Solid Second Quarter Performance and Outlook for Acme United

During the second quarter, ended June 30, 2011, Acme United (ACU – $10.10), the supplier of cutting devices, measuring instruments and safety products, generated sales of $24.0 million, an increase of 17% compared with the same period last year.

Back to school sales were strong, Pac-Kit, which was recently acquired, is already contributing nicely and new product sales are doing well. Projections for 2011 remain strong and the Company expects the European segment to be profitable in the second half of this year.

Second Quarter And Six Months 2011 Results

Net sales for Acme United’s second quarter were $24.0 million, compared to $20.6 million in the comparable period of 2010, or an increase of 17%. For the first half of 2011, sales were $38.4 million, compared to $33.7 million in the same period in 2010, an increase of 14%.

In the U.S., net sales rose by 22% in the second quarter compared to the same period in 2010 mainly as a result of strong iPoint Pencil Sharpener sales and Pac-Kit, which contributed about $1.8 million. In Canada, sales increased by 15% in the second quarter compared with last year, thanks to growth in office products sales, increased distribution channels and a good reception of the AirShoc garden products. In Europe, sales decreased by about 20% compared with last year due to the timing of mass market promotional sales.

What’s really positive about the European segment is that management, during the second quarter conference call, said that more mass market promotional sales are expected this year compared with last year, but that they will occur in the second half of 2011. Also new business in the manicure and office channel is expected later this year. All of these sales, along with the deep cost reductions announced earlier this year, will make Europe profitable during the remainder of 2011.

Net income, for the second quarter ended June 30, 2011, was $1,743,000, or $.56 per diluted share compared to $1,567,000 or $.48 per diluted share for the comparable period last year, an increase of 11% in net income and 17% in diluted earnings per share. The higher diluted earnings per share can be attributed to Acme purchasing 94,622 shares of its common stock for treasury during the past 12 months.

	Three Months Ended June 30		Six Months Ended June 30
Amounts in $000’s	2011	2010	2011	2010
Net Sales	24,029	20,585	38,430	33,706
Cost of Goods Sold	15,346	13,034	24,439	21,042
S, G & A Expenses	6,223	5,605	11,348	10,417
Income From Operations	2,460	1,946	2,643	2,247
Other Income (Expense)	(77)	(62)	(99)	(97)
Pre-Tax Income	2,383	1,884	2,544	2,150
Income Tax Expense	640	317	681	370
Net Income	1,743	1,567	1,863	1,780
Earnings Per Share	0.56	0.48	0.60	0.54
Shares Out. – Diluted	3,118	3,289	3,115	3,270
Most important income statement data for the quarters and six months ending June 30, 2011 and June 30, 2010. Source: Company Filings. Notice that the tax rate for the first six months of 2011 was 27%, compared to 17% in the same period of 2010. This was due to approximately $180,000 tax benefits associated with the Company’s donation of land to the City of Bridgeport, CT in the fourth quarter of 2009.

Gross margins slightly decreased to 36.1% in the second quarter of 2011, compared with 36.7% in the comparable period last year. This was mainly due to the fact that Pac-Kit’s margins are lower than most of Acme’s other products.

Pac-Kit

The integration of Pac-Kit Safety Equipment Company, one of the oldest manufacturers of first aid products, is going very well. The acquisition was closed on February 28, 2011 and already the accounting and IT systems and support have been fully integrated.

Now, Pac-Kit is focusing on growing its revenues by introducing products into Acme’s existing distribution channels and into new markets. Acme’s management indicated that the sales and order book for Pac-Kit continue to be strong.

Also, in the following quarters Pac-Kit’s profit margins should start to reap the benefits of the Acme/Pac-Kit combined purchase of raw materials and of Acme’s direct sourcing capability in China.

Asia

During the conference call, Mr. Johnsen, Acme United’s Chairman and CEO, also said that the Company’s intensified focus on Asia Pacific is paying off as the shipment of the back to school products was handled with as little airfreight as possible.

Now the focus will shift to productivity improvements, raising output, quality control and the supply chain.

Conclusion

Acme United is clearly off to a good start in 2011 with higher revenues and earning in both the second quarter and first half. Pac-Kit has been integrated smoothly and the focus is now on increasing its revenues and profitability. The European activities will finally start to contribute to the bottom line thanks to increased sales and lowered costs. And the Asia Pacific efforts from earlier this year, will start to bear fruit in the coming quarters.

Overall guidance for fiscal year 2011 remains at $70 to $75 million in sales and $1.00 to $1.05 earnings per share with upside potential thanks to increased business. Buy recommendation.

For important disclosures, please read our disclaimer.