Pre-Tax Income
7,007
4,150
9,677
5,802
Income Tax Expense (Benefit)
(224)
951
400
1,326
Net Income
7,231
3,199
9,277
4,476
Earnings Per Share
1.82
0.92
2.34
1.28
Shares Out. – Diluted
3,964
3,482
3,960
3,499
Selected income statement data for the quarters and six months ended June 30, 2021 and June 30, 2020. Source: Company Press Release

SG&A expenses for the second quarter of 2021 were $12.4 million or 28% of sales compared with $11.7 million or 27% of sales for the same period of 2020. SG&A expenses for the first 6 months of 2021 were $25 million or 28% of sales compared to $23.2 million or 29% of sales in 2020.

Also note that the Company’s Paycheck Protection Program loan of $3.5 million was forgiven during the quarter and added to the net income. In addition, the second quarter tax expense included a $0.9 million tax credit for stock-based compensation.

Amounts in $000’s
June 30, 2021
June 30, 2020
Cash and Cash Equivalents
3,240
5,239
Accounts Receivable
36,270
33,720
Inventories
48,691
44,311
Total Current Assets
90,434
85,708
Property and Equipment
22,408
14,278
Total Assets
139,138
123,536
 
 
 
Accounts Payable
8,021
8,733
Other Current Liabilities
10,374
10,680
Total Current Liabilities
19,581
20,613
Bank Debt
39,550
35,742
Total Liabilities
64,686
64,529
Total Stockholder Equity
74,452
59,007
Selected balance sheet data for the quarters ended June 30, 2021 and June 30, 2020. Source: Company Press Release

Acme’s bank debt less cash on June 30, 2021 was $39.4 million compared to $37.3 million on June 30, 2020. During the twelve-month period ended June 30, 2021, the Company paid approximately $9.3 million for the acquisition of the assets of Med-Nap LLC., distributed $1.7 million in dividends on its common stock and generated $3.6 million in free cash flow.

At the end of the second quarter of 2021, Acme had over $70 million in working capital and a solid current ratio of 4.61.

Conclusion

Although Acme United didn’t provide any guidance, new orders stay strong and it anticipates a strong performance for the full year. Moreover, the Company continues to seek acquisitions that expand its product line and customer reach.

The new system at the Rocky Mount warehouse will increase the productivity and the customer service dramatically. In addition, the capacity expansion at the sharpening tools manufacturer DMT was recently completed. The latest expansion has already had a positive impact on sales growth this year, and Acme is now positioned to expand DMT sales in the e-commerce market in the United States and in industrial accounts in Europe.

Finally, Acme continues to invest in new equipment at Med-Nap, which it acquired in December 2020. As a reminder, Med-Nap is 1 of the few manufacturers of alcohol wipes and antiseptic pads in the United States. The Med-Nap business will have three new lines in operation by the end of August, and the Company will then be positioned to fulfill new supply agreements as they develop. Smallcaps Recommendation: BUY.

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