Acme United Corp (ACU) 2012 Q3 法說會逐字稿

Good day, everyone, and welcome to the Acme United Corporation's third-quarter 2012 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Walter Johnsen, Chairman and Chief Executive Officer. Please go ahead, sir.

Good morning. Welcome to the third-quarter 2012 earnings conference call for Acme United Corporation. I am Walter C. Johnson, Chairman and CEO. With me is Paul Driscoll, our Chief Financial Officer, who will first read a Safe Harbor Statement. Paul.

Forward-looking statements in this conference call including, without limitation, statements related to the Company's plans, strategies, objectives, expectations, intentions, and adequacy of resources are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Investors are cautioned that such forward-looking statements involve risks and uncertainties including, without limitation, the following. One -- the Company's plans, strategies and objectives, expectations and intentions are subject to change at any time at the discretion of the Company. Two, the Company's plans and results of operation will be affected by the Company's ability to manage its growth. And, three, other risks and uncertainties indicated from time to time in the Company's filings with the Securities and Exchange Commission.

Thank you Paul. Acme United had a good third quarter. Our sales for the quarter were $20.4 million, an increase of 7% over last year. Net income increased 17%. For the nine months of the year, sales increased 13% and net income grew 23%.

Our sales in the US in the third quarter were strong, increasing 11%. Canadian sales increased 19%. European sales declined due to the liquidation of Schlecker, its largest customer. There was also a decline in revenues from Europe due to the weakness of the euro.

Back-to-school sales were strong with strong growth of our iPoint pencil sharpeners. We began shipping Camillus Knives in much higher volumes than last year. Sales of the Pac-Kit and PhysiciansCare first aid products were excellent.

In June 2012, we acquired the C-Thru Ruler company. Revenues in the third quarter from C-Thru exceeded our expectations and totaled about $900,000. Gross margins for the third quarter increased 1 percentage point to approximately 36% compared to last year. New office products, higher Camillus revenues, improved Pac-Kit margins, the reduction of low margin business at Schlecker, and the impact of the C-Thru product line all contributed to the improvement. We believe this trend will continue for the rest of the year.

Operating income for the third quarter increased 21% and 30% for the first nine months.

The fourth quarter of the year looks strong. We are beginning shipments of iPoint pencil sharpeners to new customers, increasing shipments of Clauss industrial tools and filling customer demands for Camillus Knives.

It is too early to give guidance for 2013, but we see potential revenues in the $90 million to $95 million range. We will be refining this as we close new business opportunities and roll them into the forecast.

I will now turn the call to Paul.

Acme's net sales for the third quarter were $20.4 million compared to $19 million in 2011, an increase of 7% or 8% in local currency. Sales for the nine months ended September 30, 2012, were $64.8 million compared to $57.5 million in the same period in 2011, an increase of 13%. Net sales in the US segment increased 11% in the quarter and 18% for the nine months ended September 30.

The biggest contributors to the sales increase in the third quarter came from Camillus Knives and C-Thru Ruler products. The year-to-date figures also included higher sales of iPoint pencil sharpeners, paper trimmers, and first aid kits. Net sales in local currency for Canada increased 21% in the quarter and 5% for the nine months. Camillus Knives contributed to the sales increase. Net sales for the year decreased by 14% in the quarter in local currency through the loss of Schlecker, large customer sales for the nine months increased 4% in local currency compared to the same period last year due to higher sales in the growing mass-market channel.

The loss of Schlecker sales amounts to approximately $1.5 million annually. The increased mass-market business is mostly offsetting the lost Schlecker business.

SG&A expenses for the third quarter of 2012 were $6.1 million or 30% of sales compared with $5.5 million or 29% of sales for the same period of 2011. SG&A expenses for the first nine months of 2012 were $18.3 million or 28% of sales compared with $16.9 million or 29% of sales in 2011.

The increase for the quarter and nine months was primarily due to higher sales commissions and delivery costs associated with increased sales, new product development spending and higher personnel-related costs. Operating profit in the third quarter increased from $1.1 million last year to $1.4 million this year, a 21% increase. Operating profit for the nine months increased by 30%. Net income for the third quarter of 2012 was $798,000 or $0.26 per diluted share compared to a net income of $682,000 or $0.22 per diluted share for the same period of 2011.

Net income for the first nine months ended September 30, 2012, was $3.1 million or $1.00 per diluted share compared to $2.5 million or $0.82 per diluted share in the comparable period last year.

The Company's bank debt less cash on September 30, 2012, was $14.2 million compared to $11.9 million on September 30, 2011. During the 12-month period, we spent $1.5 million on C-Thru Ruler, $400,000 on treasury shares, and paid $800,000 in dividends.

Thank you, Paul. I will now open the call to questions.

(Operator Instructions). Jeffrey Matthews, Ram Partners.

I'm on a cell so if it doesn't cut out. I just wondered (technical difficulty) contributing these (technical difficulty) percent level yet. (technical difficulty) What kind of retailers are you into with Camillus Knives?

The question broke up a little bit, but I think what you asked was regarding Camillus Knives. What type of retailers are we selling to. And the answer to that is the Camillus product family has opened up a large segment of sporting goods retailers. And those that either have the product now, the Camillus Knives now, or have shipments on the way include Cabela's and Bass Pro Shop and Smoky Mountain Knife Works and Wal-Mart, Canadian Tire. Those are some of the big ones. And there are many, many smaller ones as well.

What we have found is that the Camillus Knives, which are really well done with Japanese and Swedish steel and US steel but made in China, hit price points and performance points that are outstanding in the market. So we are getting good reception from that.

The other thing that we are finding is that the Les Stroud survival tools are doing very well. And in fact in Canada, one of the reasons for its growth there, in part, was due to the strength of the Les Stroud brand. So we are very excited about that.

Great. Thanks.

Bill Jones, Singular Research.

Just a follow-up on that Camillus. So that is the Survivorman product?

Well, it is much more than that. The Camillus product family has folding knives, hunting knives, the tiger shark knives which have replaceable razor edges. They have got machetes. And in addition to (multiple speakers) but they've also got the Les Stroud line, which is the survivor -- survival tools.

Right, I meant that's what is causing the strong sales.

Yes, well, the whole (multiple speakers) product family is.

Okay. Then you had also mentioned the C-Thru Ruler's doing better than you had anticipated. I think you said $900,000 in sales in the quarter. Can you give us how -- what -- how much better that is or some kind of level of magnitude?

When we modeled the business we assumed it was somewhere around a $2 million business. And, obviously, if you do $900,000 a quarter, you have done better than you expected.

The business is changing pretty quickly as we bring it into -- the product line into the mass-market and our other categories. So it is going to be hard to measure comparables compared to our budget. But when we modeled it at least, we were very conservative. So if you took $2 million and divide it by 4 you expect $500,000, $600,000. It came in at $900,000.

And finally the Schlecker situation in Europe, is that pretty much resolved now?

Well, it's resolved because they liquidated most of the stores. I can't think of a worse scenario for a customer that already goes bankrupt. You can plan for that and you can work with the administration so you have -- bankruptcy administration. But when they liquidate it, well, you have got to get new customers. so it is resolved in regards to we are not selling to them anymore in any volume. But -- and that was pretty abrupt.

But the other side as Paul pointed out the mass-market business to Legal and [Aldi] and Res-A and so many others. We have got products that will take some time to get placed, but we are making progress there. And we expect this to more than compensate for the Schlecker loss in the next year.

Excellent. Thank you, gentlemen, for taking my question and congratulations on another solid quarter.

Thanks, Bill.

(Operator Instructions). Richard Dearnly, Longport Partners.

Good morning. Could you talk about the shipping cadence of [announced] placements and then Wal-Mart placements in terms of -- how much has shipped versus in the quarter versus visible orders and placements?

Dick, I'm not quite sure I understood that question, but I will attempt to answer it. (multiple speakers). Scissor Mouse is a proprietary and patented -- patent pending item that will cut a piece of paper very, very quickly. It looks like a mouse for a computer. It has got a little blade underneath it that's shielded from the surface beneath it. It captures the paper and cuts it very, very quickly. We have got that placed in quite a number of mass-market retailers for the fourth quarter. And it's, for example, used for wrapping paper.

Now, regarding the shipments of those, we shipped some in the second quarter. And that was mostly to Staples. And then in the third quarter, we shipped more and in the fourth quarter we expect to ship more in preparation for the Christmas and holiday period.

So you are really expecting that to be a Christmas item?

Well, --.

I mean an overall item, but initially it -- in terms of placements, it will be a fourth-quarter item.

Yes, it is clearly in for Christmas, but the product itself, we believe, has a lot of application in the craft area. And as we work through later generations with that, I think it could be quite a bit of a family that has everyday use.

Right. And then kind of the same question for Camillus. You're gearing up and have a lot of placements. How much of those are actually in the stores versus still getting produced or in inventory?

The holiday and hunting season is a big area, big timeframe for Camillus. So we were shipping Camillus Knives in August and September in pretty good volumes. That will step up in October and November as we are filling stores both for hunting and, of course, Christmas and the holidays. So the bigger Camillus shipments are yet to be achieved.

Right. I see. And then, maybe for Paul, or -- but an SG&A question. SG&A seems to be going up $400,000 or $500,000 a quarter on a year-to-year basis. And the percentages were meaningfully down. As a percentage of sales they were down 310 basis points in the first and 150 in the second period and then up 80 in this quarter. Which one of those trends is correct for the future? And then part B of that. Was there a bonus accrual this quarter?

No. There was not a bonus accrual for the quarter and so we put everything into earnings.

But let me address the SG&A. We are adding some staff to handle some future growth. One area is in the e-commerce area would be [federal]. Another is in the mass-market sales area/craft area. We have added another person. We've added somebody in Asia for additional sourcing. We've added a quality control person in Guangzhou for, again, quality control source and audits. And this is just part of -- you know, we are cracking into this next level of growth and preparation for next year and the actual hiring happened to have fallen a lot in the August and September range. But somewhere between 29% and 30% is kind of where the SG&A has been running.

It is probably going to be 29% for the year. Fixed.

Okay.

It's typically lower in the second quarter as a percentage because that's (technical difficulty) the most of the sales volume is -- yes.

Well, 29%, if memory serves, is significantly below where you have been running. So that's doing -- sales leverage is good.

We were at 30% at the end of last year. So --.

Right.

[point].

Great. Well, thank you very much.

(Operator Instructions). Jeffrey Matthews, Ram Partners.

Hi -- (technical difficulty). Walter, (technical difficulty).

Yes.

His line did disconnect. We will go on to Tom Spiro, Spiro Capital.

Tom Spiro, Spiro Capital. That afternoon. My usual question, Walter. Anything over in China that we should be thinking about? Adding factories, closing factories, facing competition, what have you?

Well, we have just had quite a number of people in China both for meeting customers and their buying trips as well as review of some of our new products and our costing for next year. And I can tell you that the economy seems to be slowing there. That is certainly not new news.

We are expecting the R&D to be pretty much holding stable although it strengthened in the past against the US dollar in the past week.

We are placing orders for production earlier than we did last year. We are trying to get the factories to run a little bit more efficiently by aggregating them and having longer runs and giving them time for the back-to-school and some of the new business that we have got set up starting next year.

But short of that, it is pretty much business as usual. The lending rate is a little bit higher, so for some of the factories they've been like 8% interest, and so they are paying attention to their payment terms. But in general it is pretty much the same as it has been.

As we continue to grow, Walter, are we going to maintain our pretty significant dependence upon China as our source or are you giving a little thought to other locations?

We're giving a lot of thought to other locations. But honestly, the Chinese operation that we have is running very, very well. And we are managing some of the costs. For example, the labor costs by increasing productivity and designs.

The C-Thru business was moved to China. And so, that is an additional piece of business in Asia now. But we may find an acquisition in the US that, similar to Pac-Kit, that gives us some more domestic production. If that were to happen my guess is that it would not be in scissors, but something maybe higher value-added like knives or in the first aid area.

That's helpful. Thanks. And then lastly on C-Thru, now that we have owned it for a brief period, any further thoughts on where you may take it over the next year or two?

Well, I can tell you that we are integrating it into our major product line. We are pushing at the products across the board to our mass-market customers as well as our craft customers, in addition to the online customers. It may not have the same growth legs that, say, Pac-Kit does because of the first aid area, which has so much increasing utilization, it is almost across the board with our customers. But it's a good solid addition to our Wescott family. And my guess is that it will be a low end contributor next year.

Is the market primarily schoolkids?

No, you would be surprised. We have got C-Thru products that are in the marine area for navigation sets. We have got C-Thru products in places like Rhode Island School of Design. We have got them in many of the craft stores. Big in Michaels and Jo-Ann Fabrics. So it is a broad base of customers.

But in each case, they were looking for higher quality products that addressed crafting needs or specialized measuring areas like navigation.

Well, that's great. Thanks very much and good luck.

Thank you.

Jeffrey Matthews, Ram Partners.

Just wanted to say thanks for answering the question on China, Walter.

Okay, Jeff. Anything else?

Non that's it.

And we have no further questions from the phone audience at this time.

Well, if there are no further questions, I would like to thank you for joining us. This call is complete. Goodbye.

Thank you. Ladies and gentlemen, that does conclude today's conference call. We would like to thank you all for your participation.