Acme United Starts Off 2014 With Solid First Quarter Performance
Acme United’s (ACU – $17.50) sales during the three months ended March 31, 2014, reached $19.2 million, up 9% compared with sales of $17.7 million in the first quarter of 2013. Net income in the first quarter of 2014 rose by 19 percent to $368,000, or $0.11 per diluted share, versus $309,000, or $0.10 per diluted share, in the comparable quarter last year.
The revenue increase can especially be attributed to initial sales to Sam’s Club and Walmart of the Clauss lawn and gardening tools, sold under the Scotts and MiracleGro brands. In addition, strong sales growth was noted by Pac-Kit and PhysiciansCare first aid products, where traditional office supply customers, like Office Depot and OfficeMax, look to offer products outside their core office supplies.
During the earnings conference call, Walter C. Johnsen, the Company’s Chairman and CEO, confirmed the 2014 sales and earnings guidance. Sales are expected to reach between $97 and $102 million, an increase of between 8 and 14 percent. At the same time, the Company foresees earnings of between $4.3 million and $4.6 million in 2014, or earnings per share of between $1.26 and $1.33, an increase of between 3% and 9% respectively.
|Amounts in $000’s|| |
|Net Sales|| |
|Cost of Goods Sold|| |
|S, G & A Expenses|| |
|Income From Operations|| |
|Interest Expense|| |
|Other Income (Expense)|| |
|Pre-Tax Income|| |
|Income Tax Expense (Benefit)|| |
|Net Income|| |
|Shares Outstanding – Diluted|| |
|Earnings Per Diluted Share|| |
Most important income statement data for the quarters ending March 31, 2014 and March 31, 2013. Source: Company Press Release
Very Strong US Segment
Acme United reports financial information on three separate business segments: the United States (including Asia), Canada and Europe.
Exact revenues per segment for the first quarter will be available in the 10-Q, which will be filed mid-May. However, Acme announced for each segment the percentage by which revenues increased or decreased compared with last year. Based on those numbers, we can give a good indication.
Sales in $000’s
Sales by segment for the first three months of 2014. Source: Smallcaps Investment Research calculations.
Net sales for the first quarter of 2014 in the U.S. segment increased 13% compared to the same period in 2013. This was achieved by another solid performance of the Westcott family of cutting and measuring products such as scissors and pencil sharpeners. Also first aid kits and the introduction of new lawn and garden products contributed to the success.
Net sales in Canada in the first quarter of 2014 decreased 7% in U.S. dollars but increased 2% in local currency compared to the same period in 2013. A strong back-to-school season is anticipated in Canada. And also Clauss garden tools and Camillus knives are expected to perform well.
European net sales decreased 15% in U.S. dollars and 21% in local currency in the first quarter of 2014 compared to the first quarter of 2013. The European sales peoples are working hard on mass market promotions for the second half of the year. They’re expected to be comparable to last year. In addition, Camillus knives, which was re-introduced in Europe last year, receives strong interest from various distributors.
Balance Sheet Ready for Acquisition
Acme’s balance sheet is strong. Its bank debt less cash and cash equivalents on March 31, 2014 was $13.9 million compared to $15.5 million on March 31, 2013. A noteworthy achievement, knowing that during the 12 months ended March 31, 2014, Acme purchased a new distribution facility in North Carolina for $2.8 million, expended $1.3 million to upgrade the facility and its equipment, and paid $1.0 million in dividends on its common stock.
In addition, during the 12 month period the Company generated $5.7 million in cash flow from operations while reducing inventory by almost $1.5 million despite its growth of both sales and number of available products.
Acme did a great job strengthening its balance sheet. Its current loan agreement provides for borrowings of up to $40 million, while its long term debt is only slightly over $17 million. Leaving plenty of room for acquisitions when the right opportunity comes along. Mr. Johnsen mentioned during the conference call that the Company could handle an acquisition target with revenues between $15 and $20 million.
|Amounts in $000’s|| |
|Cash and Cash Equivalents|| |
|Accounts Receivable|| |
|Total Current Assets|| |
|Other Assets|| |
|Total Assets|| |
| || |
|Accounts Payable|| |
|Other Current Liabilities|| |
|Total Current Liabilities|| |
|Long Term Debt|| |
|Total Liabilities|| |
|Total Stockholder Equity|| |
Most important balance sheet data for the periods ending March 31, 2014 and March 31, 2013. Source: Company Press Release
New Rocky Mount Warehouse In Full Operation
Late August 2013, Acme United purchased a 340,000 square feet manufacturing and distribution center in Rocky Mount, North Carolina for $2.8 million, which is very cheap knowing that replacing the building would probably cost around $14 million.
During the first quarter, Acme successfully completed the consolidation of its U.S. warehousing operations into the new facility. Before that, the Company had two distribution centers, which, combined, were only half the size of the new one.
The lease on one warehouse has now been terminated. And the second warehouse, in Fremont, NC, was sold by Acme on April 7, 2014 for $850,000. The Company will record a gain of approximately $200,000 in the second quarter of 2014 related to this sale.
Because the Rocky Mount facility is very large, it provides lots of space for additional growth at almost zero extra cost. For example, if it hadn’t been for Rocky Mount, Acme would likely have been forced to lease another building to store the new lawn and gardening tools, which would cost a couple hundred thousand dollars each year. Now, they can easily be added to the new warehouse.
Acme United started the year on the right foot. First quarter sales and earnings showed strong growth. And more is expected for the coming quarters as many new products are expected to launch later this year.
Camillus has an exciting new array of hunting, fixed blade knives and folding knives. The Company intends to again expand its number of distributors in 2014 in Europe, Canada, the U.S., but also in places like Australia, South Africa and the Philippines.
Its Pac-Kit/PhysiciansCare first aid business is accelerating as office supply customers are expanding their offering. First aid is an outstanding product family for Acme because it’s non-seasonal and because it has the razor/razorblade sales model. When customers buy a kit, they’re bound to buy refills as well.
For 2014, Acme estimates it can increase its revenues to around $100 million, which would be a significant milestone in the Company’s history. With many new products lined up to enter stores, we’re confident the Company’s guidance will again be achieved in 2014.
Acme’s stock has gone up 40% during the past 12 months. We have a price target of $25.32 on it right now, so we believe it can rise some more.
|Smallcaps.us Advice: Buy||Price Target: $53.75||Latest Company Report (pdf)|
|For important disclosures, please read our disclaimer.|