Acme United Corp (ACU) 2012 Q4 法說會逐字稿

Good day, and welcome to the Acme United Corporation Fourth Quarter and Year End 2012 Conference Call. Today's conference is being recorded. At this time, I would to turn the conference over to Mr. Walter C. Johnsen, Chairman and Chief Executive Officer. Please go ahead, sir.

Good morning. Welcome to the 2012 Fourth Quarter and Year End Earnings Conference Call for Acme United Corporation. I'm Walter C. Johnsen, Chairman, and CEO. With me is Paul Driscoll, who will first read a Safe Harbor statement. Paul.

Forward-looking statements in this conference call, including without limitations statements related to the Company's plans, strategy, 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, 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 operations 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 very good year in 2012. Net sales increased 15% over 2011. Operating income grew 25%. Net income increased 26%. Our earnings per share were $1.13 versus $0.91 in 2012, an increase of 24%.

All of our major brand groups and operating subsidiaries made forward progress in 2012. In the US, our net sales increased 20%. The Westcott product line showed growth due to market share gains of scissors and shears in the school and mass market. Our award-winning iPoint pencil sharpeners continued to gain placement in both the mass market and office superstores. The new TrimAir paper trimmers achieved national distribution.

The C-Thru family of letterings, stencils, protractors, rulers and mask kits was successfully integrated into the Westcott line, adding about $1.7 million in sales since its acquisition in June 2012. We're very happy with its performance.

The Clauss line of industrial cutting tools exceeded budget. We introduced new non-shears for professional users, and began distribution of our high-performance cutting tools to major US hardware chains.

The Physicians Care and Pac-Kit lines, our first-aid products and medications, also had excellent growth. This area has benefited from the office channel, where the [jamsam] segment has been performing very well for the superstores and independent dealers.

We won new contracts in the industrial distribution channel as well, and expanded the customers base to mass market retailers for their internal use, as well as their retail sales.

In Europe, we suffered from the bankruptcy and liquidation of Schlecker, a very large large drugstore chain with 17,000 stores. This represented approximately $1.5 million in annual revenues. However, we recovered by selling new Claus and Westcott products to the mass market, primarily, Lidl, Aldi, and Norma. Although total sales in Europe declined 1% in US currency, they increased 9% on the local books before currency translation.

Our Canadian business also grew. Sales of Camillus and Les Stroud knives were the primary drivers, but we also gained new mass market distribution.

At year end, we donated about $135,000 of school supplies to the Kids in Need Foundation. This provided excellent scissors and other products to those who need the most, and provided favorable tax treatment.

Gross margins for the year adjusting for the donation were 35.4%, compared to 35.9% last year. We had operating leverage from the growth in 2012. Overall, operating income for the year increased 25%.

As we look to 2013, we see sales in the $90 million to $95 million range with gross margins comparable to 2012. If we achieve the revenue growth, we would expect earnings per share to be in the $1.00 to $1.25 range, perhaps more.

I will now turn the call to Paul.

Acme's net sales for the fourth quarter were $19.5 million, compared to $15.8 million in 2011, an increase of 23%. Sales for the year ended December 31, 2012 were $84.4 million, compared to $73.3 million in 2011, an increase of 15%.

Net sales in the US segment increased 27% in the quarter, and 20% for the year ended December 31. The biggest contributors to the sales increase came from the iPoint Pencil Sharpeners, Camillus knives, first-aid kits, and C-Thru ruler products.

Net sales in local currency for Canada increased 7% in the quarter, and 5% for the year. Camillus knives contributed to the sales increase.

Net sales in local current for Europe increased 25% in the quarter, and 9% for the year. The increase in both periods was primarily due to increases in the mass market channel. Earlier in 2012, we lost Schlecker, a large customer due to their liquidation. Loss of Schlecker sales amount to approximately $1.5 million annually. However, the increased mass market business is more than offsetting the lost Schlecker business.

The fourth quarter gross margin after adjusting for the donation to the Kids in Need Foundation, was 34.2%, compared to 35.9% in the fourth quarter of 2011.

Gross margin for the year was 35.4%, compared to 34.9% last year.

SG&A expenses for the fourth quarter of 2012 were $6.1 million, or 31% of sales, compared with $5.2 million, or 32% of sales for the same period of 2011. SG&A expenses for the year ended December 31, 2012 were $24.4 million, or 29% of sales, compared with $22 million, or 30% of sales in 2011. The increase for the quarter and the year was primarily due to higher sales commissions and delivery costs associated with the higher sales, the additional sales and marketing personnel, the higher spending on new product development.

Operating profit in the fourth quarter, after adjusting for the $135,000 donation to the Kids in Need Foundation, increased from $522,000 last year to $600,000 this year.

Operating profit for the year ended December 31, 2012 increased by 25%. Net income for the fourth quarter and year end increased by 52%, and 26% respectively. The Company's bank debt less cash on December 31, 2012 was $14.6 million, compared to $9.7 million on December 31, 2011.

During 2012, we spent $1.5 million on C-Thru, paid $1.1 million in dividends, purchased $400,000 of Treasury shares, and added $5.7 million of inventory. The increase in inventory was primarily related to new Camillus products as well as other new business for 2013.

The $1.1 million in dividends represents 5 payment for the year, compared to the Company's typical 4 quarterly payments. We accelerated the January 2013 payment into December 2012 to provide a one-time tax advantage to shareholders.

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

Thank you. (Operator Instructions). We'll go to Richard Dearnley with Longport Partners.

Good morning. Let's start with gross margins. Usually gross margins are up in the fourth quarter. There are a number of things that come to mind that might have happened, but could you talk about the non-usual trend there? What happened? Was it introductory pricing to Walmart, or distribution costs, or what happened?

No, it was just a matter of a mix difference, product mix difference -- customer product mix difference.

Dick, I wouldn't read any significance into that.

No.

Is -- if you had a -- was a Camillus a large component of the initial sell in to inventory stacking?

No, that actually started in the second and third -- it started in the second quarter, continued into the third quarter, and the fourth quarter, but I mean, Camillus didn't affect the margin in the fourth quarter.

I would think that Camillus would be helping the gross margins, except for maybe airfreight if there were prediction screw ups, because demand was good.

Camillus is a good margin business.

Well, that then doesn't explain gross margins going down 300 basis points quarter-to-quarter, when they are usually up.

I can't give you an adequate answer for that. If you'd like to call offline, we'll go through a couple of --

It's really kind of -- Camillus had a positive impact, but there were other factors in terms of cuts or in product mix, which offset that.

Okay. And was the -- how did the EC do for the year in terms of operating profit?

You're asking how did Europe do for the year?

Yes.

Europe was profitable.

Oh, good. And looks like they had a great fourth quarter.

Yes, and they had a good year, too.

Honestly, if Schlecker hadn't, not only gone bankrupt, but then liquidated, it would have been a gangbuster year. But, it's the first profitable year Europe's had in quite a number of years, and they did a really good job recovering from what was a set back in June.

And was there -- what was the tax rate for they year pre the charitable contribution?

30%. The charitable contribution didn't really make that much of an impact. I mean, it was, in terms of rounding, it was -- the tax rate was 30%.

Okay. Thank you.

(Operator Instructions). It appears there are no other questions in the queue at this time.

Okay. Well, if there are not further questions, then this call is complete. I'd like to thank you for joining us. Goodbye.

That does conclude today's conference. Thank you for your participation.

Thank you. Bye bye.

Thanks.