How Cost Reductions Drive Strong EPS Growth at Acme United

Acme United Corporation (US: ACU – $19.85) is a worldwide supplier of cutting devices, measuring instruments and first-aid products for school, home, office, industrial and hardware use.

The Company reported net income of $807,000 or $0.24 per diluted share, for its first quarter ended March 31, 2019 versus $764,000, or $0.21 per diluted share, for the comparable period last year. This is an increase of 6% in net income and 14% in diluted earnings per share. A solid performance, and in fact the highest first quarter earnings in the Company’s history.

The major contributor to this result was the cost savings program that Acme United implemented in the fourth quarter last year. For example, it let go of a number of people, which reduced personnel expenses by about $700,000 annually. In addition, third party sales reps were replaced by in-house people. Acme also cut back on print advertising and put more focus on social media, resulting in annual savings of $400,000. All these saving are going straight to the bottom line.

These cost reductions are now in full force and will generate savings of over $2 million annually. Acme continues to implement new software and production equipment to generate additional savings. Thanks to these cost savings, and a solid sales outlook, the Company is anticipating continued growth in 2019.

Camillus, Cuda, and DMT businesses continue to grow, and are expected to show a strong second half of the year. Especially DMT looks promising. The diamond sharpener brand recently expanded its production capacity and is beginning to fill significant back orders.

Moreover, the Company has reduced its net debt by over $5.0 million during the past 12 months and continues to seek tuck-in acquisitions.

Acme United’s management is providing guidance of approximately $140 to $143 million in sales, net income of $5.0 to $5.3 million and $1.41 to $1.50 earnings per share.

Based on these estimates, we reiterate our buy recommendation for Acme United Corp. with a price target of $29.88, which is 50% above today’s stock price.

Download the second quarter 2019 Acme United Company Report. Advice: BuyPrice Target: $59.86Latest Company Report (pdf)
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