Solid Internal & Acquisitional Growth Catapult Acme United 2014 Sales Above $100 Million

2014 was a record year for Acme United (ACU – $19.23), as it posted the highest annual sales and earnings in the Company’s history. All of the Company’s brands contributed to this success. The first aid business grew significantly, aided by the acquisition of First Aid Only on June 2, 2014. Westcott introduced new Carbonitride scissors, the iPoint Orbit electric pencil sharpener and lettering products. Clauss launched new gardening tools, non-stick scrapers and a proprietary line of knives. And Camillus expanded its distribution in Europe, Asia and Canada.

As for 2015, Acme expects its sales to reach between $120 and $125 million, an increase of 12 to 16.6 percent respectively compared with 2014. In addition, it expects earnings to come in at $5.5 to $5.8 million, up 14.8 and 21.1 percent respectively compared with 2014.

The Company’s stock appreciated more than 20 percent during the past twelve months and thanks to numerous new tools entering the market in 2015, the continued strong performance by Westcott school & office products, and the First Aid Only integration that will reach its full potential, we expect 2015 to be another excellent year for Acme.

	Three Months Ended December 31		Twelve Months Ended December 31
Amounts in $000’s	2014	2013	2014	2013
Net Sales	24,667	21,379	107,222	89,577
Cost of Goods Sold	15,691	14,004	69,037	57,753
S, G & A Expenses	7,872	6,612	30,791	25,945
Income From Operations	1,104	763	7,394	5,879
Other Income (Expense)	(170)	(128)	(591)	(385)
Pre-Tax Income	934	635	6,803	5,494
Income Tax Expense (benefit)	245	111	2,014	1,491
Net Income	689	524	4,789	4,003
Earnings Per Share – Diluted	0.19	0.15	1.36	1.22
Shares Out. – Diluted	3,625	3,395	3,526	3,283
Most important income statement data for the quarters and nine months ending December 31, 2014 and December 31, 2013. Source: Company Press Release

Net sales for the year ended December 31, 2014 were $107.2 million compared to $89.6 million in 2013, an increase of 20%. Excluding sales resulting from the First Aid Only acquisition, sales increased 8%. Net income for the year ended December 31, 2014 was $4,789,000, or $1.36 per diluted share, compared to $4,003,000, or $1.22 per diluted share, for the comparable period of 2013, a 20% increase in net income and 11% increase in diluted earnings per share.

During the fourth quarter of 2014, net sales reached $24.7 million, compared with $21.4 million in the fourth quarter of 2013, an increase of 15%. Net income for the fourth quarter of 2014 was $689,000, or $.19 per diluted share, compared to $524,000 or $.15 per diluted share, for the comparable period of 2013, an increase of 31% in net income and 27% in diluted earnings per share.

Reducing Product and Market Risk

Next to generating actual growth, Acme also did an outstanding job broadening its product offering over the past few years. This results in the Company’s sales becoming less seasonal and more spread over different sectors.

Traditionally the Company’s sales relied heavily on the office products and back-to-school markets, for which sales peak in the second and third quarter of the year. Although the second quarter remains Acme’s strongest, the other quarters are showing more growth. For example, sales for the fourth quarter in 2010 were $13.4 million, while they were $24.7 million in the fourth quarter of 2014, an increase of 84%. In the full year 2010, sales were $63.1 million versus $107.2 million last year, an increase of 69.8%. While this is an impressive growth rate for the full year, it indicates that fourth quarter sales have risen even stronger.

In addition, in 2009, sales to the office channel represented about 65% of revenues. In 2014, however, the share of the office channel dropped to about 34%, the mass market channel represented about 38% and the hardware, industrial and sporting goods channel about 28%.

The reason behind this shift is that Acme launched products such as the lawn and garden tools in partnership with ScottsMiracle-Gro, which are typical fourth and first quarter items as they have to be on the shelves early spring. Similar with Camillus knives, which are often used for hunting in the fall and they are also typical Christmas and holiday gifts.

Having a broad range of products in different sectors reduces the reliance on any single market factor.

First Aid Only Acquisition Generates $1 Million Cost Savings

Acme acquired First Aid Only, a supplier of first aid and Smart Compliance kits for the industrial and office markets, for $13.8 million in cash. Before the acquisition, Acme United already owned two first aid brands, Pac-Kit and PhysiciansCare.

Thanks to the combination of the three brands, the Company increased its volumes, and as such was able to negotiate more favorable sourcing prices for bandages, tapes, pads, etc., with its suppliers. In addition, First Aid Only increased its distribution because it had access to Acme’s existing broad customer base. All in all, the Company will generate over $1 million savings annually in the first aid area thanks to the First Aid Only acquisition.

Currency Exchange Rate Impact

Any international Company, that operates in different parts of the world is subject to currency fluctuations. This is no different for Acme United.

In 2014, for example, the U.S. dollar strengthened versus the Chinese renminbi (RMB), which is in great contrast to the past several years, when Acme fought an uphill battle against a depreciating dollar. Now that the tables have turned, Acme might increase its margins somewhat on new products.

On the other hand, the U.S. dollar also significantly appreciated versus the euro and the Canadian dollar in 2014. That makes it tough on Acme’s Canadian and European segments because they have to buy their products in U.S. dollar. The only thing they can do to maintain their margins somewhat is increase their prices, which not all customers may accept.

Balance Sheet

Acme United’s bank debt less cash and cash equivalents on December 31, 2014 was $21.9 million compared to $11.3 million on December 31, 2013, which is mainly due to the Company’s cash position dropping from $11.6 million at the end of 2013 to $2.2 million at the end of 2014.

The significant drop in cash can be attributed to the $13.8 million acquisition of First Aid Only, $0.9 million capital improvements to the distribution facility in Rocky Mount, and $1.1 million paid in dividends on the common stock.

During the same 12 months period, the Company generated $4.6 million in cash flow from operations and sold its Fremont, NC plant for $0.8 million.

Amounts in $000’s	December 31, 2014	December 31, 2013
Cash and Cash Equivalents	2,286	11,644
Accounts Receivable	19,477	15,629
Inventories	33,671	28,219
Total Current Assets	57,511	56,986
Property and Equipment	6,931	5,936
Total Assets	79,308	68,079
Accounts Payable	7,773	4,789
Other Current Liabilities	7,590	5,087
Total Current Liabilities	15,363	9,876
Long Term Debt	24,147	22,912
Total Liabilities	39,880	33,074
Total Stockholder Equity	39,428	35,005
Most important balance sheet data for the periods ending December 31, 2014 and December 31, 2013. Source: Company Press Release

Accounts Receivable is up about 25% compared with last year, but that’s due to the strong increase in sales. Also, the rise in inventories of only $5.4 million despite the sales growth, the much wider product range and the acquisition of First Aid Only is notable.

Conclusion

For the first time in Acme United’s history annual sales reached more than $100 million. In fact, all four quarters in the past year set record sales. A remarkable achievement.

Nonetheless, looking at the number of products that are set to be launched, the synergies in the first aid business and the internal growth, we believe the Company will repeat that feat in 2015.

In the first and second quarter of 2015, for example, sales will see the contribution of First Aid Only for the first time, as it was acquired mid-2014. The integration of First Aid Only is also going very well. Acme’s three first aid brands are broadening their line of first aid kits and expanding the refill business, which positions them ideally with office products customers, mass market customers and sporting goods dealers. The first aid business now accounts for 35% of Acme’s total revenues.

At the Shot Show in January 2015, a great deal of new products were launched. Camillus presented the completely re-designed Carnivore X machete, the ‘Seven’ series folding knife line and an updated version of the highly successful Heat, Sizzle and Wildfire knives. Also, the once popular Western knife brand was re-launched with all new designs, packaging and branding.

The highly expected Cuda fishing tools are being shipped to customers at this moment. We expect a lot from the fishing gear, which includes snips, wire cutters, scale/skin grippers, knives and scissors.

Finally, there’s the solid internal growth from products such as the iPoint Orbit electric pencil sharpener, which has truly become an iconic product in its category and continues to be a phenomenal success.

Since our initial recommendation of Acme United, its stock climbed by as much as 160 percent. If you regret never having owned shares of the Company, here’s another opportunity for you as the Acme United team is preparing another record year.

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