Acme United Still On Track for Record Year

Acme United (US: ACU – $32.99), the leading consumer products company with a focus on first aid and safety products, as well as cutting solutions, reported reduced financials in the first quarter of 2022 because significant orders couldn’t be shipped from China. These orders have already been partially shipped today and will be entirely in the second quarter. Moreover, the Company continues to see strong demand. As such, both sales and earnings are expected to be very strong for the current quarter.

Acme reached sales of $43.3 million for the quarter ended March 31, 2022, compared to $43.5 million in the first quarter of 2021, a decrease of 1%. Net income for the first quarter of 2022 was $830,000 or $0.22 per diluted share for the quarter ended March 31, 2021, compared to $2,046,000 or $0.52 per diluted share, for the comparable period last year, a decrease of 59% in net income and 58% in diluted earnings per share.

Despite a strong order flow in the first quarter, the Company was unable to ship about $4 million worth of produced goods. Most of the products that were delayed were for large mass market retailers. These customers typically ship the finished goods directly from the exporting ports in China to their distribution centers.

Acme United is currently receiving large inquiries for first aid kits and medical supplies, which may be related to the Ukraine war.

However, after Chinese New Year in February, COVID spread fast in China. As an immediate result, entire factories, ports and even cities were shut down. These direct import programs typically are very efficient and cost effective, but their just-in-time nature left them vulnerable to the port closures.

Chairman and CEO Walter C. Johnsen said, “We expect to ship many of the delayed orders in the second quarter, and our new incoming order rate is strong for both first aid and medical products and for school and office products. Container prices seem to have stabilized, and some of the ports in China as well as our factories there are staffed and operating again. Supply chain operations in the U.S. and Europe have also somewhat improved. While the overall operating environment remains challenging, we continue to target revenues in excess of $200 million in 2022.”

First Quarter financials and Balance Sheet

Gross margin was 34.5% in the first quarter of 2022 versus 35.8% in the first quarter of 2021. The lower gross margin was mainly due to cost inflation pressures as well as higher labor and transportation costs. Note that although prices for shipping containers has somewhat stabilized, they are still six times higher than they were a year ago, according to the Freightos Baltic Index. The Company was able to partially offset the higher costs by price increases.

 
First Quarter Ended
March 31
Amounts in $000’s
2022
2021
Net Sales
43,333
43,525
Cost of Goods Sold
28,365
27,938
S, G & A Expenses
13,597
12,619
Income From Operations
1,371
2,964
Interest Expense
305
221
Other Income (Expense)
2
(77)
Pre-Tax Income
1,068
2,670
Income Tax Expense (Benefit)
238
624
Net Income
830
2,046
Shares Outstanding – Diluted
3,848
3,911
Earnings Per Diluted Share
0.22
0.52
Selected income statement data for the quarters ending March 31, 2022 and March 31, 2021. Source: Company Press Release

SG&A expenses for the first quarter of 2022 were $13.6 million, or 31% of net sales compared with $12.6 million or 29% of net sales for the same period of 2021.

 
First Quarter Ended
March 31
Amounts in $000’s
2022
2021
Cash and Cash Equivalents
5,307
3,857
Accounts Receivable
34,605
31,592
Inventories
60,716
49,389
Total Current Assets
104,438
87,315
Property and Equipment
23,887
21,138
Total Assets
153,077
135,314
 
 
 
Accounts Payable
8,323
8,151
Other Current Liabilities
11,554
11,323
Total Current Liabilities
21,275
20,673
Long Term Debt
40,151
40,626
Total Liabilities
75,304
70,687
Total Stockholder Equity
77,773
64,627
Selected balance sheet data for the periods ended March 31, 2022 and March 31, 2021. Source: Company Press Release

The Company’s bank debt less cash on March 31, 2022 was $46.2 million compared to $43.4 million on March 31, 2021. During the twelve-month period ended March 31, 2022, the Company distributed $1.8 million in dividends on its common stock, repurchased $1.5 million of common stock, and received forgiveness of its PPP loan of $3.5 million.

The inventory increased by approximately $11 million during the past twelve months primarily to offset the impact of potential supply chain interruptions related to COVID-19, as well as to anticipate the continued growth of the Company.

Stable Sales 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 first quarter of 2022 will be available in the Company’s 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 provide the following estimate.

 
First Quarter Ended
March 31
Amounts in $000’s
2022
2021
U.S.
35,760
36,048
Canada
3,601
3,333
Europe
3,972
4,144
Estimated sales per segment for the quarter ending March 31, 2022 (Source: Smallcaps Investment Research) and actual sales per segment for the quarter ended March 31, 2021 (Source: Company Filing)

For the first quarter of 2022, net sales in the U.S. segment decreased 1% compared to the same period in 2021 due to COVID-19 related supply chain disruptions.

European net sales for the first quarter of 2022 decreased 4% in U.S. dollars but increased 3% in local currency compared to the first quarter of 2021.

Net sales in Canada for the first quarter of 2022 increased 8% in both U.S. dollars and local currency compared to the same period in 2021, mainly due to higher sales of First Aid Central products, principally in the e-commerce channel.

Conclusion

Although sales and earnings were down in the first of quarter compared with last year, it happened for a clear and understandable reason. Meanwhile, ports in China have partially or completely reopened and approximately half of the delayed orders have already been shipped, with more on the way.

At the same time, demand in the second quarter continues to be strong. Acme has received new orders for alcohol prep pads for the U.S. Army and there’s a substantial first aid program to a mass market retailer, which will be shipped in Q2. In addition, the Company has received large inquiries for first aid kits and medical supplies, which may be related to the war in Ukraine. Moreover, there is lots of demand for cutting tools and Westcott school and office products, which is good news for the upcoming back-to-school season.

Finally, the Company continues to raise selling prices to offset increased product cost, wages and delivery expenses.

Although no earnings guidance for 2022 was given by the Company’s management, they are projecting substantial growth with sales expected to reach well over $200 million. Smallcaps Recommendation: BUY.

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