Acme United Corp (ACU) 2015 Q1 法說會逐字稿

Good day and welcome to the Acme United Corporation's first-quarter 2015 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Chairman and Chief Executive Officer, Mr. Walter Johnsen. Please go ahead sir.

Good morning. Welcome to the first-quarter 2015 earnings conference call for Acme United Corporation. I'm Walter C. Johnsen, 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, 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 reported record first-quarter sales and earnings for 2015. Our net sales were $22.8 million for the quarter compared to $19.2 million in 2014, an increase of 19%. Our net income for the quarter was $436,000 versus $368,000 last year, an increase of 18%. Earnings per share were $0.12 compared to $0.11 in the first quarter last year. We are off to a good, solid start.

We are particularly happy about the performance of our Westcott scissor line, which continues to gain market share. The new iPoint Orbit pencil sharpeners with our titanium bonded coatings also performed very well with major retailers in the US as well as new distribution in Europe.

The new Cuda line of fishing knives and tools is shipping in volume now, and we are gaining recognition for the outstanding design and performance parameters. We are working with major office and industrial distributors to expand distribution of our Smart Compliance first aid kits, which help our customers meet OSHA and regulatory requirements.

Our Canadian and European businesses are being impacted by weaker currencies, so revenues were reduced by about 10% when converted into US dollars during the first quarter. This was particularly frustrating as Europe grew by 14% in euros but had a decline of 5% when reported on a US dollar basis. Both subsidiaries are negotiating with suppliers to reduce costs, increase in selling prices and trim expenses. While we cannot control exchange rates, we are managing our business in light of these changes. We estimate the weakened currency has reduced earnings in the first quarter by about $0.02 per share.

The First Aid Only integration is progressing. We have matched sales organizations, created a single training platform and are rationalizing duplicate components. Our systems are now on one IT platform and we are working to consolidate various operations. We intend to optimize our production sites over the coming quarters. We have begun to see the benefits of our combined purchasing power and now are focusing on operating leverage.

Last month, we received notification from the Connecticut Department of Environmental and Energy Protection that they have accepted our Form 3 verification for the remediation of our former manufacturing plant in Bridgeport, Connecticut. We've worked for nearly 10 years on this cleanup. This week, we removed all the monitoring wells. I am very pleased that we have brought this land back to productive use and have now completed the project.

As we look to the remainder of the year, we are adjusting our guidance to $118 million to $120 million in revenues and earnings per share of $1.45 to $1.50 based on the headwinds of the weaker currencies in Europe and in Canada. There are opportunities to improve this guidance and we hope to do so.

I will now turn the call to Paul.

Acme's net sales for the first quarter were $22.8 million compared to $19.2 million in 2014, a 19% increase. Net sales for the first quarter in the US segment increased 25%, mainly due to higher sales of first aid kits, introduction of Cuda fishing tools, and stronger Westcott product sales.

Net sales in Canada decreased 18% in US dollars and 8% in local currency. There has been a general softness in the Canadian economy in 2015.

Net sales in Europe decreased 5% in US dollars, but increased 14% in local currency, primarily due to higher sales of office products.

Gross margins were 37% in the first quarter of 2015 versus 36% in the first quarter of 2014.

SG&A expenses for the first quarter of 2015 were $7.6 million, or 33% of net sales, compared with $6.3 million, or 33% of net sales, for the same period of 2014. The SG&A increase was due to higher variable selling costs as a result of higher sales and the added First Aid Only business.

Operating profit was $826,000 in the first quarter of 2015 compared with $626,000 in the first quarter of 2014, a a32% increase. Other expense of $76,000 related to foreign exchange transaction losses incurred in our Canadian and European subsidiaries in January of this year as a result of the sharp decline in the Canadian dollar and euro as compared to December 31,2014.

Net income for the first quarter of 2015 was $436,000 or $0.12 per diluted share compared to net income of $368,000 or $0.11 per diluted share for the same period in 2014.

The Company's bank debt less cash on March 31, 2015 was $25.8 million compared to $13.9 million on March 31, 2014.

During the 12-month period, Acme purchased First Aid Only for $13.8 million and paid $1.2 million in dividends. Additionally, the Company generated $3 million in cash flow from operations and received $1.5 million from the exercise of employee stock options.

Thank you Paul. I would like to now open the call to questions.

(Operator Instructions). Steve Percoco, Lark Research.

Good morning. Could you talk a little bit more about your non-financial goals for 2015? I know you covered them a little bit during your opening remarks, but if you could be a little bit more specific, I would appreciate it.

There's a number of things. And the biggest nonfinancial goal is the integration of First Aid Only into our operations of first aid kits in Norwalk, Connecticut and Rocky Mount, North Carolina. We've got some duplicate operations. We've got some duplicate components from three different brands. So we are working hard to narrow down the number of components so that they can be used within the three brands. And that's well along its way. We've been doing that for the last 12 months.

We've already bid out the components that we have with the combined volumes. This year, we are expecting about $1 million in savings in cost of sales on the first aid side from that activity. However, there is more when we narrow down the components because obviously the volumes increase and you free up some inventory. There's also operations that are done in three locations that we will eventually narrow down to probably two locations.

Finally, the work that's being done at Pac-Kit in Norwalk will in time be gradually shifted to other sites as well. So there's quite a bit on our plate. We are also actively looking for acquisitions.

And one of the things that a strong dollar does, especially when it strengthens as quickly as it did in our case, is it puts real pressure on some of the smaller independent companies, both in Europe as well as in Canada. And we are seeing that as an opportunity with a strong currency here and the ability to possibly take advantage of a weaker competitor in one of those locations. We don't have something identified yet, but I can tell you that we are actively looking. I think this is very opportunistic.

Okay. And could you also -- my back-of-the-envelope numbers indicate that your capital spending was relatively high compared with what I thought was the goal for the year of $1.2 million. And so I would ask is your capital guidance, capital spending guidance still at that level of $1.2 million, and how will it proceed for the rest of the year?

We are basically going to be following somewhere around that level. We are upgrading a little bit of spring printing work in First Aid Only's operation in North Carolina -- in the state of Washington. We are operating some computer systems and phone systems, but these are not huge expenses. We are putting some more racking and computerized work in North Carolina for Internet sales. But if it's not $1.2 million, it's $1.4 million, it might be $1 million, but it's somewhere in that range.

Our capital spending was higher last year because we were refurbishing the facility we bought in Rocky Mount. We were still refurbishing that in the first quarter. So for the 12-month, capital spending last year was higher than normal. And the trailing 12 months would've been higher than normal as well. $1.2 million is more like the normal capital spending.

Okay, thank you very much.

(Operator Instructions). Scott Butler, Catalyst Research.

Good morning. Thanks for taking my call. Most my questions have been addressed. Can you remind us what percentage of utilization you are at in terms of the North Carolina, the distribution depot? And then I have a follow-up please.

The North Carolina facility has about 10,000 square feet of office space. And that's about 40% utilized. The facility has 425,000 square feet of warehouse space, and that's about half utilized. So, there's room to be bringing in both acquisitions as well as to handle growth.

And when you talk about acquisitions, Walter, I mean those would look approximately I assume like some of the deals you've done in the past. Do you have anything in mind in terms of industry exposure or end markets, or is this just kind of an idea that's brewing in terms of being opportunistic?

We have a history of being opportunistic, whether that was the Camillus scissor business -- or I mean Camillus light business or the Clauss scissor business or the C-Thru ruler business or First Aid Only, to just rattle off a few. But there is always something that we are working on. And the ideal acquisition for us is one where we can leave their facility and put it in our own. Now, if we were to buy something in Canada, that might be different, and I don't have something that's very far along there. But wow, with the strong dollar, there's a chance to really add some value if we can concept it.

Right, I agree. So in terms of recent order rates, have you seen any kind of stabilization with the dollar seeming to kind of rebound a little bit? And I know you don't have a crystal ball any better than anyone else does, but I'm wondering if you are continuing to see the declines, or have you seen some stabilization?

Let me just explain first the reduction in the revenues. About 20% of our sales come from Canada and Europe, so roughly that's $20 million. So if the dollar depreciated 10%, that's $2 million, so you go from $120 million to $118 million on your guidance.

The businesses in general are doing fine. In Europe in particular, there seems to be a rebound in the base business. And we are seeing it in April. We certainly in the first quarter had strong growth there in the local currency. And I would expect that to continue, and if it does, well, that's good for us.

In Canada it's different. It's much more of a commodity-based economy and they are softer. It's different than Europe. There, the oil and gas, the natural gas, the iron, it's impacting and making their economy sluggish. So I don't see the same growth that I see in Europe and Canada. But that's what I think is a short-term trend.

In the US, the Westcott business is doing very, very well and we are gaining market share. And the first aid business has good runway as well as a recurring revenue platform from refills. The one area of first aid that is softer is the portion that we sell into the oil and gas area, for example fracing kits and some of the bits for offshore rigs and lifeboats. But that's not meaningful enough to show up in the overall trends.

Thank you. I appreciate the color. I'll jump back in the queue.

(Operator Instructions). We have no additional questions in the queue at this time.

If there are no further questions, then this call is complete. I'd like to thank you very much for joining us. Good-bye.

Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation.