Q1 2022 Acme United Corp Earnings Call

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Okay.

Good day, ladies and gentlemen, and welcome to the Acme United Corporation's first quarter 2022 earnings call. At this time are getting additional participants and should be getting a couple of minutes. We appreciate your patience and ask that you. Please remain on line.

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Good day, ladies and gentlemen, and welcome to the Acme United Corporations hosted first quarter 2022 earnings call. At this time I turn the conference over to Walter Johnsen. Please go ahead.

Good morning, welcome to the first quarter 2022 earnings conference call for Acme United Corporation.

I am 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 Companys 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 Gordon statements involve risks and uncertainties such as among others. Those are rising as a result of the effects of the COVID-19 pandemic, including the ongoing economic downturn.

And the other risks and uncertainties described in our periodic filings with the Securities and Exchange Commission.

In our current earnings release.

Thank you Paul.

Acme, United reported revenues of $43 $3 million in the first quarter of 2022, which is approximately even with last year.

Net income was $830000 compared to $2 million in 2021.

Our earnings per share were 22 cents versus 52 cents in the comparable quarter last year.

As you may be aware COVID-19 spread rapidly in China. After the Chinese new year ended in late February .

Some factories were unable to operate due to quarantines and others limped along the.

The entire cities of Hong Kong, Shenzhen, Guangzhou, and Shanghai were quarantined.

And two of the largest ports in the world were shut down.

Our orders were strong in the first quarter.

But we were unable to ship approximately $4 million.

Most of the products that were delayed were for large mass market retailers that ship directly from the export import so their distribution centers.

Normally these direct import programs are very efficient and cost effective.

They're just in time nature left them vulnerable to the port closures.

We see some improvement.

The prices seem to have stabilized.

The port of Seattle, and San centers opened and operate in.

The port of Shanghai has partially opened.

Most of our factories are fully staffed and they are delivering products.

We are also increasing production in India, Indonesia.

We have continued to raise selling prices to offset increased product costs wages and delivery expenses.

Demand in the second quarter has also been strong.

Approximately half of the delayed orders have now been shipped.

We are receiving new orders for alcohol prep pads from the U S Army and wives for meals ready to eat for the Ukraine.

We've received large inquiries for first aid and medical supplies, which may be related to the Ukraine War War.

We have a substantial first aid program to a large mass market retailer, which will be shipped in the second quarter.

Westcott School and office products continue to have strong demand.

And we're looking forward to a good back to school season.

Okay.

As we look into the remainder of 2022, we believe that we will make up the lost sales and earnings in this quarter and move forward with growth, we anticipate revenues in excess of $200 million for the year.

I will now turn the call.

Acme's net sales for the first quarter were $43.3 million.

Paired with $43 $5 million.

In 2021.

Sales in the U S segment decreased 1% in the quarter.

Due to delayed shipments as a result of supply chain disruptions.

Net sales in Europe for the first quarter 2022 increased 3% in local currency compared to the first quarter of 2021 .

Net sales in Canada for the first quarter of 2022 increased 8% in local currency, mainly due to higher sales of first aid products.

Gross margin was 34, 5% in the first quarter of.

2022 versus 35, 8% in the first quarter of 2021 .

The lower gross margin was mainly due to cost inflation pressures higher transportation costs and higher labor costs.

Price increases, mostly offset the cost increases.

SG&A expenses for the first quarter of 2022 were 13 point.

$6 million or 31% of net sales compared with $12 $6 million or 29% of net sales for the same period of 2021.

Income for the first quarter of 2022 was $830000 or 22 cents per diluted share compared to net income.

Of $2 million or 52 cents per diluted share for the same period of 2021.

The company's bank debt less cash on March 31, 2022 was $46 million compared to $43 million.

On March 31, 2021 during the 12 month period, we spent $1 $8 million in dividends and repurchased one $5 million of common stock and received forgiveness of our P. P P loans of $3 $5 million.

Inventory increased approximately $11 million, primarily due to anticipated growth in our business higher costs.

And purchasing additional safety stock to offset the impact of potential.

Apply chain interruptions related to COVID-19.

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

Thank you, ladies and gentlemen, if you'd like to ask a question you may do so by pressing star one on your Touchtone telephone star one for questions. Please make sure the mute function on your phone is turned off so the signal can be read by our equipment.

Darwin for questions, we'll pause a moment to assemble the phone queue.

We will take our first question from Timothy call with Capital Management Corporation. Please go ahead.

Well good job operating in a hard environment.

With the our product costs and freight costs rising are you able to increase your product prices in order to offset that.

In the future.

Well, thank you very much.

As you know.

Ultimately, it's the consumer.

And we have to be careful about getting ahead of the consumers buying power.

We have pass through price increases and in fact, we're readying another one shortly because.

The rate of inflation continues to increase.

And it's not just in the U S. That's in Europe , and it's in China.

And the other costs are increasing so we were on a a treadmill right now where we're continuing to increase costs, but again I'm I'm sensitive to the delivering value to our consumer.

On the other hand.

It's imperative that we do pass these through and we are.

With the share buybacks of one and a half million dollars in the last 12 months was most of that in the first quarter.

Okay.

That was last year actually we didnt do any in the first quarter. Yeah. We did that at the end of last year primarily.

Great well hopefully of some will be done this year are certainly accretive to earnings per share.

And then.

Thank you again and looking forward to our next quarter with those delayed orders coming through the revenue line. Thank you.

Well, Jim. Thank you so much for your support and.

Really delighted that we are getting shipments out and where.

We're matching up to what we hope it's going to be an outstanding second quarter.

Terrific. Thank you.

We will take our next question from Jim Moroney with singular research. Please go ahead.

Great. Good afternoon, gentlemen, forgive me if you did address it.

I was kind of in and out of the call, but I'm still curious as to what your answer might be.

But could you just discuss.

Your inventory management in previous calls you've said that you've executed well on the inventory management.

Can you maybe just address.

Address that.

Just to see whether it continues to be as effective as you've claimed in the past and how you. How you are going about managing that.

And perhaps if you can just share some light.

As a follow up question in regards to your segments in regards to the cutting tools and scissors versus that of the first aid kits are.

Are they both affecting both segments being affected by supply chain and what clinics, but going forward. Thanks.

Okay.

Well, Jim that's a very good question.

There's two types of shipping one is where we shipped from our warehouses either in the U S, Canada or Europe and were shipping directly to the customer there. We have a lot of inventory and we are able in most cases to be able to buffer supply chain issue.

And so typically the customer will not see.

Large shortages, because we've added inventory to cover.

The other portion of the business is where large mass market retailers in various seasons like right now where it's a back to school season and there'll be another one.

In September which will be a holiday season in those cases the <unk>.

Retailers are placing orders, we're producing and they are picking up at the ports in China or wherever we're shipping from.

That's what got hit in primarily was hit in the first quarter because they they are moving forward. These orders because they know things are.

Delayed.

And when we get them and we're not able to ship because the ports are closed all the inventory that we have in Europe and the U S. Canada is meaningless because the products that they're buying are just in time now it's very cost effective for a large retailer to spare.

Covered the port as opposed to us shifting their cros are loading in our warehouses and then Lee packing and shipping directly to the retailer so they get very good value.

And in most cases it works well.

In this case, we're in two weeks the major ports were shot.

The good.

There was nothing we could do.

Relative to the segments.

The first aid business.

Is much more U S centric and that we have production in Rocky Mountain, North Carolina, as well as Vancouver, Washington.

And we get our products not only from domestic sources, but international sources that are more diversified than China. For example, Egypt has a lot of cotton goods. So you might think that clause in adhesive bandages and products like that could be sourced from Egypt and in fact they are.

And so it's a counterbalance to China.

So we're in pretty good shape with first aid.

But the the products that do cut in.

Are much more focused on China and as you May know China has half of the steel production in the world and they're the world's lowest cost producer.

So.

It makes sense for things like scissors are knives to be produced near the.

The best.

Steel in the world.

And most of the time, that's not a problem, but that was more impacted in the first quarter and because these are in many cases back to school items. They were delayed now the good news is as we shipped out in April and May there's plenty of time to meet the back.

To school demand.

The ports are opening up in China.

The parts of the U S are still tangled up, but maybe getting a little bit better.

And in any case.

If we can get the product out of China, we can get them to our customers. So we're doing that.

Okay, great and so I think you've kind of addressed this as well, but if you could just confirm.

Let him my question.

So given the the.

Supply disruptions and given how things are being alleviated.

Can we anticipate the first quarter being perhaps the.

The toughest quarter.

Of this fiscal year then.

Yeah.

Well that would be my expectation, we we are expecting a very strong second quarter as we make up for this plus we have a lot of demand looking forward. We're.

We're seeing very strong customer demand for our cutting tools as well as first aid.

And there is.

Some push for some products with the the war in the Ukraine from the U S Army and.

Other indirect suppliers for example in our European business, there's demand for a lot of first aid products right now.

To go to the Ukraine.

That's great. Thank you for taking my questions.

Thank you Jim.

We will take our next question from Michael Mork with Mork capital. Please go ahead.

Hi, Walter.

Just one question I'm, just wondering with the.

The Covid Lockdowns and the as you called them the porch being tangled up has there been a lot of double ordering and hence potentially up.

Cancellations of product orders.

My gun and that's I'm not aware of double ordering and in shortages, that's a pretty common thing to happen.

Well, we were hung up with were specific orders that wants a mass market retailers for their primarily back to school in the fall and spring reset.

Resets in their plan O grams.

Those certainly were not troubled waters.

Okay.

No I I really most of the order.

Book that we have is pretty built up by customer and it's been over months because we've been working on a long lead time production now for almost a year and a half.

I worry more about ultimate demand you know Mike.

Worry about ultimate demand because I think we are going to be going into a recession, but I don't see back orders I mean double orders as being an issue.

Okay, well thank you.

Thank you.

Our one for questions well take our next question from Jeffrey Matthews with Ram partners.

Hi, Walter.

Hello, Jeff.

How are you coping.

Well you know what this is.

There's also opportunity in in distress.

Who I think.

We will wind up.

Seeing some interesting opportunities that shake loose because.

We are taking advantage of opportunities that others aren't and.

Uh huh.

It's a tough time, so very tough Tyler but.

Our European teams and our Asian teams in our Canadian since then or U S.

They live supply chain, so we're pros and what we're doing.

Yes.

You mentioned, Egypt for that was the first time I'd heard that and also India.

It's it's kind of the first time I've heard you talk about.

A shift a little bit of a shift out of China, not necessarily related to just adding production.

Elsewhere.

In other countries like the United States.

Are you seeing.

What's your view of China over the next five to 10 years, because theres been a pretty significant shift.

In the perception of the our relationship with China.

And there's.

There's a worry of an over.

Our dependence on it.

From a lot of points of view.

Is this having any effect on your thinking or is it more.

Hey, we need to we need we need product now, let's let's find another place to.

To source it from.

Well, we started our sourcing from both India and China about three years ago.

And indeed, particularly India.

Yeah, I mean, India and Egypt.

India.

Has delivery issues as you probably know they were shut down very severely with COVID-19 about a year ago, and we do get some products. There now in the medical area. As you May know most U S pharmaceuticals come from India.

And so it's a very very.

Good source of F D a supplied product.

Egypt supplies.

Supplies many segments in Europe with things that are cotton based and the labor costs are inexpensive and for the last two years, we've put increasing amounts of first aid.

Business into some of our suppliers in Egypt.

Very good it's also F D a facilities.

Relative to China over the next five to 10 years.

That's a pretty broad question.

But I would suggest to.

Most everyone that.

In China This best interest to tamp down some of the.

The discussions about a shift away because they are an export driven.

In both Western Europe , and North America, and South America are pretty much using them for.

A great deal of production so it's not in their interest to.

Hurt themselves.

In a significant way.

Also the factory owners that we deal with are just like the people on the call they're very very.

Turning to their businesses and the relationships that we've built with them over years continue.

And so.

So you've got.

Background noise, you've got a competition between the U S and China for certainty.

But the fundamental of.

Of the U S needs goods.

And China needs exports.

The and interconnection that I don't see going away in the next five years.

Okay.

And then one final question if I may.

U U R.

Very adept at finding.

Opportunities through through acquisitions that kind of fall through the cracks for a lot of bigger companies.

See expanded opportunities in the stress that we've been having or is it pretty much.

Things perking, along as they always tend to do.

Well, we're seeing a fair number of opportunities and the kinds of things I'm looking at right now I'm trying to lever.

Hmm.

Impacting.

Our whole product class and internationally, so not just in first aid or not just in westcott the things that can help.

Help us add value.

Due to our products our entire product mix.

And we're seeing a couple of those were also seeing some.

First aid knife.

And west coast opportunities.

So it's active.

I'm optimistic that we'll find an opportunity that fits pretty well for us.

This year.

Great Thanks, and good luck.

Thank you.

As a reminder, star one for questions, we'll pause a moment to assemble the queue.

It appears we have no further questions at this time.

There are no further questions. Then this call is complete.

Look forward to updating you again at the conclusion of the second quarter and have a good day goodbye.

Ladies and gentlemen. This concludes today's conference. We appreciate your participation you may now disconnect.

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Yes.

Okay.

Yes.

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