Outstanding Performance by Acme United – Looks Forward To More Growth In 2024

Acme United Corp. (US: ACU – $39.72) reached sales of $191.5 million in 2023 compared to $194.0 million for the prior year, a decrease of 1%. This small decrease was especially due to the fact that Acme sold its Camillus and Cuda hunting and fishing product lines to GSM Holdings on November 1, 2023. Total revenues from the divested product lines were approximately $12.0 million in 2022.

Despite the almost even sales, net income grew significantly. Excluding the Camillus and Cuda sale, net income for the year ended December 31, 2023, was $8.2 million, or $2.23 per diluted share, compared to $3.0 million, or $0.82 per diluted share, in 2022. An increase of 170%. Including the gain on the sale of Camillus and Cuda, net income for fiscal year 2023 was $17.8 million.

Chairman and CEO Walter C. Johnsen said, “We had an outstanding year of strong earnings and achievements in 2023. The sale of Cuda and Camillus in the fourth quarter enabled the Company to focus on its core businesses and reduce its debt by $13 million. In addition, the Company successfully completed its previously announced program to reduce inventory by $5 million. Moreover, we implemented a series of cost reduction and productivity initiatives that generated approximately $6.5 million in savings, a substantial increase of the initial target of $5 million. As a result, we strengthened our balance sheet in 2023, raised our gross margin significantly, and our free cash flow reached a record $24 million.”

2024 Growth Drivers

As for 2024, the Company has lots of growth lined up in many areas. The Westcott school and office products brand, for example, will expand its distribution at a mass market retailer and a major hobby store. Westcott’s products will be replacing a competitor at those stores. Altogether, this will be a multimillion dollar expansion. In addition, the European segment recently gained a Westcott contract for several hundred thousand dollars.

In the case of First Aid, Acme’s products will soon be available at a new drug chain and an industrial hardware chain. In both cases, a competitor is being replaced. The Company is also developing the next generation of its SafetyHub digital requisition system for First Aid refills. Remember that the First Aid Only SafetyHub simplifies first aid supply requisitioning.

Spill Magic has gained a multimillion dollar contract at a large grocery chain. And DMT was able to win a similar size deal at a large retailer in the kitchen area.

Acme’s growth plans for this and future years, require additional space. As such, the Company is upgrading its production and distribution facilities in Rocky Mount, North Carolina and at Spill Magic in Santa Ana, California. Furthermore, it is expanding its First Aid Only production capacity in Vancouver, Washington, the First Aid Central facility in Laval, Canada, and its Med-Nap plant in Brooksville, Florida.

Segments: First Aid sales Picking Up in Canada

Acme United reports financial information on three separate business segments: the United States (including Asia), Canada and Europe. Exact revenues per segment for 2023 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 or decreased compared with last year. Based on those numbers, we provide the following estimate.

	Year Ended December 31
Amounts in $000’s	2023	2022
U.S.	163,265	165,205
Canada	13,884	13,779
Europe	14,352	14,978
Estimated sales per segment for the year ended December 31, 2023 (Source: Smallcaps Investment Research) and actual sales per segment for the year ended December 31, 2022 (Source: Company Filing)

For the three months ended December 31, 2023, net sales in the U.S. segment decreased 6% compared to the same period in 2022. Excluding the impact of the sale of the Camillus and Cuda product lines, sales declined 2%. For the year ended December 31, 2023, net sales in the U.S. segment decreased 1% compared to the same period in 2022. Excluding the impact of the sale of the Camillus and Cuda product lines, sales for the year ended December 31, 2023 were constant compared to 2022. Sales of school and office products for the year were impacted by customer reductions of inventory in the first half of 2023. Sales of First Aid products, on the other hand, were strong.

European net sales for the three months ended December 31, 2023 declined 8% in U.S. dollars and 13% in local currency compared to the same period in 2022. Net sales for the year ended December 31, 2023 decreased 4% in U.S. dollars and 6% in local currency compared to 2022. The declines in net sales in local currency for both periods were mainly due to a soft economy in certain parts of Europe.

Net sales in Canada for the three months ended December 31, 2023, increased 11% in U.S. dollars and 12% in local currency compared to the same period in 2022. Net sales for the year ended December 31, 2023, increased 1% in U.S. dollars and 5% in local currency compared to 2022. The growth in local currency for both periods was mainly due to higher sales of First Aid products.

Fourth Quarter Financials and Balance Sheet

Acme United’s net sales in the fourth quarter of 2023 were $41.9 million compared to $44.1 million in the same period of 2022, a decrease of 5%. Excluding the sale of Camillus and Cuda, sales for the fourth quarter of 2023 declined 1% compared to the fourth quarter in 2022.

Net income for the three months ended December 31, 2023 excluding the sale of the Camillus and Cuda product lines was $1.6 million, or $0.40 per diluted share, compared to a net loss of $0.6 million, or ($0.17) per diluted share, for the same period in 2022. Net income for the three months ended December 31, 2023 including the sale of the Camillus and Cuda product lines was $11.2 million, or $2.87 per diluted share.

	Three Months Ended December 31		Year Ended December 31
Amounts in $000’s	2023	2022	2023	2022
Net Sales	41,942	44,104	191,501	193,962
Cost of Goods Sold	25,538	30,021	119,291	130,403
S, G & A Expenses	14,311	14,110	59,022	57,285
Income Loss) From Operations	2,093	(27)	13,188	6,274
Net Interest Expense	460	921	2,977	2,365
Gain on Sale of Assets	12,551	–	12,551	–
Other Income (Expenses)	(18)	109	(28)	(246)
Pre-Tax Income	14,166	(839)	22,734	3,663
Income Tax Expense (Benefit)	2,958	(242)	4,941	628
Net Income (Loss)	11,208	(597)	17,793	3,035
Earnings Per Share – Diluted	2.87	(0.17)	2.23	0.82
Shares Out. – Diluted	3,909	3,537	3,658	3,719
Most important income statement data for the quarters and full year ended December 31, 2023 and December 31, 2022. Source: Company Press Release

Gross margin was 39.1% in the three months ended December 31, 2023 compared to 31.9% in the same period in 2022. Gross margin was 37.7% for the year ended December 31, 2023, compared to 32.8% for the same period in 2022. The increases for both periods were primarily due to productivity improvements in the Company’s manufacturing and distribution facilities that began in Q4 of 2022, as well as lower in-bound freight costs.

SG&A expenses for the fourth quarter of 2023 were $14.3 million or 34% of sales compared to $14.1 million or 32% of sales for the same period of 2022. SG&A expenses for the 12 months of 2023 were $59 million or 31% of sales compared with $58 million or 30% of sales in 2022.

Interest expense for the fourth quarter of 2023 was $500,000 compared to $940,000 in the fourth quarter of 2022. The decrease was due to a lower average debt of approximately $32 million, but partially offset by higher interest rates. Interest expense for the year went from $2.4 million in 2022 to $3 million in 2023. Although the average debt declined by $12 million in 2023, the weighted average interest rate went from 4% in 2022 to 6.5% in 2023. Today, Acme’s average interest rate is approximately 5.6% due to its mortgage that is fixed at 3.8%.

The sale of Camillus and Cuda resulted in a gain of $12.6 million. This was recorded in other income. The gain net of tax was approximately $9.6 million.

	Year Ended December 31
Amounts in $000’s	2023	2022
Cash and Cash Equivalents	4,796	6,100
Accounts Receivable	26,234	32,603
Inventories	55,470	63,325
Total Current Assets	92,024	105,600
Property and Equipment	28,025	26,416
Total Assets	149,241	164,377
Accounts Payable	12,102	10,514
Other Current Liabilities	12,392	10,078
Total Current Liabilities	26,012	22,127
Long Term Debt	13,105	49,916
Total Liabilities	51,343	85,347
Total Stockholder Equity	97,898	79,030
Most important balance sheet data for the periods ended December 31, 2023 and December 31, 2022. Source: Company Press Release

The Company’s bank debt less cash as of December 31, 2023, was $19.0 million compared to $55.0 million as of December 31, 2022. During the year ended December 31, 2023, the Company paid $2.0 million in dividends on its common stock and generated approximately $24.0 million in free cash flow, including a reduction in inventory of $5.0 million. Additionally, the $13 million net proceeds from the sale of the Camillus and Cuda product lines was used to reduce debt.

Conclusion

All in all, 2023 was an excellent year for Acme United. The Company decreased its net debt from $55 million at year end 2022 to $19 million one year later. Its gross margins increased as Acme successfully implemented new productivity plans. The reduction in SG&A expenses resulted in annual savings of approximately $6.5 million. And new retail distribution was gained for first aid kits, Westcott ceramic cutters, and craft planograms.

In addition, the Company sold its hunting and fishing business for $19.8 million. And acquired Hawktree Solutions at a bankruptcy auction for $1 million, providing new customers in the Canadian market.

Looking forward, Acme expects to see growth in First Aid, as it won new distribution of first aid kits in one of the largest drug chains in the United States. It has gained additional placement of cutting tools in the craft and mass markets, and has expanded its Spill Magic cleanup line to a major mass market retailer. Also, DMT Sharpeners will see significant incremental distribution in the kitchen category.

The Canadian business is expected to show both organic growth and from the Hawktree acquisition. And the European segment continues to secure new First Aid and Westcott business.

Acme’s management is aiming to boost sales with another $100 million over the next three years by organic growth as well as accretive acquisitions. Smallcaps Recommendation: BUY.

ACU =

Smallcaps.us Advice: Buy	Price Target: $59.86	Latest Company Report (pdf)
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