Q1 2020 Earnings Call
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You are currently on hold for the acting United Corporations first quarter 2020, <unk> earnings Conference call. At this time, we are suddenly today's audience and plan to be underway surely. We appreciate your patience and please remain on the line.
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Good day and welcome to the United Corporations first quarter 2020 earnings Conference call. At this time I would like to turn the conference over to Mr. Walter Johnsen. Please go ahead Sir.
Okay. Welcome to the first quarter 2020 earnings conference call to Acme United Corporation.
Walter C. Johnsen, chairman and CEO.
With me is called Driscoll Chief Financial Officer.
First read it safe Harbor statement wall.
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 provision.
Private Securities Litigation Reform Act, a nice 95.
What's yours are cautioned that such forward looking statements involve risks and uncertainties such as among others. Those are rising as a result to the effects of the cobot 19 pandemic, including the ongoing economic downturn and the other risks and uncertainties described in our periodic filings with the securities.
And exchange Commission and in our current earnings release.
Thank you Paul.
Neither had a strong fourth quarter of 2020.
Oh, net sales were $35.8 million compared to $31.4 million.
First quarter with 2019, and then please like 14%.
Our net income was $1.27 million, but increase of 58% over the first quarter of 2019.
Earnings per share increased from 24 cents to 36 cents well 50%.
Sales at first aid and safety products led the growth.
The company has gained market share with its more compliance industrial real estate product line and passive safety had digital replenishment system.
We have new sales and filling the largest home improvement and industrial distributors in the United States.
Online sales of consumer first aid kits.
That's a septic wipes medications and refills.
All been at record levels.
The growth in the first aid safety area was very strong in the first two months as the quarter.
And then surged with what we believe with additional filled with my team demand.
Revenue will grow whats called particle on in the U.S. declined compared to last year, but this was offset by growth in camillus knives, and DMT sharpening tools.
Sales in Europe increased 19% due to growth in what Scott you Didnt see first aid and online business.
Our revenues in Canada without the impact with real estate central were comparable to last year.
Critical factor in achieving our strong first quarter results is that our production and distribution facilities.
Domestic and international.
And open to any pull the 90 pandemic.
In January 2020, we acquired first is central to first aid and safety supplier and build out of Canada.
This company expanded eligibility to provide safety products, which we hope candidate.
Relations through our existing Canadian customer base, as well as though a large multinational customers.
First stage central as the school online presence together.
Leveraging both our customer bases and sorts and spreads.
Real estate central contributed about $1 million to only residents in the first quarter.
As we're all aware world is battling a global health crisis and could live a good economic disruptions.
Our first aid and safety products or central to meeting a small portion of the very large problem.
It was extremely strong demand for maps.
Good.
Protective equipment.
In many other widened to go into personal protection.
Still cleanup bodily fluid blood borne pathogens interested kits.
We're also seeing record demand war or either reducing medications.
In many cases, we're purchasing items on the spot market I'd call well above normal, but then adjusting prices to our customers.
Hackneyed goal is to consistently deliver supplies to our customers at the best values, we can.
Oh for instance, I wouldn't has been the safety well being of all employees they take fulfill our operational activities.
In our production in warehouses and sites, we're monitoring health.
Right and protective gear scheduling shifts and doing regular de kooning.
Our sales teams in our associates in offices in the U.S.
Column, Canada in Germany.
Oh working remotely together.
That's moved five plants and warehouses in United States are running multiple shifts.
Oh offices, and Juan Jos Limbo channel fully staffed.
And our factories in China, generally running at 65% to 80% or capacity.
Our Canadian and European offices are working remotely, but their warehouses are functioning and truly proud of what teams were making a small but real difference.
We finished 2019 that strong results and our team again delivered in the first quarter 2020.
Demand for our first aid safety products remains very strong.
However, we believe that the global demand for Wesco cutting tools DMT sharpening products could have fishing tools and camillus knives will be weaker than last year. Many of these items are sold in stores that are either closed or have limited traffic.
We see our online business continuing to grow which may help to offset some of the projected weekends to ourselves.
Overall, we believe we are in a school in position to move forward.
However, due to the many quoted related uncertainty, which we face we will not at this time be providing guidance for the coming quarters in a year now.
I'll now turn the call to pool.
Acme United is net sales for the first quarter were $35.8 million compared to $31.4 million in 2019, or 14% increase net sales in the U.S. segment increased 11% on a quarter. The sales increase came from first date in safety products primarily.
In market share gains and to a lesser extent gains from cobot 19 related surge demand.
Net sales in Europe for the first quarter of 2020 increased 19% in local currency compared to the first quarter 2019, mainly due to new customers.
In the office products channel increased ecommerce sales and continued growth of DMT sharpening products that sells in Canada.
Excluding first trade central products to the first quarter of 2020 increased 1% on local currency sales. The first aid central products amounted to a million dollars in their first quarter gross margin was 37.8% in the first quarter 2020 versus 37.6%.
In the first quarter of 2019 Sta expenses for the first quarter 2020 for $11.5 million, a 32% them that sales compared with $10.3 million or 33% of net sales for the same period.
2019 operating profit in the first quarter of 2020 increased 31% to the first compared to the first quarter of 2019 interest interest expense declined $187000 and the first quarter to a lower interest rate as well as lower bank debt net income for the firm.
First quarter 2020 was a million.
Hundred 77000, or 36 cents per diluted share compared to net income of $807000 or 24 cents per diluted share for the same period of 2019, 58% increase in any come at 50% and earnings per share the company's bank that lives.
Cash on March 31, 2020 was $32.9 million compared to $41.2 million on March 31 2019.
During the 12 month period, we paid 2.1 million for the first aid central acquisition spend $1.8 million on dividends and stock buybacks, we generated $14 million and free cash flow, we reduced inventory by $4 million during the 12 months.
Credit facility with HSBC Bank is $15 million availability on the line was $16.1 million at March 31, 2020, we firmly believe that the line is sufficient for the foreseeable future.
Thank you Paul well now open the call two questions.
Thank you if he would like to ask a question. Please take note by pressing star one on your telephone keypad, if you're using his speakerphone. Please make sure. Your mute function is turned off to allow your signal chemistry equipment.
Again press Star one to ask a question and where possible just a moment to allow everyone the opportunity to signal for questions.
And that is star why if he would like to ask a question well pause for just a moment.
Well, we have a question Chris lazy what LD micro. Please go ahead.
Thank you gentlemen, quick question on the supply side or is there any disruptions that you guys are already kind of seems right now and where do you feel the most demand is showing that come in the next six to nine months moving forward. Thank you.
Well, Chris there's a lot of disruption on the perceived and safety side as you can imagine many of the items that were selling loans masks protective gear, which qunar first the.
No its relationships workflows individually well, there's a lot of competitors buying and so we're buying when the stock spot market in some cases.
Relative to our own stopped we just talked quite well and weve been very aggressive with our team on Friday mini sites in China buying getting things on vessels and coming in and then pack down or facilities.
The ability to be able to respond hands on on site write a check led to a Hong Kong office, because im reasonably big advantage relative to a distant purchases and in most cases. These are suppliers that we've worked with for many years.
There or.
Disruptions relative to a air freight great number of the air freight carriers are focused right now on delivering safety supplies to governments around the world.
And so to get.
Claims for doing air freight is very expensive right now, it's approximately three times once more and more or so.
Supply disruptions challenges, but I'll tell you, it's an opportunity as well.
People that can execute well.
Understood and then one more question there has been significant demand on the God and the ammo side in the last six eight weeks have you guys seen any type of you know search on the night side on on your end.
Yes, we have a the camillus knife business both in the U.S. ended in Europe.
Has been doing well online many of the not everywhere, but in some places gun shops are closed but online so.
Sounds amazing and.
What the bike seems unusual for example.
Machetes.
Who sold an incredible number machetes then that's a product they do so regularly but we didn't expect that kind of demand.
Walter Thank you again crucially.
Thanks, Chris.
And as a reminder, that is star one if you will like to ask a question and our next question comes from Richard Dearnley Longport Partners. Please go ahead.
Good morning.
Yeah, what are your Yang.
The annual report you talked about being ready for back to school because of getting inventory or you know wesco and related.
Which was good planning I guess or any feel for how much extra inventory or you know.
Yeah, and the end of March or you know is kind of early inventory.
Well.
The number of births in the United States tends to run about 3 million.
Hey.
Young babies born each year, you know a few years later, there and fifth grade sits grade seventh eighth grade.
And so the back to school has a reasonably predictable population.
And there will be a back to school and are customers or.
Wind up and or buying and taking deliveries and back to school product.
The no that some schools and close most schools to close early.
We believe that most of the supplies that are in law makers are going to be.
Removed and it's going to be a lot of fresh demands we think in any case.
The purchase orders that we executed against in the fall in gold inventory in early if you know a warehouse.
It does shipped in the.
April May June time frame, a little bit in July.
Our factories are producing some items for new business that we've won at.
The largest mass.
Merchandisers, particularly in the craft area.
So that inventory has a place in a home and I'm not.
I'm, not saying, it's business as warm up because it isn't but again when you remember the members students that each year going through the grades and hasn't changed language.
Mhm.
In in a bigger look it at inventories are your inventories were down 4 million or so last year or is there.
More.
You know tighter inventory is still the girl.
Well there is some work, but one other things we've done over the years and Oh I'm sorry in the past five years.
Through acquisitions and removed more and more and more business into manufacturing sites. The packed in first aid company the Oh.
The first aid only acquisition deal he acquisition the school Magic after acquisition and now first aid central either one manufacturers and the turns on manufacturing.
Or much quicker than they are then you've got a long delivery from China time on the water through customs intermodal to your warehouse.
And typically for us the.
Products are we import will turn.
To the tune a half times a year.
The good manufacturing site, you should be able to move that up substantially.
And to look at four times turns on manufacturing is not at all and reasonable. So as we do that we're seeing is we were freeing up inventory in turning that into cash.
And then we'll also using that to pay down debt because point.
Right.
In a given the current environment, where Ah you know, there's a little liquidity squeeze and so on.
You know if it's hard to a kind of them play the acquisitions, but I would think there might be you know some distress or peering her in there.
Well I hate to look at that is a or an opportunity because there are no companies struggling and we may find that.
We'd be a good home for them.
The how to cool as recently as this morning.
Ooh for something that that did not work for us.
But.
You know a them there maybe opportunities and we certainly we'd welcome the phone calls if we can help.
Right.
Okay. Thank you.
No.
And our next question comes from Jim are wrong with singular research. Please go ahead.
Yeah good afternoon.
My apologies if he's already covered it on if you have perhaps just because you could provide maybe a little bit more color.
Just in regards to.
You know the emphasis on pp indeed.
As of late as well as going forward.
Just a couldn't give us a friend.
Or a little bit more commentary.
In regard to on how that could impact the or your first state line.
And can you.
You know capitalize on it.
And yeah, just a little bit more commentary on parts to that.
Well, we Trello full line of proceed and safety products as you know and typically that's been about half of the or global sales.
Its higher right now.
In part because we won some major new business with large industrial distributors.
And.
Hardware chains in the United States that came online in the first quarter and will hopefully be long term business for US is gonna piece, there that continues to grow and that's being driven impart by our safety huh.
Replenishment system import just through.
Competitive pricing and good service.
But we're winning new business in the second thing is a portion of the first aid product one all the physicians care medications, which are key to reduce and compares them for years, the blood borne pathogens kits and the.
Bodily fluid kits, which are used to clean up.
Various bodily fluids. That's all incorporating are still magic material was the active ingredient that goes kit surround them that business is not only growing but because we're manufacturing the active ingredients. We're leveraging two clients that are making.
In the products and we believe that's a business that will continue to grow.
Basically because I think many of the changes that we're making in our behavior globally.
Impacts isolation and proper clean up of smoking bodily fluids.
What the.
The isolation gallons the mask some gloves every first aid kits that we felt as opposed to has a pair of gloves and so did you know long term product for us incorporated into the kits.
When we started to get more demand for accruing Lytro gloves.
Packages you Feldman.
Yeah, the sources and that business you think you'll be continued good business was going forward.
In Vacates of masks. The N. 95 masks are used in other words spill cleanup kids are broadly tool kits are isolation kits.
And we also and sell them individually and that's been a strong bookings worse, it's up in the main business and pp. He is not the main business, but there's an extra piece, where it's now being required by our distributors and we're happy to supplies and.
Them thing that we have that.
We'll stay with us distribution base.
The largest industrial distributors.
In the World <unk>.
The largest foodservice distributors.
The largest contract.
Men distributors of office and those kinds of supply as.
We're locked into some major distribution both in the lesson in Europe, and you're feeling that demand as well looking through the fall.
What I see is a continuation perhaps with some different kits utilizing some of the personal protection some of the alcohol prep peds, he's selling alcohol wipes to clean wounds were putting them in different forms including those from kits.
And.
That trust.
He is one that I see its continued growth.
Yes, probably will be a catch up in operating kinds of down because there's massive production going on with that right now for the hospitals you don't really participated in that market and I would not expect us to.
But for the broad based people working in factories working at home working in offices.
We are very much in the mainstream.
Excellent. Thank you for that commentary and just as a follow up.
If if he just discussed maybe the other product lines now I know you.
I mentioned quite a bit about the.
The school supplies and all but maybe more little bit more specifically in terms of the our sharpeners in a servers.
And that type of product line.
Well so.
If you took the scissor business as an example, my guess is in the past two days almost everybody on this line has opened a fedex package.
And many people use scissors due to open those and the demand for.
These products tend to be higher performance ones that can come through cardboard.
Don't good Nonstick is a good feature Chris we need in that category.
And the craft area.
That led to an area, where you are scissors are constantly in use.
And there's a separation retailers as we see it there were large mass merchants, that's merchant accounts, such as the Walmart, we're targeting cosco, which offer food.
And they are thriving.
There are others, where they don't have food when they have special niches and they tend to be closed right now and so you've got a migration glowing.
To some retailers who are.
Why is the you know very good way and then of course, you have a migration online when you found on our lot online business.
Is that a.
Last year online this.
This is off the conference about 12% to 13% of our residents it's somewhere in the first quarter was up to 18% and it continues to climb more is going online and we're certainly seeing that in the scissor area. We're sitting in the the cutting arena in general.
When we gave the cautionary statements about let Scott or concern was that in stores were closed.
Sales that would normally go there have to get diverted and some do get devoted to the drives in stores and online and some probably lost plus my guess is this lesser demand because we grew as most of schools wouldn't come.
But in general.
What Scott product one is the good product line to healthy product line, and particularly back to school with quite predictable.
Excellent color. Thank you so much Shannon.
Sure.
And our next question comes from Ralph Marcia.
Iressa first Manhattan Company. Please go ahead.
I married frankly carcinoma.
Hi, how are you doing.
Good route very good thank you.
And as you increased sales and certain products and diverse product into different distribution, certainly and in terms of online or and your first aid product.
Category.
You're obviously going to have increased costs that normally don't get factored in can you quantify at all on the relationship or an increase car to increase fail.
Well Ralph that's.
That's pretty granular I'll take a credit.
So if we sell to a Oh and office Superstore <unk>.
Margins tend to be very compressed every small number of products, it's very competitive business. If we sell the same product online.
The margins probably are better because there's some more cost in the back side of on shipping no spends a lot of money.
Improving or North Carolina major distribution center and as you may remember over the past year and a half who is not only.
Capital spending, which has continued capital spending but training and.
And systems, and and we've gotten a lot more efficient there and you see it frankly in the operating income.
The.
Online business also had one piece, which means the say an Amazon is buying it for retail and also tends to be more profitable than a sell to I'm, saying office superstore.
On the other hand, if we're selling to the ER.
A small specialty store you may be getting very good margins and so you have that doesn't have a mix change and again, that's complicated or higher margin things like the nonstick products isn't the titanium coated scissors have a lot of high performance.
Attributes, but they tend to be higher margin.
And do so a lot of that online.
The.
Good news is whether it's been an online accounts or it's been or existing business with other accounts, where new accounts once we have.
Customer base, where you're not getting new accounts, we just shipping more to them.
And so those orders are effectively managed.
If I were to.
Point, you to the gross margin in the first quarter when compared to last year was about flat.
So the net of all that it was about flat.
Look at how we process those orders you get a better job.
And that's showing up in the operating income and hopefully as we continue to work on that area I think we can even do better.
We are seeing more costs and the first aid so I wouldn't we.
By spot market for example.
And 95 masts, which are in the news a lot well they were not first aid kits and so when we've been buying those we've had to increase the price to our customers to reflect or.
Yeah higher costs for supplying the products in cost would be probably need that they really have.
One we're running our factories not running at.
As efficiently as we might normally times, because you have staggered shifts we have overtime. This weekend.
Most of our Frac crews are working on Saturday.
There's also extra wages that we're paying a this in.
Two plants that I think is immediately we shut down for two full days in order to use deep cleaning because we suspected an employee had oh corporate borrowers, but each of into plants. They didnt, but you're down for two days and your continued 20 pay workers. So this summer.
Inefficiency that.
Popping around both in our costs as well is how we're going in the factories, but the flip side of that is the volumes have been wasn't program and in aggregate even with that in the first quarter, who about calm people in cost of sales.
Yes in gross margin.
So [laughter], what I heard wise that.
The increase the puts and takes and gross margin.
For the increased sales increased revenues the increase increase throughput.
That we saw in the first quarter.
Are likely I carry through during the.
Emergency period.
Well, our attorneys have been careful to tell us not to be background to guidance because you know there's a lot of uncertainty.
But.
They said you can certainly be factual and what is frac crews were running overtime right now in our factories and sales at this point or ahead of this time last year in the fourth in the second quarter.
Okay, I mean, essentially car I understand you know I'm not really obviously trying to get you to anything that you don't ordinarily guide to but and the per container.
Are there.
On the negative side, there increase overtime and as you said other factory overhead that factor then on the positive side, there's more throughput.
In the case of some of the first aid supplies.
They're the extra costs first of all on the front market I'm tracking them on terms of shipping.
On a negative tried on the positive side as you May sell act.
Time that number around drugs that you used to so.
Right and we're passing through price increases when we bought on the spot market no. It doesn't match exactly what we're trying to.
Perhaps the best value to our customer, but I've never had before.
Cost of the glove goes up by double.
If you could then that's going to be passed on.
Thanks, I appreciate attackers are good color and I understand that you can be a specific of maybe my question on frame, but thanks.
Thanks, Rob.
And our next question comes from Stephen for Pulpo Lark Research. Please go ahead.
Thank you Walter I I know you've said both in your press release and and on the call that you're you're not giving guidance for the full year, but you just concluded.
That are told us in the second quarter that so far.
Your sales are running ahead of last year I wonder than if it's possible.
To provide some kind of picture on what the second quarter should look like more completely.
Well I'll take a.
A product that we can expect probably.
The the westcott sales to be softer because there were stores that are closed.
But not soft so much the or.
So terrible quarter in West Scott, because it's still very strong back to school number one some new business in the craft area with.
Some major customers so I.
I don't see that as a.
<unk>.
The growth segment, but I don't see this fall and way way off and the other hands with the first aid business at the levels. We're at now.
So far it's been leading the company as it did in the first quarter and I think that ER that should continue.
In the.
Well listen.
<unk> business and the crew the fishing tools.
The fishing area a lot of those are smaller stores are closed, but that's a small business so be down a little bit.
Closed knives.
They've been holding their own.
They do not to some life shops in low taught me, but more food the online sales into some mess.
Market retailers.
So as I look at it if you were down a little bit in the bulk of the non first Dave in the first aid continue to the strong level, then your coming with a decent quarter.
Okay and then the other side of that you said your costs are a little bit elevated are there any.
Yeah, Hi other.
Factors that you can talk about there and then also are there any cash flow items or whether it be a working capital or or whatever that might be.
Markedly different.
This quarter compared with a year ago.
Well the working capital the inventory receivables tend to go up in the second quarter with back to school, so that will happen, because we'll be giving terms and and and shipping.
The second quarter tends to be the biggest quarter of the year because it back to school.
And.
That.
Trend.
It's hard to call, but that might happen.
The.
In the interest rate has dropped so we're borrowing at and Paul help me here, it's Brian Lux or one of the quarter.
Right. So it's a little pool bar and trying to strainer quarter now so we're bryant.
<unk>, 2% interest.
Yeah, and so sees the a year ago I think we would borrow and qual help me here was it like there's too.
200 big.
200 bps higher.
All right. So we're borrowing it.
4% instead of two.
When we put the in the debt bye.
Let's say.
Net debt.
$9 million seven yeah.
The other thing.
So there's a saving on average seven Tonight.
Yeah. So you know we've gone from 4% to two and you've got 7 million less debt. So they'll do swing and continued swing in that.
We are working to manage our inventory.
Tighter.
But I never happened.
You didn't you're you're writing checks to take inventory in on the spot market. So they can be we sold.
So I really probably Inventorial says the same.
Okay, and then if I can a you know maybe.
Push a little bit you've got a it.
Back to school you said this is for you guys is mostly a second quarter of hand.
It sounds like with the retailers being close to that it's possible that some of those orders could shift into the third quarter or to the extent that you're retailers haven't sold through inventory. A you know maybe the ordering is is not quite.
This strong into the third quarter, I mean, I understand you.
You know that you may not have visibility into all of it but at the same time, you're doing planning, presumably and and so the issue is if if.
The economy starts moving back to normal over the next couple of months or so as.
You know states.
Push to end to lock down.
Hi, It seems to me like while some of your business could be impacted in the third quarter.
At a you shouldnt have based upon what you've told US right now that your your business should not go through as much of a dip in the second and third quarters again, assuming that you know we start to move back to normal.
Hi, It's your business shouldn't go through as much of a gypsys maybe other manufacturers.
You know are retailers or the like a would experience is that fair can you provide some color on that.
Well I think your rights to.
As I've mentioned, you've got the same number kids go into school.
Here and so they need supplies and this is really global so what we're doing in Canada and Europe would be loves.
In Asia.
The route based demand now whether it goes mostly in the second quarter was the third.
Yep.
Needs to be all in the second and lately, we're going to more online business moving to the third quarter because parents were buying from say Amazon.
Before the could what's the school in some of them what's at school in the beginning of August the Bugs in July some so in some areas. They went to school. The end of August beginning of September. So we're buying at the end of August.
And close the Amazon piece.
Doubly shifts more into the third quarter, that's been doing a lot of the trend.
HM.
Amazon Prime we understand husband shifted to August of this year.
And so what was going on in in July is now August.
Well, that's still in the fourth quarter, but tends to be a lot of health.
One more stock in stores and then please don't think that all stores are closed there were some stores that are closed but.
You look at the biggest retailer in the United States There absolutely open and if you look at Costco, they'll Oakland and targets open and a lot of shoppers are going to those places and they're going to Amazon and so well from a closed.
Others are gaining share and making an impact and of course, we're shipping more to these.
So.
It's I think overall there'll be less demand because of a disposable income.
But you still have the underlying.
Requirement for the kids.
Okay. That's great. Thank you very much.
Thank you.
And as a reminder, that Istar why people like to ask a question. Your next question comes from Richard Dearnley.
Our partners. Please go ahead.
Hello, again, I forgot to ask what was the mix between first stayed and sharpening and other during the quarter.
Well, yeah both figures.
Oh I believe that's first then was close to 55% and the remainder of the cutting was 45% right.
Okay. Thank you.
And then turn to to extend on on Ralph's questions about gross margins essentially.
Ah picking the same kind to look at GE in a risk in a.
The there's there's been a two or 300 basis point increase and yet as to United to sales over the last couple of years.
Do you think that's permanent.
ER or.
Sure well.
Sure.
So what we gave our objective.
We were concerned that maybe there is.
It would be more bad debt until we reserved for some things like that in the event, but one major customer or another had more difficult to fully <unk>.
Increased the reserves, though.
And Uh huh.
I take it the customer didn't didn't go bust, but is still around.
Oh, we don't even know, which when we're talking about let's just say oh, well I forgot.
Well, there's enough is enough uncertainty.
Let's be cautious.
I understand okay.
Okay. Thank you.
Okay.
There are no further questions at this time.
Well if there are no further questions. This call is complete.
I thought so with anyone who go and their families who oppose the speaking with you again in the us up anything a third quarter. Thank you.
This concludes today's call. Thank you for your participation you may now disconnect.
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Bob.
[music].
Good day and welcome to the United Corporation first quarter 2020, <unk> earnings Conference call at this time I'd like to turn the conference I would you Mr. Walter Johnsen. Please go ahead Sir.
Good day.
Welcome to the first quarter 2020, <unk> earnings conference call for Acme United Corporation.
Oh, Walters C. Johnsen, chairman and CEO.
With me as Paul Driscoll, Chief Financial Officer, well, Firstly that 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 provision of the private Securities Litigation Reform Act, a nice 95.
Investors are cautioned that such forward looking statements involve risks and uncertainties such as among others. Those are rising as as a result to the effects of the cobot 19 pandemic, including the ongoing economic downturn and the other risks and uncertainties described and our periodic filings with the securities.
And exchange Commission and in our current earnings release.
Thank you Paul.
Acme United had a strong fourth quarter of 2020.
Oh that sales were $35.8 million compared to $31.4 million in the fourth quarter with 2019, and then please like 14%.
Our net income was $1.27 million, well, then picks up 58% over the first quarter of 2019.
Earnings per share increased from 24 cents to 36 cents well 50%.
Sales at first aid and safety products led the growth.
The company has gained market share with its smart compliance industrial flow stayed product line and passive safety got digital replenishment system.
We have new sales, it's all the largest home improvement and industrial distributors in the United States.
Our online sales of concealer posted kits.
Septic wipes medications and wasteful.
I have all been at record levels.
The growth in the first aid safety area is very strong in the first two months of the quarter.
And then surged with what we believe with additional pull with my team demand.
Whether you have a wescott product line in the U.S. decline compared to last year, but this was offset by growth in camillus knives, and DMT sharpening tools.
Sales in Europe increased 19% due to growth in Westcott, CMC first aid and online business.
Our revenues in Canada without the impact of course, the central were comparable to last year.
Critical factor it achieving our strong first quarter results is that our production and distribution facilities.
Domestic and international has remained open going to pull the 90 pandemic.
In January 2020, we acquired first is central to first aid and safety supplier in goes out of Canada.
This company expanded eligibility to provide safety products, which made health, Canada, the regulations to our existing Canadian customer base as well as though a large multinational customers.
First aid Central I give school online presence together.
Average in both the or customer bases and sourcing spreads.
They stayed central contributed about $1 billion to all revenues in the first quarter.
As we are all aware world is battling a global health crisis and deliver good economic disruptions.
Our first aid and safety products or central submitting a small portion of a very large problem.
It was extremely strong demand for maps.
Was.
Protective equipment and many other items that go into a personal protection still cleanup bodily fluid blood borne pathogens and first aid kits.
We're also seeing a record demand for all even with this in medications.
In many cases, where purchasing items on the spot market.
<unk> well above normal, but then adjusting prices to our customers.
Actually goal is to consistently deliver supplies to our customers.
The best values, we can.
Oh for instance, I wouldn't happen if they do well being of all employees, they say fulfill our operational activities.
In our production warehouses insights will monitor and health.
The widest protective gear.
Doing shifts and doing regular deep cleaning.
Our sales teams in our associates Walt its a good in the U.S. quality quality, Canada in Germany.
While walking remotely together.
That was five plants and warehouses in United States are running multiple shifts.
Oh offices, and Juan Jos Limbo channel fully staffed.
And our factories in China, a general woman at 65% to 80% of capacity.
All of Canadian and European offices, or working remotely, but their warehouses are functioning and truly proud of watching school, making a small that global defense.
We finished 2019 that strong results and our team again delivered in the first quarter 2020.
Demand for our first aid safety products remains very strong.
However, we believe that the global demand for whats called cutting tools DMT sharpening products to the fishing tools and camillus knives will be weaker than last year. Many of these items are sold in stores that are either closed or have limited traffic.
We see our online business continuing to grow which may help to offset some of the projected weekends to ourselves.
Overall, we believe we are in a strong position to move forward.
All that due to the many pulled it related uncertainties, we face we will not at this time be providing guidance for the coming quarters. The Oh.
I'll now turn the call to Paul.
Acme, United net sales for the first quarter were $35.8 million compared to $31.4 million in 2019, a 14% increased net sales in the U.S. segment increased 11% on a quarter. The sales increase came from first date and safety products primarily.
Market share gains and to a lesser extent games from cobot 19 related surge demand.
Net sales in Europe for the first quarter of 2020 increased 19% in local currency compared to the first quarter 2019, mainly due to new customers.
In the office products channel increased ecommerce sales and continued growth of DMT sharpening products that sells in Canada, excluding first stage central products to the first quarter of 2020 increased 1% in local currency sales. The first aid central products amounted to a million dollars in their first quarter.
The gross margin was 37.8% in the first quarter I'm 2020 versus 37.6%.
In the first quarter 2019, Sta expenses for the first quarter 2020, or $11.5 million, a 32% him that sales compared with $10.3 million or 33% of net sales for the same period of 2019 operating profit in the first quarter of 2020 increase.
31% to the first compared to the first quarter of 2019 interest interest expense declined $187000 and the first quarter to a lower interest rate as well as lower bank debt net income for the first quarter of 2020 was a million 277000 or 30.
Six cents per diluted share compared to net income of $807000 or 24 cents per diluted share for the same period of 2019, a 58% increase in any come at 50% and earnings per share becomes a bank debt less cash at March 31.
2020 was $32.9 million compared to $41.2 million on March 31, 2019.
During the 12 month period, we paid 2.1 million for the first stage central acquisition spend $1.8 million on dividends and stock buybacks, we generated $14 million and free cash flow, we reduced inventory by $4 million during the 12 months.
Credit facility with HSBC Bank is $15 million availability on the line was $16.1 million at March 31, 2020, we firmly believe that the line is sufficient for the foreseeable future.
Basketball, well now open the call to questions.
Thank you if he would like to ask a question. Please take note by pressing star one on your telephone keypad. It using his speakerphone. Please make sure. Your mute function is turned off to allow your signal to me try equipment.
Again press Star one to ask a question and where possible just a moment to allow everyone the opportunity to signal for questions.
And that is star why if he would like to ask the question, we'll pause for just a moment.
Hi, My other question from Chris Lazy, what LD micro. Please go ahead.
Thank you gentlemen, a quick question on the supply side are there any disruptions that you guys are already trying to stand right now and where do you feel the most demand is showing that come in the next six to nine months moving forward. Thank you.
Well, Chris there's a lot of disruption on the perceived and safety side as you can imagine many of the items that were selling logins masts protective gear, which qunar first aid.
In isolation kids was sold individually well, there's a lot of competitors buying and so we're buying on the stuff spot market in some cases.
Relative to our own stopped we just talked quite well and weve been very aggressive with our team on Friday, many sites in China buying getting things on vessels and coming in and then pack downturn or facilities.
The ability to be able to respond hands on on site write a check like Youre, Hong Kong office 'cause it used to be big advantage relative to a distant purchase it was and in most cases. These are suppliers that we've worked with for many years.
There or.
Oh disruptions relative to a air freight great number or the air freight carriers are focused right now on delivering safety supplies to governments around the world.
And so to get.
Planes for doing air freight is very expensive right now, it's approximately three times once more and more or so.
Supply disruptions challenges, but I'll tell you, it's an opportunity as well.
People that can execute well.
Understood and then one more question there has been significant demand on the God and the ammo side in the last six eight weeks have you guys seen any type of you know search on the night side on on your end.
Yes, we have.
The Camillus knife business, both in the U.S. and in Europe.
Has been doing well online many of the not everywhere, but in some places gun shops are closed but online so.
Sounds amazing and.
What the bike seems unusual for example.
Machetes.
Who sold an incredible number machetes then that's a product that we sell regularly but we didn't expect that kind of demand.
Walter Thank you again appreciate it.
Thanks, Chris.
And that's a reminder, that if star one if he would like to ask the question and our next question comes from Richard Dearnley Longport Partners. Please go ahead.
Good morning.
Yeah, what are your Yang.
And your report you talked about being ready for back to school because of getting inventory or you know what Scott and related.
Which was good planning like I guess or any feel for how much extra inventory or you know.
Yeah and end of March or you know is kind of early inventory.
Well.
The number of births in the United States tends to run about 3 million.
Hey.
Young babies born each year, you know a few years later, there and fifth grade sits grade seventh eighth grade.
And so the back to school has a reasonably predictable population.
And there wasn't a back to school and are customers or.
Wind up and our buying and taking deliveries and back to school products.
The no that some schools as close most school to close early.
We believe that most of the supplies that are in law makers are going to be.
Removed its going to be a lot of fresh demand we think.
In any case.
The purchase orders that we executed against in the fall and gold inventory and early is you know a warehouse.
It does shipped in the.
April May June time frame, a little bit in July.
Factories are producing some items for new business that we've won at.
The largest nerves.
Merchandisers, particularly in the craft area.
So that inventory has a place in a home and.
I'm not saying, it's business as warm up because the difference, but again when you remember the members students that each year going through the grades and hasn't changed much.
Mhm.
In in a bigger look that Ed inventories are your inventories were down 4 million or so last year or is there.
More.
You know tighter inventory is still to go.
Well there is some work, but one other things we've done over the years and I'll tell you the past five years.
Through acquisitions, and you've moved more and more of our business into manufacturing sites. The Pac kit first aid company the Oh.
The first aid only acquisition DMV acquisition the school Magic after acquisition and now first aid central either one manufacturers and the turns on manufacturing.
Or much quicker than they are then you've got a long delivery from China time on the water through customs intermodal to your warehouse.
And typically for us the.
Products are we import will turn.
To the tune a half times a year.
The good manufacturing site, you should be able to move that up substantially.
And to look at four times turns a manufacturing is not at all on reasonable terms. We do that we're seeing is we were freeing up inventory and turning that into cash.
And then we'll also using that to pay down debt because point.
Right.
In the didn't occur in an environment, where Ah you know, there's a little quicker the squeeze and so on.
You know, it's hard to come in place the acquisitions, but I would think there might be you know some distress or peering here in there.
Well I hate to look at that is a or an opportunity because there are no companies struggling and we may find that.
We'd be a good home for them.
The how to call as recently as this morning.
[noise] for something but that did not work for us, but you know a them there maybe opportunities and we certainly we welcome the phone calls if we can help.
Right Okay.
Okay. Thank you.
No.
And our next question comes from Jim Moroney with singular research. Please go ahead.
Yeah good afternoon.
My apologies if he has already covered it Bob if you have crops just if he could provide maybe a little bit more color.
Just in regards to.
You know the emphasis on pp indeed.
As of late as well as going forward.
Just a couldn't get lots of friends or a little bit more a commentary.
In regards on how that could impact the you're a first aid line.
And can you.
Capitalize on it.
And yeah, just a little bit more commentary on parts to that.
Well, we Trello full line of first aid and safety products as you know and typically that's been about half of the or global sales.
It's higher right now impart because we won some major new business with large industrial distributors and.
Hardware chains in the United States that came online and in the first quarter and will hopefully be long term business for us. We've got a piece there that continues to grow and that's being driven impart by our safety hub.
Replenishment system import just through.
Competitive pricing and good service.
But we're winning new business in the second thing is a portion of the first aid chronic one well the physicians care medications, which are key to reduce and we carried them for years, the blood borne pathogens kits and the.
Bodily fluid kits, which are used to clean up.
Various bodily fluids. That's all incorporating are still magic material was the active ingredient that goes could surround them that business is not only growing but because we're manufacturing the active ingredients. We're leveraging two clients that are making.
In the products and we believe that's a business that will continue to grow.
Basically because I think many of the changes that we're making in our behavior globally.
Impacts isolation and and the.
Proper clean up of spoken bodily fluids.
What the.
The isolation gallons the masks and Glugs every first aid kits that we sell has suffered as a pair of gloves and so did you know long term products for us incorporated the Didnt kits.
When we started to get more demand for a accrual and my trial gloves.
Packages, we told them because they have the sources and that business.
We think will be a continued good business was going forward.
And vacates of masks.
The N. 95 masks are used in our spill cleanup gets above which we would kits are isolation kits.
And we also.
And sell them individually and that's been a strong business works, it's up in the main business and pp. He is not the main business, but there's an extra piece, where it's now being.
Required by our distributors and we're happy to supplies and.
The main thing that we had that.
We'll stay with us into a distribution base.
The largest industrial distributors.
In the World, we're the largest foodservice distributors.
For the largest contract.
Many distributors of losses and those kinds of supplies.
You are locked into some major distribution both in the lessons in Europe, and we're feeling that demand as we're looking into the fall.
What I see is a continuation perhaps with some different kits utilizing some of the personal protection some of the alcohol prep peds at least selling alcohol wipes.
Wounds, good putting them in different forms including those in kits.
And.
That thrust.
One that I see that's continued growth.
Yes, probably will be a catch up in.
Operating kinds of down because there's massive production going on with that right now for the hospitals, you don't really participate in that market and I would not expect us to.
But for the broad based people working in factories working at home working in offices.
We are very much in the mainstream.
Excellent. Thank you for that commentary and just as a follow up.
If if he just discussed maybe the other product lines now I know you.
I mentioned quite a bit about the.
The school supplies and all but maybe more little bit more specifically in terms of the our sharpeners in a scissors and.
And that type of product line.
Well so.
If you took the scissor business as an example, my guess is in the past two days almost everybody on this line has opened a fedex package.
And many people use scissors due to open those and the demand for.
These products tend to be higher performance ones that can cut through cardboard.
Don't good Nonstick is a good feature which we need in that category.
In the craft area.
That led to an area, where our scissors are constantly and use.
And the separation retailers as we see it there were large mass merchants, that's merchant accounts, such as the Walmart and target Cosco, which offer food.
And that's driving.
There are others, where they don't have food they have special niches and they tend to be closed right now and so you've got a migration going into some retailers who are.
Why is the you know very big way and then of course, you have a migration online what we've found on our lot online business.
But last year online this.
This is off the cuff, it's about 12% to 13% of our revenues it's somewhere in the first quarter was up to 18% and it continues to climb from more is going online and we're certainly seeing that in the scissor area. We're seeing in the that's in the cutting arena in general.
When we gave the cautionary statements about let Scott or concern was that in stores were closed.
Sales that would normally go there have to get diverted and some do get devoted to the rise in stores and online and some probably lost plus my guess is this lesser demand because we grew up less disposable income.
But in general.
What Scott product one is good good product line to healthy product line, and particularly back to school with quite predictable.
Excellent color. Thank you so much Shannon.
Sure.
And our next question comes from Ralph Marcia.
Maranatha first Manhattan Company. Please go ahead.
I married frankly carcinoma.
Hi, how are you doing.
Good route very good thank you.
And on and you increased sales of certain products and diverse product and could different distribution, certainly and in terms of online or and your first aid product.
Category.
Obviously, we're gonna have increased costs.
Normally don't get factored in.
Can you quantify at all on the relationship or an increase of car to arm in Korea sale.
Well route that's.
That's pretty granular I'll take a credit <unk> [laughter].
So if we felt to a oh and office superstore.
Margins tend to be very compressed every small number of products.
It's very competitive business, if we sell that same product online.
Margins, probably are better because there's some more cost in the back side of on shipping no spends a lot of money improving or North Carolina Major distribution center and as you may remember over the past year and a half.
It was not only capital spending which is consistent with <unk> capital spending but training and.
And systems, and and we've gotten a lot more efficient there and you see it frankly in the operating income.
The.
Online business also had one piece, which means the say an Amazon is buying them for retail and also tends to be more profitable than a sale to same office superstore.
The other hand, if we sell into ER.
A small specialty store you may be getting very good margins and so you have that doesn't have a mix change.
And again that's complicated.
Higher margin things like the Nonstick products and the titanium coated scissors have a lot of high performance attributes, but they tend to be higher margin.
And do so a lot about online.
The.
Good news is whether it's been an online accounts or it's been or existing business with other accounts, where new accounts, most where we have.
Customer base, where you're not getting new accounts, we just shipping more to them.
And so those waters are effectively managed.
If I were to.
Point, you to the gross margin in the first quarter when compared to last year was about flat.
So the net of all that it was about flat.
Look at how we process those orders you get a better job.
And that's showing up in the operating income and as we continue to work on that area I think we can even do better.
We are seeing more costs and the first aid so I wouldn't we.
Brian spot market for example.
And now you've tried masts, which are in the news a lot well they were not first aid kits and so when we've been buying those we've had to increase the price to our customers to reflect or.
Yeah higher costs for supplying the products in cost would be probably need that they really have.
One we're running our factories not running at.
Additionally, as we might normally times, because you have staggered shifts we have overtime. This weekend.
Most of our factories are working on Saturday.
This is more cost to meet demand.
There's also a extra wages that we're paying a this in.
Two plants that I think is immediately we shut down for two full days in order to you de kooning, because we suspected employee had oh uncooled advisors, but each of into plants, they didn't but you're down for two days and your continued probably pay workers. So this summer.
Inefficient to that.
Popping around both in our costs as well as how we're going in the factories, but the flip side of that is the volumes have been wasn't program and an aggregate even with that in the first quarter, who about called people in cost of sales.
Yes in gross margin.
So [laughter], what I heard wise that.
The increase the puts and takes in gross margin.
For the increased healthy increase revenues the increase in crude throughput.
That we saw in the first quarter.
Are right Korea carry through during the emergency period.
Well, our attorneys have been careful to tell us not to do that trend to guidance because you know there's lot of uncertainty.
But.
They said you can certainly be factual and what is frac crews were running overtime right now in our factories and sales at this point or ahead of this time last year in the fourth in the second quarter.
Okay, I mean, essentially I understand you know I'm not really obviously trying to get you to anything that you don't ordinarily guide to but and the per container.
There.
On the negative side, there increase overtime and as you said on other factory overhead that factor then on the positive side, there's more throughput.
In the case of some of the first aid surprise.
They're the extra car first of all on the front market and second of all in terms of shipping.
On the negative side on the positive side as you May sell act.
Time that number around a club that used to so.
Right and we're passing through price increases when we bought on the spot market no. It doesn't match exactly what we're trying to.
Perhaps the best value to our customer, but I've never had before.
Crossover glove goes up by double.
If you could then that's going to be passed on.
Thanks, I appreciate that actually that's good color and I understand that you can be a specific of maybe my question on frame, but thanks.
Thanks Ralph.
And our next question comes from Stephen Percoco Lark Research. Please go ahead.
Thank you Walter I I know you've said both in your press release and and on the call that you're you're not giving guidance for the full year, but you just alluded.
That are told us in the second quarter that so far.
Your sales are running ahead of last year I wonder than if it's possible.
To provide us some kind of picture on what the second quarter should look like more completely.
Well I'll take a.
A credit that we can expect probably.
The the westcott sales to be softer because there were stores that are closed.
But not soft so much the or.
So terrible quarter in Westcott, because you still have a very strong back to school number one some new business in the craft area with.
Some major customers so I.
I don't see that is a.
<unk>.
The growth segment, but I don't see this fall and way way off and the other has with the first aid business at the levels. We're at now.
So far it's been leading the company as it did in the first quarter and I think that ER that should continue.
In the.
No its and.
Nice business and the crew the fishing tools.
The fishing area a lot of those are smaller stores are closed because that's a small business so be down a little bit.
Camillus knives.
They've been holding their own.
They do not to some nice shops in low partly but more through the online sales into some mess.
Market retailers.
So as I look at it if you were down a little bit and the bulk of the non for stayed in the first aid continue to the strong level, then your coming with a decent quarter.
Okay and then the other side of that you said your costs are a little bit elevated are there any.
Yeah, Hi other.
Factors that you can talk about there and then also are there any cash flow items or whether it be a working capital or or whatever that might be.
Markedly different.
This quarter compared with a year ago.
Well the working capital the inventory.
The receivables tend to go up in the second quarter back to school, so that will happen, because we'll be giving terms and and and shipping.
The second quarter tends to be the biggest quarter of the year because it back to school.
And.
That.
Trend.
It's hard to call, but that might happen.
The.
In the interest rate has dropped so we're borrowing at and Paul helped me here, it's Brian Lux or one of the quarter.
Right. So it's a little pool bar is trying to strainer quarter now so we're orient.
2% interest.
Yeah, and so Steve the a year ago, I think we would borrow and qual help me here was it like there's two to 200 big.
200 bps higher.
All right. So we're borrowing it.
4% that are too.
And we'll put the in the debt by.
Let's say.
Net debt.
$9 million seven yeah.
Everything.
So there's assays.
Average seven Tonight.
Yeah. So you know we've gone from 4% to two and you've got 7 million less debt. So they'll do swing and continued swing in that.
We are working to manage our inventory.
Tighter.
But I.
And.
You didn't you're you're writing checks to take inventory in on the spot market. So they can be we sold.
So I really probably inventorial syncing.
Okay, and then if I can a you know maybe.
Push a little bit you've got a it.
Back to school you said this is for you guys is mostly a second quarter of hand.
It sounds like with the retailers being close to that it's possible that some of those orders could shift into the third quarter or to the extent that you're retailers haven't sold through inventory. A you know maybe the ordering is is not quite.
This strong into the third quarter, I mean, I understand you.
You know that you may not have visibility into all of it but at the same time, you're doing planning, presumably and and so the issue is if if.
The economy starts moving back to normal.
Over the next couple of months or so as.
You know so.
Push to end to lock down.
It seems to me like while some of your business could be impacted in the third quarter that Ah you Shouldnt have based upon what you've told US right now that your your business should not go through as much of a dip in.
The second and third quarters again, assuming that you know we start to move back to normal hi, It's your business shouldn't go through as much of a gypsys maybe.
Other manufacturers.
You know are retailers or the like.
I would experience is that fair can you provide some color on that.
Well I think your rights to.
Mentioned, we've got the same number of kids go into school.
Each year and so they need supplies and this is really global so what we're doing in Canada, and Europe, where the loves Werent Asia.
The route based demand now whether it goes mostly in the second quarter was a third.
Yep.
To be all in the second and lately, we're going to more online business moving to the third quarter because parents were buying from say Amazon before the could what's the school and some of them. What's the school. The beginning of August was the bugs in July simple in some areas. They went to school bus and evolved.
Beginning of September who are buying at the end of August.
And close the Amazon piece.
Probably shifts more into the third quarter, that's been doing a lot of Detroit and.
HM.
Amazon Prime.
We understand has been shifted to August of this year.
So what was going on in in July is now August you know, it's still in the same quarter, but probably to be a lot of.
Yes.
One more stock in stores and then please don't think that all stores are closed.
There were some stores that are closed but.
If you look at the biggest retailer in the United States. There absolutely open if you look at Costco, they'll Oakland and targets open and a lot of shoppers are going to those places and they're going to Amazon and so well from a closed.
Others are gaining share and making an impact and of course, we're shipping more to these.
So.
It's I think overall there'll be less demand because of a disposable income.
But you still have the underlying.
Requirement for the kids.
Okay. That's great. Thank you very much.
Thank you.
And as a reminder, that istar watched by people like to ask a question. Your next question comes from Richard Dearnley.
Our partners. Please go ahead.
Hello, again, I forgot to ask what was the mix between first aid and sharpening and other during the quarter.
Well, yeah, both said this.
Oh I believe that's first then was close to 55% and the remainder of the cutting was 45% right.
Okay. Thank you.
And and then to to extend on on Ralph's questions about gross margins essentially.
Ah picking the same kind to look at GE and they are SGN. They.
There's there's been a two or 300 basis point increase and yet SGN aid to sales over the last couple of years.
Do you think that's permanent.
ER or im sure well.
Sure.
So what we gave our objective.
We were concerned that maybe there so I'm going to be more bad debt and fully reserved for some things like that in the event, but one major customer or another had more difficult to fully <unk> increased because of those though.
And Uh huh.
They hit the customer didn't didn't go bust, but is still around.
Oh, we don't even know, which when we're talking about that just saying Oh I just like that.
Yeah, I'll do it helped us enough uncertainty.
What's being cautious.
I understand okay.
Okay. Thank you.
Okay.
There are no further questions at this time.
Well if there are no further questions. This call is complete.
Our fourth so with anyone who go and their families who oppose the speaking with you again in the second thing a third quarter. Thank you.
This concludes today's call. Thank you for your participation you may now disconnect.