Q3 2023 Acme United Corp Earnings Call
Speaker 1: Good day and welcome to the ACME United Corporation's third quarter 2023 earnings call.
Good day and welcome to the Acme United Corporation third quarter 2023 earnings call.
At this time I would like to turn the call over to Walter Johnsen, Chairman and CEO . Please go ahead Sir.
Speaker 1: At this time, I would like to turn the call over to Walter Johnson, Chairman and CEO . Please go ahead.
Speaker 2: Good morning. Welcome to the third quarter of 2023 earnings conference call for ACME United Corporation. I'm Walter C. Johnson, Chairman and CEO . With me is Paul Driscoll, our Chief Financial Officer, who will first read a Safe Harbor Statement. Paul.
Good morning, welcome to the third quarter of 2023 earnings Conference call.
In the United Corporation, I Am Walter C Johnsen, Chairman and CEO with me is Paul Driscoll, Our Chief Financial Officer, who will first read the safe Harbor statements Paul.
Oh geez.
Speaker 3: Four team statements in this conference call, including without limitation statements related to the company's plans, strategies, objectives, expectations, intentions, inadequacy of capital and other resources, are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
The conference call, including without limitation statements related to the Companys plans strategies objectives.
Patients intentions and adequacy of capital.
Sources are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act with 1995.
Investors are cautioned that such forward looking statements involve risks and uncertainties, including among others. Those are rising as a result of the challenging global macroeconomic environment characterized by continued high inflation and high interest rates.
Speaker 3: Investors are passing it such forward-looking statements involve risks and uncertainties including among others those arising as a result of a challenging global macroeconomic environment.
Speaker 3: by continued high inflation and high interest rates. In addition, we have experienced supply chain disruptions, and we may experience these disruptions in the future. We're also subject to additional risks and uncertainties as described in our periodic filings with the Securities and Exchange Commission and in our current earnings release.
We will have experienced supply chain disruptions and we may experience. These disruptions in the future. We're also subject to additional risks and uncertainties as described in our periodic filings with the securities and <unk>.
Change Commission and in our current earnings release.
Speaker 2: Thank you, Paul. ACME United made significant progress during the third quarter of 2023.
Thank you Paul Acme, United made significant progress during the third quarter of 2023.
Speaker 2: Our sales were $50.4 million, which was approximately 1% above that in the third quarter of 2022. Operating net income was $3.7 million during the quarter compared to $955,000 last year.
Our sales were $54 million, which was approximately 1% above that the third quarter of 2022.
Operating net income was $3 $7 million during the quarter.
Per day $955000 last year.
Speaker 2: Net income was $2.2 million compared to $64,000 in the third quarter of 2022. Earnings per share were $0.58 compared to $0.02 last year.
Net income was $2 $2 million compared to 64000 in the third quarter of 2022 earnings per share was <unk> 58 cents compared to two cents last year.
The company's sales growth of 1% in the third quarter of 2023 right reflects improvement from the prior quarter, where revenues were 6% below last year, there continued to be inventory reductions by our westcott cutting tools customers. However, we believe our customers are nearing the end of that process.
Speaker 2: The company's sales growth of 1% in the third quarter of 2023 reflects improvement from the prior quarter, where revenues were 6% below last year. There continue to be inventory reductions by our Westcott cutting tool customers. However, we believe our customers are nearing the end of that process, and comparisons going forward will reflect true demand.
And comparisons going forward will reflect true demand.
The first aid and medical business to offset the weakness in Westcott sales and it continues to be strong.
Speaker 2: The first aid in medical business offset the weakness in Westcott sales and it continues to be strong.
Speaker 2: Our gross margins in the third quarter were 38.7% compared to 32% in 2022.
Our gross margins in the third quarter was 38, 7% compared to 32% in 2022.
Speaker 2: This reflects shipping costs returning to normal levels and the impact of the productivity program that we initiated about a year ago. As you may recall, we incurred about $4.6 million in unusual shipping expenses last year due to container costs and port congestion.
This reflects shipping costs, returning to normal levels and the impact of the productivity program that we initiated about a year ago as.
As you may recall, we incurred about $4 $6 million in unusual shipping expenses last year do can do two container cost and port congestion.
Speaker 2: Our planned productivity program totaled $5 million in annual savings. We're currently projecting to exceed the plan by about $1 million.
Plant productivity program totaled $5 million in annual savings, we're currently projecting to exceed the plan by about $1 billion annually.
Speaker 2: We are demonstrating the results in our improved gross margin.
We are demonstrating the results in our improved gross margins.
Speaker 2: The company has been actively reducing its inventory after increasing it purposefully during the pandemic. Our inventory during the past three quarters has declined $9 million.
Company has been actively reducing its inventory after increasing it purposefully during the pandemic.
Our inventory during the past three quarters has declined $9 million.
Speaker 2: We directed most of the cash flow from the inventory reductions and earnings during the past year to pay down debt.
We directed most of the cash flow from the inventory reductions and earnings during the past year to pay down debt.
Speaker 2: As a result, our balance sheet has improved substantially. And our net debt at the end of the third quarter in 2023 was $38 million compared to $64 million at the same time last year. That's over a 41% decrease in debt.
As a result of our balance sheet has improved substantially.
And our net debt at the end of the third quarter in 2023 was $38 million compared to $64 million at the same time last year, that's over a 41% decrease in debt.
Speaker 2: During the third quarter of 2023, we acquired some of the assets of Hawk Tree Solutions in Canada for approximately $1 million in a bankruptcy auction.
During the third quarter of 2023, we acquired some of the assets of pork tree solutions in Canada for approximately $1 million in a bankruptcy auction.
Clock tree sells first aid and medical products and is the exclusive licensee of the Canadian Red Cross for many of the supplies used in their training programs and relief efforts.
Speaker 2: Cork Tree sells first aid and medical products and is the exclusive licensee of the Canadian Red Cross for many of the supplies used in their training programs and relief efforts.
Speaker 2: The company also supplied masks, gloves, and gowns to the Canadian government during COVID, and it became overextended when the pandemic hit.
The company also supplied mask gloves and gowns to the Canadian government during Covid.
And it became over extended when the pandemic ended.
We are reactivating their website moving inventory to our Laval, Canada location and filling back orders as we speak.
Speaker 2: We are reactivating their website, moving inventory to our Laval Canada location, and filling back orders as we speak.
Speaker 2: Our fourth quarter of 2023 has started strong.
Our fourth quarter of 2023 has started strongly.
Speaker 2: We are winning new business of 2024 in our Westcott and first aid businesses, as well as DMT sharpeners. And we continue to look at new acquisition opportunities. I'll now turn the call to poll.
We are winning new business for 2024 and our Westcott.
First aid businesses as well as D. M T sharpness and we continue to look at new acquisition opportunities I'll now turn the call to Paul.
Oh yeah.
Speaker 3: I think that sales for the third quarter are $50.4 million compared to $49.7 million in 2022, an increase of 1%. Sales for the nine months...
Third quarter were $54 million compared to $49 $7 million.
In 2022 an increase of 1%.
For the nine months.
And at September 30th 'twenty, 'twenty $350 million compared to $150 million in the same period in 2022 net sales in the U S segment increased 2% in the third quarter.
Speaker 3: And it's September 30th, 2023, $150 million compared to $150 million in the same period in 2022. Sales in the U.S. segment increased 2% in the third quarter. Sales of the first eight products were strong, however demand was softer for school and office products. Sales were constant for the nine months and it's December 30th.
The first two products with strong Malibu.
The softer preschool Pos sales were constant for the nine months ended September return it to.
The nine months sales for school and office products were impacted by customer reductions of inventory in the first half of 'twenty to 'twenty two.
Speaker 3: The nine month sales for school and office products were impacted by customer reductions of inventory in the first half of 2023. Net sales for Europe decreased 1% in low currency for the quarter and 4% for the nine months ended in the 30.
It sounds for Europe decreased 1% in local currency the corner on 4% nine months and of course, yes.
Speaker 3: The sales decrease for both periods was mainly due to the economic recession in Europe . However, the trend is improving. Net sales in local countries for Canada decreased 7% in the quarter, but increased 3% for the year to date to gross and first aid products.
Sales decrease for both periods was mainly due to the economic recession in Europe . However, the trend is improving net sales in local currency for Canada decreased 7%.
Quarter.
<unk>, 3% for the year to date G&A growth in first aid products.
Speaker 3: The gross margin was 38.7% in the third quarter of 2023 compared to 32% in 2022. The higher gross margin was mainly due to the productivity improving issues that began in Q4 of 2022, as well as lower inbound transportation.
Margin was 38, 7% in the third quarter of 2020 compared to 32% in 2020 two.
Gross margin was mainly due to the to be improving initiatives.
Again in Q4 of 2022 as well as lower inbound transportation costs.
Speaker 3: STNA expenses for the third quarter of 2023.
SG&A expenses for the third quarter of 2023.
Speaker 3: or $15.8 million or 31% of sales compared with $15 million or 30% of sales for the same period of 2022. SGA expenses for the first nine months of 2023 or $44.7 million or 30% of sales compared with $43.7 million or 29% of 2020.
Were $15 $8 million or so.
31% of sales compared with $15 million or 3% of sales for the same period from 2022 SG&A expenses for the first nine months of 2023 or $44.7 million or.
30% of sales compared with $23.2 million or 29% of sales in 2020 two.
Speaker 3: operating profit in the third quarter increased 280% to an improved gross margin and tight control as she makes spending.
Operating profit in the third quarter.
280% due to improved gross margin and tight control of SG&A spending.
Speaker 3: Interest expense for the third quarter of 2023 was $820,000 compared to $720,000 in the third quarter of 2022. The increase was entirely due to higher interest rates. In fact, average debt declined by $20 million in the quarter compared to 2.3 last year.
Interest expense for the third quarter of 2023 was $820000 compared to $720000 in the third quarter of 2022. The increase was entirely due to higher interest rates in fact average debt declined by $20 million in the quarter compared to Q3 last year or over.
Speaker 3: Our overall average interest rate in the third quarter of 2023 was 6.25% compared to 3.9% for the third quarter of 2023.
Overall average interest rate in the third quarter of 2023 was 6.25% compared to three 9% for the third quarter of 2022.
Speaker 3: Net income for the third quarter of 2023 was $2.2 million or 58 cents per dilute share compared to net income of $64,000 or 2 cents per dilute share for the same period.
Net income for the third quarter of 2023 was $2.2 million or 58 cents per diluted share compared to net income of $64000 or two cents per diluted share for the same period from 2022 net income for the first nine months ended.
Speaker 3: 2022. The end income for the first nine months ended
Speaker 3: September 30th, 2023 was $6.6 million or $1.83 per duality share compared to $3.6 million or 96 cents.
September 30th 2023 was $6.6 million or dollar 83 cents per diluted share compared to $3.6 million or 96 cents per diluted share in the comparable period last year increases of 82% and 91%.
Speaker 3: per juliated share in the comparable period last year, increases of 82% and 91%.
Speaker 3: The company's bank debt less cash on September 30th, 2023.
The company's bank debt less cash on September 30 of 2023.
Speaker 3: was $38 million compared to $64 million on September 30, 2022. During a 12 month period, the company paid $2 million in dividends.
Was $38 million compared to $64 million on September 32022. During the 12 month period, the company paid $2 million in dividends and generated approximately $27 million and free cash flow, including an inventory reduction.
Speaker 2: and generated approximately $27 million in free cash flow, including an inventory reduction of $12 million. Net debt declined $17 million from December 31, 2022. Thank you, Paul. I will now open the call to questions.
<unk> million dollars net debt declined $17 million from December 31st 2022.
Thank you Paul I will now open the call to questions.
Thank you.
That'd be conducting a question and answer session.
Speaker 1: If you would like to ask a question at this time, please press star 1 from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you are late to remove.
Like to ask a question at this time. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
You May press Star two if you like to remove your question from the queue.
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One moment please poll for questions. Thank you.
Thank you and our first question is from the line of Richard Dearnley with long Port Partners. Please proceed with your question.
Speaker 1: Thank you, and our first question is from the line of Richard Durnley with Longport Partners. Please proceed.
Speaker 4: Good morning. Good morning.
Good morning.
Good morning, Jeff.
Yeah.
Speaker 4: would you talk about uh... pricing and price you hadn't been seen any but given the
But would you talk about pricing and price resistance, you hadn't hadn't been seen any but given the <unk>.
Economy, and so on there are people folks getting more sensitive.
Well.
Speaker 2: Well, honestly, our industry is always price sensitive. And right, this is not a tough business. And it's always price sensitive. I don't see any change. What I am seeing is a pickup in new business for next year. And it seems like we're now lapping the
Honestly, our industry is always price sensitive.
Right.
This is not a it's.
The tough business and then it's always price sensitive I don't see any change.
What I am seeing is a pickup in.
New business for next year and it seems like we're now lapping the.
The inventory reductions in the fourth quarter, so while I don't see price resistance I do see some pretty good demand.
Speaker 2: inventory reductions in the fourth quarter. So while I don't see price resistance, I do see some pretty good demand.
Speaker 4: Good, and would it be a safe guess that inventories are about where they should be given that outcome?
Good.
And it would would it be a safe guess that our inventories are about where they should be given that outlook.
Speaker 4: Yeah, inventory should be flat or reflecting whatever demand is in 24 from here.
Yeah.
Yeah inventories should be flat.
For or were reflecting.
Whatever demand is in 'twenty four from here.
That's exactly yes.
Speaker 4: Yeah. Yeah. Oh, and and Paul, what was the sales mix? First aid and In-RestVis among...
Yeah.
And Paul what was the sales mix, our first stayed in and West coast.
Oh it was 60%.
Speaker 3: It was 60% in the third quarter and for the nine months.
In the third quarter and for the nine months.
Speaker 4: Right, and do you have last year's? Last year was approximately.
Okay.
And do you have last year's.
Last year was approximately 54%.
Speaker 4: in the third quarter in the year to date. Good. Thank you very much.
And then in.
In the third quarter and the year to date.
Good thank.
Thank you very much.
Well done good quarter.
Thank you.
Okay.
Speaker 1: Thank you. As a reminder, if you may press star one at this time, you should like to ask a question.
Thank you.
Gerry you May press Star one at this time I'd like to ask a question.
Speaker 1: The next question comes from the line of Chris Sakai with Fingular Research. Please just hear through.
The next question comes from the line of Chris Sakai with singular research. Please proceed with your question.
Hi, Walter.
Speaker 2: Hi Walter, I had a question on the school and office products in the US. What drove the decline there and failed?
I had a question on the <unk> School and office products in the U S. A what drove the decline there for some sales.
During the past year.
Many of our west coast customers over purchased and they did that because of the port congestion and the.
Speaker 2: many of our Westcott customers over purchased and they did that because of the port congestion and the
Speaker 2: difficulty of getting products out of China. And it was understandable. So, as you may remember, we also had a war start in the Ukraine in March of 2022. So it all disrupted shipping. We paid for it, of course, with
The difficulty of getting products out of China.
And it was understandable. So as you May remember, we also had a war start in the Ukraine and March of 2022, so that all disrupted shipping we paid for it of course with.
I'm just an usual expenses.
Speaker 2: just unusual expenses, but our customers were scrambling for products in 2022 and they got them. In the case of the back to school, they had
But or customers were scrambling for products in 2022, and they got them in the case of our back to school they had.
Excess product and we knew that going into this year. So it wasn't a new was not unexpected but.
Speaker 2: excess product. And we knew that going into this year. So it wasn't a new was not unexpected. But
The actual demand underlying it was pretty consistent with prior years, but for US. It was the work out of some of the inventory that they bought the prior year.
Speaker 2: The actual demand underlying it was pretty consistent with prior years. But for us, there was a workout of some of the inventory that they bought the prior year, and that's all it was.
All at once.
Okay. Thanks for that and then as far as the Israel conflict is concerned it.
Speaker 5: Okay, thanks for that. And then as far as the Israel conflict is concerned, it's asking...
He's asking exposed there.
I think the whole world is exposed there and it's a very very sad situation.
Speaker 2: I think the whole world is exposed there. And it's a very, very sad situation.
Hum.
Speaker 2: In some areas we will benefit, for example.
In some areas we will benefit for example.
Speaker 2: half more than half our business 60% of it's in first aid products and then we've got the Mednap business which is making alcohol wipes and prep pads and so forth with areas probably made
Half more than half of our business, 60% of its in the first aid products and then we've got the Mednet business, which is making alcohol wipes and prep pads and so forth.
There is probably may now.
Speaker 2: may get some additional volume. And I even hate to think of it like that. But in general,
They get some additional volume.
And I, even hate to think of it like that.
But in general this is not good news.
Speaker 5: Okay, and then for your gross margin of 38.7%, how should we think of that in the next quarter or quarter or two going forward? Should it be about the same or improve even more?
Okay, and then for your gross margin.
38.7%, how should we think of that in the next quarter or quarter or two going forward should it be about the same or improve even more.
We continue to be generating productivity improvements and it may not have picked up but we had been laying out as a 5 million dollar productivity plan is now annually is now 6 million. So.
Speaker 4: We continue to be generating productivity improvements and it may not have picked up, but what we had been laying out as a $5 million productivity plan is now, annually, is now $6 million. So we've gotten additional productivity improvements.
We've got an additional productivity improvements.
And.
Speaker 2: I honestly think we'll be able to not only keep the margin we're at, but expand it in the coming year. So I'm quite optimistic about that.
I honestly think we'll be able to not only keep the margin more I could expanded in the coming year.
So I'm quite optimistic about that.
Okay, great. Thanks for your answers.
Our next question is from the line of Timothy Call Capital Management Corporation. Please proceed with your questions.
Speaker 5: Our next question is from the line of Timothy Call, Capital Management Corporation. Please receive their questions. Congratulations on a...
Congratulations on a great quarter.
Thank you Chad work paying off.
Speaker 5: Yeah, with the easier sourcing now, and all the new customers and expanding relationships.
With the.
Easier sourcing now.
And Oh, the new customers and expanding our relationships are.
You mentioned.
Along with the accretive acquisition you just made.
Speaker 5: along with the accretive acquisition you just made and retailer inventory correction.
And retailer inventory corrections being.
Completed.
Speaker 5: it sounds like we should expect strong.
It sounds like we should expect strong.
Revenue growth looking forward.
And that's my expectation as well and as you know the first aid business.
Speaker 2: That's my expectation as well. And as you know, the first aid business
Speaker 2: is now 60% of our revenues. And that's been growing fast, faster than the company in total for a number of years. And so it's not only gaining its influence, but now we've got the Westcott piece lapping performance, which reflected inventory corrections. And I think I'm fairly accurate in saying that is.
It is now.
60% of our revenues and that's been growing fast or faster than the company in total.
For a number of years and so it's not only gaining zinser.
Fluids, but now we've got the Westcott piece.
Lapping performance, which reflected inventory corrections and I think I'm fairly accurate in saying that.
It is.
It's going to continue so.
Youre right I mean, we should be seeing growth on the top line.
Speaker 2: You're right. I mean, we should be seeing growth on the top line, margins continuing to move in a favorable direction, and the productivity improvements continuing. Also, with the debt reduction, we're seeing a lot of growth in the
Margins continuing to move in a favorable direction.
And the productivity improvements continuing.
Also with the debt reduction.
There is.
Speaker 2: perhaps a little bit more to go. And so that's all positive.
Perhaps a little bit more to go and so that's all positive.
Speaker 5: So interest expense should decline on a year-over-year basis.
So interest expense should.
Decline on a year over year basis.
That I don't know yeah, it should but they keep raising rates.
Speaker 4: That I don't know. Yeah, it should, but they keep raising rates. And for reasons that are appropriate.
And for reasons that are appropriate.
<unk>.
We certainly have bus that that's impacted and as you may recall our.
Speaker 2: We certainly have less debt that's impacted. And as you may recall, our debt structure had 11 million of fixed debt. And I think it was 3.8 percent. And those are mortgages on our properties. So as we drop our.
Our debt structure had $11 billion of fixed debt and I think it was three 8% and that was the mortgages on our properties. So as we drop our.
Speaker 2: our debt, we're dropping the variable piece of it. So we will see as a percent of our interest.
Our debt, we're dropping the variable piece of it.
So.
We will see as a percent of.
Our interest rate actually declined.
Yeah.
Speaker 5: Well, with those smart moves and all of your hard work paying off, do you think management will ask the board for a dividend increase over the next three to six months?
Well with those smart moves and all of your hard work paying off.
Do you think management will ask the board for a dividend increase over the next three to six months.
Speaker 2: We generally look at cash flow and the projections and based on the cash flow that we've just generated and what I'm seeing on earnings. I think that's something we should consider.
We generally look at our cash flow and the projections and based on the cash flow that we've just generated and what I'm seeing on earnings I think that's something we should consider.
Operator: Good day and welcome to the Acme United Corporation's third quarter, 2023 Earnings Call.
Operator: At this time, I would like to turn the call over to Walter Johnsen, Chairman and CEO. Please go ahead, sir. Good morning.
Well, congratulations again on a strong quarter and it's great to us.
Speaker 5: Well, congratulations again on a strong quarter and it's great to see revenue growth, margin man. Totally awesome man.
Walter Johnsen: Welcome to the third quarter, 2023 Earnings Conference Call for Acme United Corporation.
So your revenue growth margin expansion.
Our lower debt and.
Walter Johnsen: I am Walter C. Johnsen, Chairman and CEO.
Speaker 5: all the good moves you made. So it's paying off. Thank you, Tim. Thank you.
All of the good movies you made so it is paying off.
Paul Driscoll: With me as Paul Driscoll, our chief financial officer, will first read a safe harbor statement. Paul? For these statements, this conference call including without limitations, statements related to the company's plans, strategies, objectives, expectations, intentions and adequacy of capital and other resources are made pursuant to the safe harbor provisions of the Private Security's litigation reform act of 1995.
Thank you Tim Thank you.
Okay.
Speaker 1: Thank you. As a reminder, you may press star 1 at the start if you'd like to ask a question. We'll pause a moment.
Monday, you May press Star one at this time I actually like to ask a question.
I'll pause a moment to assemble the queue.
Yeah.
Yeah.
Thank you.
Speaker 1: We've reached the end of the question and answer session. I'll now turn the call over to Mr. Johnson for his closing remarks.
We've reached the end of the question and answer session.
I'll turn the call over to Mr. Johnson for his closing remarks.
Speaker 2: Thank you. If there are no further questions, then this call is completed.
Thank you if there are no further questions. Then this call is completed.
Paul Driscoll: In gestures of caution, it's such forward-looking statements involve risks and uncertainties including among others, those arising as a result of a challenging global economic environment characterized by continued high inflation and high interest rates. In addition, we have experienced supply chain disruptions and we may experience these disruptions in the future. We're also subject to additional risks and uncertainties as described in our periodic filings with the Securities and Exchange Commission and in our current financial issue.
Speaker 2: I'd like to thank you for joining us, and we look forward to updating you soon. Goodbye.
I'd like to thank you for joining us and we look forward to updating you soon goodbye.
Speaker 1: this will conclude the conference you may disconnect your lines at this time. We thank you for your participation.
This will conclude today's conference you may disconnect your lines at this time and we thank you for your participation.
Walter Johnsen: Thank you, Paul. Acme United made significant progress during the third quarter of 2023. Our sales were $50.4 million, which was approximately 1% above that in the third quarter of 2022. Operating net income was $3.7 million during the quarter, compared to $955,000 last year. Net income was $2.2 million, compared to $64,000 in the third quarter of 2022. Earnings per share were 58 cents, compared to two cents last year. The company's sales growth of 1% in the third quarter of 2023 reflects improvement from the prior quarter, where revenues were 6% below last year.
Walter Johnsen: They continue to be inventory reductions by our Westcott cutting tool customers. However, we believe our customers are nearing the end of that process and comparisons going forward will reflect true demand. The first aid in medical business offset the weakness in Westcott sales and it continues to be strong. Our gross margins in the third quarter were 38.7% compared to 32% in 2022. This reflects shipping costs returning to normal levels and the impact of the productivity program that we initiated about a year ago.
Walter Johnsen: As you may recall, we incurred about $4.6 million in unusual shipping expenses last year due to container costs and port congestion. Our plan productivity program told $5 million in annual savings. We are currently projecting to exceed the plan by about $1 million annually. We are demonstrating the results in our improved gross margins. The company has been actively reducing its inventory after increasing it purposefully during the pandemic. Our inventory during the past three quarters has declined $9 million.
Walter Johnsen: Harris. We directed most of the cash flow from the inventory reductions and earnings during the past year to pay down debt. As a result, our balance sheet has improved substantially, and our net debt at the end of the third quarter in 2023 was $38 million compared to $64 million at the same time last year. That's over a 41% decrease in debt.
Walter Johnsen: During the third quarter of 2023, we acquired some of the assets of Halktree Solutions in Canada for approximately $1 million in a bankruptcy auction. Halktree sells first aid in medical products and is the exclusive licensee of the Canadian Red Cross for many of the supplies used in their training programs and relief efforts. The company also supplied mass clubs and gowns to the Canadian government during COVID, and it became overextended when the pandemic ended.
Walter Johnsen: We're reactivating the website, moving inventory to our LaValle Canada location and filling back orders as we speak. Our fourth quarter of 2023 has started strongly. We are winning new business of 2024 in our Westcott and first aid businesses, as well as DMT Sharpeners, and we continue to look at new acquisition opportunities.
Paul Driscoll: I will now turn the call to Paul. I think that sales from the third quarter are $50.4 million compared to $49.7 million in 2022, an increase of 1%. It sells for the nine months and it's September 30th, 2023, we're $150 million compared to $150 million in the same period in 2022. It sells in the US segment and increased 2% in a third quarter. Sales of the first aid products were strong, however demand was softer for school office products.
Paul Driscoll: Sales were constant for the nine months and it's time for third aid. The nine months sales for school and office products were impacted by customer reductions of inventory in the first half of 2023. Net sales for Europe decreased 1% in low currency for the quarter and 4% for the nine months and it's time for third aid. This health decrease for both periods was mainly due to the economic recession in Europe, however the trend is improving.
Paul Driscoll: Net sales in low currency for Canada decreased 7% in the quarter but increased 2% for the year-to-date due to growth in first aid products. The gross margin was 38.7% in the third quarter of 2023 compared to 32% in 2022. The higher gross margin was mainly due to the productivity improving measures that began in P4 of 2022 as well as lower inbound transportation costs. Estina expenses for the third quarter of 2023 were $15.8 million or 31% of sales compared to $15 million or 30% of sales for the same period for 2022.
Paul Driscoll: Estina expenses for the first nine months of 2023 or $44.7 million or 30% of sales compared to $43.7 million or 29% of 2022. Operating profit in the third quarter increased 288% due to improved gross margin and high control as she needs spending. The interest expense for the third quarter of 2023 was $820,000 compared to $720,000 in the third quarter of 2022. The increase was entirely due to higher interest rates. In fact, average debt declined by $20 million in the quarter compared to Q3 last year.
Paul Driscoll: Overall average interest rate in the third quarter of 2023 was 6.25% compared to 3.9% for the third quarter of 2022. Then income for the third quarter of 2023 was $2.2 million or 58 cents per jolid share compared to the income of $64,000 or 2 cents per jolid share for the same period of 2022.
Paul Driscoll: Then income for the first nine months ended. September 30, 2023 was $6.6 million or $1.83 per jolid share compared to $3.6 million or 96 cents per jolid share in the comparable period last year. Increases of 82% and 91%. The company's bank debt less cash on September 30, 2023 was $38 million compared to $64 million on September 30, 2022. During the 12-month period, the company paid $2 million in dividends and generated approximately $27 million in free cash flow, including an inventory reduction of $12 million. Net debt declined $17 million from December 31, 2022.
Walter Johnsen: Thank you, Paul.
Walter Johnsen: I will now open the call to questions. Thank you.
Operator: We'll now be conducting the question and answer session. If you'd like to ask the question at this time, please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants that are using a speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, we'll be poll for questions.
Operator: Thank you.
Richard Dearnley: Thank you, and our first question is from the line of Richard Dernley with Longport Partners. Please receive your questions.
Walter Johnsen: Good morning. Good morning, Jim. Would you talk about pricing and price resistance? You hadn't been seeing any, but given the economy and so on, are people folks getting more sensitive? Well, honestly, our industry is always price sensitive and this is not a tough business and it's always price sensitive. I don't see any change. What I am seeing is a pickup in new business for next year and it seems like we're now lapping the inventory reductions in the fourth quarter. So while I don't see price resistance, I do see some pretty good demand.
Walter Johnsen: Good. And would it be a safe guess that inventories are about where they should be given that outlook? Yeah, inventories should be flat, you know, or reflecting whatever demand is in 24 from here. That's exactly right.
Richard Dearnley: And Paul, what was the sales mix first aid and Westcott? It was 60% in the third quarter and for the nine months. And first aid. Right. And do you have last year's last year was approximately 54% in the third quarter in the year to date? And good. Thank you very much. Well, well done. Good quarter. Thank you.
Operator: As a reminder, if you may press star one at this time, you should like to ask a question.
Joichi Sakai: The next question comes from the line of Chris Sakai with singular research, which is your third question.
Walter Johnsen: Hi, Walter. I had a question on the school and office products in the US. What drove the decline there for some fails? During the past year, many of our Westcott customers overpurchased and they did that because the port congestion and the difficulty of getting products out of China. And it was understandable. So as you may remember, we also had a war start in the Ukraine in March of 2022. So it all disrupted shipping.
Walter Johnsen: We paid for, of course, with just unusual expenses. But our customers were scrambling for products in 2022 and they got them in the case of the back to school. They had excess product and we knew that going into this year. So it wasn't on you. It was not unexpected, but the actual demand underlying it was pretty consistent with prior years. But for us, there was a workout of some of the inventory that they bought the prior year until it was. Okay, thanks to that.
Walter Johnsen: And then as far as the Israel conflict is concerned, is acting exposed there all? I think the whole world is exposed there and it's a very, very sad situation. In some areas, we will benefit, for example, more than half of our business, 60% of it's in the first-aid products. And then we've got the MedNap business which is making alcohol wipes and prep pads and so forth. But the area is probably may get some additional volume and I even hate to think of it like that, but in general this is not good news.
Operator: Okay, and then from your gross margin of 38.7%.
Walter Johnsen: How should we think of that in the next quarter or quarter or two going forward should it be about the same or improve even more? We continue to be generating productivity improvements and it may not have picked up but what we had been laying out is a $5 million productivity plan is now annually is now $6 million. So we've got an additional productivity improvements and I honestly think we'll be able to not only keep the margin where I put expanded in the coming year so I'm quite optimistic about that.
Operator: Okay great thanks to your answers.
Timothy Call: Our next question is from the line of Timothy Call, Capitol Management Corporation.
Walter Johnsen: Please congratulations on a great quarter. Thank you. All the hard work paying off. Yeah, with the easier sourcing now and all the new customers and expanding relationships you mentioned along with the accretive acquisition you just made and retailer inventory corrections being completed. It sounds like we should expect strong revenue growth looking forward. That's my expectation as well and as you know the first aid business is now 60% of our revenues and that's been growing fast faster than the company in total for a number of years and so it's not only gaining in its influence but now we've got the Westcott piece lapping performance which reflected inventory corrections and I think I'm fairly accurate in saying that is going to continue so you're right.
Walter Johnsen: I mean we should be seeing growth on the top line margins continuing to move in a favorable direction and the productivity improvements continuing. Also with the debt reduction there's perhaps a little bit more to go and so that's all positive. So interest expense should decline on a year for your basis.
Walter Johnsen: That I don't know. Yeah, it should but they keep raising rights and for reasons that are appropriate but we certainly have bus debt that's impacted and as you may recall our debt structure had 11 million of fixed debt at I think it was 3.8% and those are mortgages on our properties. So as we drop our debt we're dropping the variable piece of it. So we will see as a percent of and our interest rate actually decline.
Walter Johnsen: Well, with those smart moves and all of your hard work paying off, do you think management will ask the board for a dividend increase over the next three to six months? We generally look at cash flow and the projections and based on the cash flow that we've just generated and what I'm seeing on earnings. I think that's something we should consider.
Timothy Call: Well, congratulations on getting on a strong quarter and it's great to see revenue growth margin expansion lower debt and all the good moves you made. So it's paying off. Thank you. Thank you, Tim. Thank you. Hey, as a reminder, you may press star one at the side. You'd like to ask a question. We'll pause a moment to assemble the queue. Thank you.
Operator: We've reached the end of the question and answer session.
Walter Johnsen: Now, I'll now turn the call over to Mr. Johnson for his closing remarks. Thank you. If there are no further questions, then this call is completed.
Walter Johnsen: I'd like to thank you for joining us and we look forward to updating you soon. Goodbye.
Operator: This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.