Q1 2024 Acme United Corp Earnings Call
Operator: Good day, and welcome to the Acme United Corporation First Quarter Earnings Call. At this time, I would like to turn the call over to Walter Johnsen, Chairman and CEO.
Good day and welcome to the Acme United Corporation first quarter earnings call.
At this time I would like to turn the call over to Walter Johnsen, Chairman and CEO.
Walter C. Johnsen: Morning. Welcome to the first quarter 2024 earnings conference call for Acme United Corporation. I am Walter C. Johnson, Chairman and CEO. With me is Paul Driscoll, our Chief Financial Officer, who will first read a safe harbor statement. Paul?
Walter C. Johnsen: Please go ahead Sir.
Good morning, welcome to the first quarter 2024 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 the safe Harbor statements Paul.
Paul G. Driscoll: Forward-looking statements in this conference call, including without limitations, statements related to the company's plans, strategies, objectives, expectations, and others. The intentions and adequacy of capital and other resources are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Paul G. Driscoll: Forward looking statements in this conference call, including without limitation statements relating 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 Securities Litigation Reform Act.
Paul G. Driscoll: 1995 invest.
Paul G. Driscoll: Investors are cautioned that such forward-looking statements involve risks and uncertainties, including, among others, those arising as a result of a challenging global macroeconomic environment characterized by continued high inflation and high interest rates. In addition, we have experienced supply chain disruption. And we may experience these disruptions in the future. We are also subject to additional risks and uncertainty, as described in our periodic filings with the Securities and Exchange Commission and in our current earnings release.
Paul G. Driscoll: Investors are cautioned that such forward looking statements involve risks and uncertainties, including among others. Those are rising as a result of a challenging global macroeconomic environment characterized by continued high inflation and high interest rates. In addition, we have experienced supply chain disruptions.
Paul G. Driscoll: And we May experience. These disruptions in the future. We are also subject to additional risks and uncertainties as described in our periodic filings with the Securities and Exchange Commission.
Paul G. Driscoll: And then our current earnings release.
Walter C. Johnsen: Acme United had a good first quarter of 2024. Net sales were $45 million in 2024 compared to $45.8 million last year. Net income was $1.6 million, an increase of 65%, and earnings per share of $0.39 compared to $0.28 last year, an increase of 39%. Our net sales in the first quarter of 2024 were 2% lower than last year, reflecting the sale of our Camillus & Kuta hunting and fishing business in November 2023 for $19.6 million. As you may remember, this business had approximately $12 million in annual revenue.
Speaker Change: Thank you Paul.
Speaker Change: Acme United had a good first quarter of 2024.
Speaker Change: Net sales were $45 million in 2024 compared to $45 $8 million last year net income was $1 $6 million, an increase of 65% and earnings per share of 39 cents compared to 28 cents last year, an increase of 39%.
Speaker Change: Our net sales in the first quarter of 2024 with 2% lower than last year, reflecting the sale of our camillus and cuda hunting and fishing business in November 2023 for $19.6 million.
Speaker Change: As you May remember this business had approximately 12 million in annual revenues.
Walter C. Johnsen: We reduced expenses to compensate for the lost contribution of the business and focused on the growth of the remaining business. We are making progress building the sales momentum of our first aid business as well as our cutting and sharpening tools. This should become apparent in the coming quarters.
Speaker Change: We reduced expenses to compensate for the loss contribution of the business and focused on the growth of the remaining businesses.
Speaker Change: We are making progress building the sales momentum of our first aid business as well as there were cutting and sharpening tools.
Speaker Change: This should become apparent in the coming quarters.
Walter C. Johnsen: We have just begun shipping new first aid kits to a major drugstore chain in the United States, expanded our presence at a large hardware chain in the U.S. and Canada, and started shipping our Spill Magic products to a large mass market retailer in the United States, also in the second quarter. Our Westcrock business has begun shipping new cutting tools to a major mass market retailer, as well as new craft items to a prominent retailer in the hobby market.
Speaker Change: We have just begun shipping new first aid kits to a major drug store chain in the United States.
Speaker Change: Expanded our presence at a large hard work sharing in the U S and Canada and started shipping out what's still magic products to a large mass market retailer in the United States.
Also in the second quarter, our Westcott business has begun shipping new cutting tools to a major mass market retailer.
Speaker Change: As well as new craft items to a prominent retailer in the hobby market.
Walter C. Johnsen: In addition, we've just started shipping new DMT sharpeners for the kitchen to a major mass market retailer. So we believe we will begin seeing meaningful growth in the second quarter and beyond. Our gross margins in the first quarter of 2024 increased to 38.7 percent compared to 35.5 percent last year due to productivity improvements and improved shipping performance. We have been making investments in new equipment and automation and driving our manufacturing and distribution costs lower.
Speaker Change: In addition, we have just started shipping new D. M T sharpness for the kitchen to a major mass market retailer. So we believe we will begin seeing meaningful growth in the second quarter and beyond.
Speaker Change: Our gross margins in the first quarter of 2024.
Increased to 38, 7% compared to 35, 5% last year due to productivity improvements and improved shipping performance.
Speaker Change: We have been making investments in new equipment, and automation and driving our manufacturing and distribution costs lower.
Walter C. Johnsen: We also continue to be investing in more manufacturing in-house. We are adding new alcohol, BVK, and hand sanitizer capabilities at our MedNap facility in Brooksville, Florida, for use in our first aid kits, refills, and sales to other customers.
Speaker Change: We also continue to be investing to bring more manufacturing in house.
Speaker Change: We're adding new alcohol D Z K and hand sanitizer capabilities, our at our met that facility in Brooksville, Florida. They use it in our first aid kits refills and sales to other customers.
Walter C. Johnsen: Later in this quarter, we'll bring on stream a new clean room at the site and begin boxing automation for alcohol prep pads and other products. We expect savings from this work to begin in the third quarter of 2024. We are also installing high-density racking at our largest distribution center in Rocky Mountain, North Carolina. This is expected to increase our capacity and lower our cost of distribution. The work is expected to be completed by the fourth quarter of 2024. We're excited about continuing to drive both sales growth and profitability in the coming quarters. I will now turn the call over to Paul.
Speaker Change: Later in this quarter, we will bring on stream of new clean room at the site and begin boxing automation for alcohol prep pads and other products. We expect savings from this work to begin in the third quarter of 2024.
Speaker Change: We are also installing high density racking at our largest distribution center in Rocky Mount North Carolina.
Speaker Change: This is expected to increase our capacity and to lower our cost of distribution.
Speaker Change: The work is expected to be completed by the fourth quarter of 2024.
Speaker Change: We're excited about continuing to drive both sales growth and profitability in the coming quarters I will now turn the call to Paul Acme's net sales for the first quarter was $45 million compared to $45 million in 2023, 2% decrease excluding the impact of the Camillus and cuda.
Paul G. Driscoll: Acme's net sales for the first quarter were $45 million compared to $45.8 million in 2023, a 2% decrease. However, excluding the impact of the Camillus and Kuta hunting and fishing product lines sold on November 1, 2023, sales for the first quarter of 2024 increased 1%. Net sales excluding Camillus and Kuta in the U.S. segment increased 1% in the first quarter. Net sales excluding Camillus and Kuta in Europe for the first quarter of 2024 increased 7% in local currency compared to the first quarter of 2023, in the first quarter of 2024 versus 35.5% in the first quarter of 2023.
Hunting and fishing product line sold on November 1st 2023 sales for the first quarter of 'twenty 'twenty four increased 1% net sales, excluding camillus and Cuda and U S segment increased 1% in the first quarter net sales, excluding camillus and cuda in Europe for the first quarter of 'twenty 'twenty four increased 7%.
Speaker Change: In local currency compared to the first quarter of 2023 net sales, excluding camillus and Cuda in Canada for the first quarter of 2023 increased 1% in local currency. The gross margin was 38, 7%.
Speaker Change: In the first quarter of 2024 versus 35, 5% in the first quarter of 2023.
Paul G. Driscoll: The higher gross margin was mainly due to productivity improvement initiatives that began in Q4 of 2022 and lower inbound freight costs. We experienced the full impact of the productivity initiatives beginning in the second quarter of 2023.
Speaker Change: Higher gross margin was mainly due to the productivity improvement initiatives that began in Q4 of 2022 and lower inbound freight costs, we experienced the full impact of the productivity initiatives beginning in the second quarter of 2023.
Speaker Change: SG&A expenses for the first quarter, 'twenty, 'twenty, four or $14.8 million or 33% of net sales compared with $14 $1 million.
Paul G. Driscoll: SCNA expenses for the first quarter of 2024 were $14.8 million, or 33% of net sales compared with $14.1 million, or 31% of net sales for the same period of 2023. Interest expense for the first quarter of 2024 was $440,000 compared to $900,000 in the first quarter of 2023. The decrease was due to the lower average debt of approximately $28 million. Net income for the first quarter of 2024 was $1.6 million or $0.39 per diluted share compared to net income of $1 million or $0.28 per diluted share for the same period of 2023, an increase of 65% in net income and 39% in earnings per share.
Speaker Change: Or 31% of net sales for the same period of 2023 inter.
Speaker Change: Interest expense for the first quarter of 2024 was $440000 compared to $900000 in the first quarter of 2023. The decrease was due to lower average debt of approximately $28 million net income for the first quarter 'twenty 'twenty four was $1 6 billion.
Speaker Change: So 39 cents per diluted share compared to net income.
Speaker Change: $1 million or 28 cents per diluted share. The same period of 2023, an increase of 65% and anytime and 39% and earnings per share the company's bank debt less cash on March 31, 2024 was $32 million compared to $48 million in March.
Speaker Change: 31, 'twenty twenty-three during a 12 month period, the company paid $2 $1 million in dividends and generated $5 $4 million and free cash flow. Additionally, the $13 million in net proceeds from the sale of the Cumulus and Cuda product lines was used to reduce debt.
Paul G. Driscoll: The company's bank debt, less cash, on March 31, 2024 was $32 million, compared to $48 million on March 31, 2023. During a 12-month period, the company paid $2.1 million in dividends and generated $5.4 million in free cash flow. Additionally, the $13 million in net proceeds from the sale of the Canolis and Kuda product lines was used to reduce debt. Thank you.
Speaker Change: Thank you Paul that well now open the call to questions.
Speaker Change: Okay.
Speaker Change: Thank you we will now be conducting a question and answer session.
Speaker Change: I'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate that your line is in the question queue.
Speaker Change: And you May press star two if you'd like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Timothy Colin Call: Thank you. Our first question comes from Tim call with Capital Management Corporation. Please proceed with your question.
Walter C. Johnsen: Thank you, Paul. I will now open the call to questions. Thank you.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue, and you may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Tim: Well congratulations on another quarter.
Tim: Quarter of strong earnings.
Tim: Thank you Tim.
Tim: Good to see expanding distribution of your products and the benefits from streamlining operations.
Tim: The first quarter can sometimes be the weakest quarter of the year could that be the case this year.
Speaker Change: I believe it will be 10, and there was some carryover of first quarter sales that are going into the second quarter, maybe about $2 million. So it was it was a weaker quarter, but I'm looking at the book of business, we have going forward.
Operator: One moment, please, while we pull for questions. Thank you. Our first question comes from Tim Call with Capital Management Corporation. Please proceed with your question.
Speaker Change: We're pretty optimistic about some great performance in sales.
Speaker Change: As your strong cash flows to pay down debt our interest expense fell 48%.
Timothy Colin Call: So congratulations on another quarter of strong earnings. Thank you, Tim. It's good to see the expanding distribution of your products and the benefits from streamlining operations. The first quarter can sometimes be the weakest quarter of the year. Could that be the case this year?
Speaker Change: It is the current.
Speaker Change: Quarters.
Speaker Change: 476 odd thousand of interest expense.
Speaker Change: Oh good.
Speaker Change: Run rate to model going forward absent acquisitions.
Speaker Change: Paul why don't you cover that one.
Walter C. Johnsen: I believe it will be, Tim, and there was some carryover of first quarter sales that are going into the second quarter, maybe about $2 million. So it was a weaker-ish quarter, but looking at the book of business we have going forward, we're pretty optimistic about... some great performance and sales.
Paul: Well the the mortgage that we have is about $11 million. So that's a three 8%.
Paul: And the bank debt is at 7%.
Paul:
Paul: So that's what we're expecting going forward unless.
Paul: Interest rates come down.
Paul: They're talking about later in the year, what about the balance of all of our debt, that's probably going to build a little bit as we grow.
Timothy Colin Call: As your strong cash flows pay down debt, interest expense fell 48% in the current quarters. $476,000 of interest expense. A good run rate to model going forward, absent acquisitions.
Paul: Right well grow during the second quarter and then it will come down in the third and fourth quarter, we'll probably end the year about $15 million in bank debt.
Paul: Which with another 10.
10 11 million in the mortgage.
Tim: Is that helpful. Tim.
Walter C. Johnsen: Paul, why don't you cover that one?
Tim: Yes. Thank you.
Tim: And with that.
Tim: Noticed the diluted share count rose as old.
Paul G. Driscoll: Well, the mortgage that we have is about $11 million, so that's at 3.8 percent, and the bank debt is at 7 percent. So that's what we're expecting going forward unless interest rates come down. What are you talking about later in the year? What about Fidel on Spall?
Stock options went into the money.
Tim: When employees want to cash out of those options.
Tim: And have to pay tax on it and whatnot.
Tim: Good.
Tim: Me purchase some of those shares or make it so that there's no share creep.
Speaker Change: Yeah. That's a very good question, we had an unusual situation where last year the stock was.
Paul G. Driscoll: Probably going to build a little bit as we grow.
Paul G. Driscoll: Right. Well, it will grow during the second quarter, and then it will come down in the third and fourth quarter. We'll probably end the year with about $15 million in bank debt, which with another $10, $11 million in the mortgage.
Speaker Change: Below the option price of.
Speaker Change: Strike price at most of the options and of course most of them all of them are in the money now. So there was extra dilution the intention of the company is to purchase money.
Many of the options that employees decide when they have to exercise so that will reduce.
Walter C. Johnsen: Is that helpful, Tim? Yes. Yes, and with.
Timothy Colin Call: Notice the diluted share count rose as old Stock Options went into the money. When employees want to cash out those options and have to pay tax on them and whatnot, could Acme purchase some of those shares or make it so that there's no share creep?
Speaker Change: The share count of options and try to hold it at the level, we're at or decline.
Speaker Change: Well, congratulations again on a great quarter, and there's a lot of hard work and I greatly appreciate it.
Speaker Change: Thank you for your help Tim.
Speaker Change: Thank you once again, if you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Darren.
Walter C. Johnsen: Yeah, that's a very good question. We had an unusual situation where last year the stock was... below the option price of $1, the strike price, and of course, all of them are in the money now, so there was extra dilution. The intention of the company is to purchase... Many of the options that employees decide when they have to exercise so that we'll reduce the share count of options, try to hold it at the level we're at, or decline.
Speaker Change: Excuse me.
Speaker Change: Our next question comes from the line of Jim Marrone with singular research. Please proceed with your question.
Jim Marrone: Thank you good quarter gentlemen, my question is in regards to the productivity initiatives can you just expand a little bit exactly what the productivity initiatives are and how that will impact the business going forward in 'twenty two.
Jim Marrone: Only four and as well specifically on the Canadian market, what do you foresee with that particular geographic region why it seems to be outperforming the way. It is thank you.
Speaker Change: Sure on the productivity one area that we're been working on is automation of the boxing of lens wipes and alcohol prep pads and that's a accustomed piece of machinery that.
Timothy Colin Call: Well, congratulations again on a great quarter. I know it's a lot of hard work, and I greatly appreciate it. Thank you for your help.
Walter C. Johnsen: Thank you for your help, Tim. Thank you. Once again, if you'd like to,
Speaker Change: We in part designed internally as well as with the experts.
Operator: Thank you. Once again, if you would like to ask a question, please press star 1 on your telephone keypad. Dearnley, excuse me. Our next question comes from the line of Jim Marrone with Singular Research. Please proceed with your question.
Speaker Change: And it was about an 850000 dollar to a million dollar investment which has been done it comes online.
Speaker Change:
Speaker Change: Actually installed in the third week of May and it should be operational we believe by July.
Speaker Change: The estimate for that is somewhere in excess of 400 to $500000 annualized savings.
Jim Marrone: Thank you. Good quarter, gentlemen.
Speaker Change: And.
Jim Marrone: My question is regarding productivity initiatives. Can you just expand a little bit on exactly what those productivity initiatives are and how that will impact the business going forward in 2024? And as well, specifically on the Canadian market, what do you foresee with that particular geographic region and why it seems to be outperforming the way it is? Thank you.
Speaker Change: That particular item has another benefit which is because it drops our cost of production.
Speaker Change: It may allow us to gain additional customers in the global market, because they're frankly, our manufacturing costs have dropped another productivity.
Speaker Change: The product is in the.
Speaker Change: First aid Assembly business.
Speaker Change: And it automatically stuffs of first aid components in the boxes of first aid kits.
Walter C. Johnsen: On productivity, one area that we've been working on is automation of the boxing of lens wipes and alcohol prep pads. And that's a custom piece of machinery that we, in part, designed internally, as well as with experts. And it was about an $850,000 to $1 million investment, which has been done. It will come online.
Speaker Change: To our knowledge nobody else does that and the industry.
Speaker Change: It could be if it proves to be accurate, it's something that's a game changer, we well it would be.
Speaker Change: Taking delivery of that and around November and.
Speaker Change: The amount of money we save.
Speaker Change: It starts with one machine and moves forward, but.
Walter C. Johnsen: It was actually installed in the third week of May, and it should be operational, we believe, by July. The estimate for that is somewhere in excess of $400,000 to $500,000 annually in savings. And that particular item has another benefit, which is that it drops our cost of production. It may allow us to gain additional customers in the global market because, frankly, our manufacturing costs have dropped, and the product is in the. First Aid Assembly business, and it automatically stuffs the first aid components in the box of the first aid kit. And to our knowledge, nobody else does that in the Indian District.
Speaker Change: The cost is somewhere around $700000 in the savings or at least that much annually.
Speaker Change: So it's a.
Speaker Change: And that has been have paid for already.
Speaker Change: Another machine is expanding production in our Mednet facility.
Speaker Change: And plus about $850000 it has to take on.
Speaker Change: Pack.
Speaker Change: Pack Katz of suddenly solid solutions.
Speaker Change: Those are items that we can sell both into the open market as new business as well as.
Speaker Change: Our internal usage in our first aid kits and these things are typically are a hand.
Speaker Change: <unk> AAA antibiotic wipes and so forth.
There's not only a savings there, but it's an actual increase in our.
Walter C. Johnsen: It could be, if it proves to be accurate, something that's a game-changer. We will be taking delivery of that in around November. Again, the amount of money we save starts with one machine and moves forward. But the cost is somewhere around $700,000. And the savings are at least that much annually. So it's
Capability internally.
Speaker Change: There's another one the business I mean, another productivity improvement in our spill magic area that is currently operating in saving.
I believe it's over 800000 annually and we're getting the benefits of that and that's for the automatic packaging of the material that goes into the spill magic our products and our Smyrna, Tennessee plant, which is our major plant for spill magic.
Walter C. Johnsen: And that has been half paid for already. Another machine is expanding production in our MEDNAP facility, and it costs about $850,000. It is to take on... packets of semi-solid solutions.
Speaker Change: So those are examples there are others in the warehouse are we're looking at some automated.
Speaker Change:
Speaker Change: Packing.
Speaker Change: Picking equipment and that'll be at the end of the year.
Speaker Change: Can't give you specifics on it because I just don't remember them, but it's.
Walter C. Johnsen: And those are items that we can sell both in the open market as new business, as well as... [inaudible] Capability internally. There's another new business, I mean another productivity improvement in our Spill Magic area that is currently operating and saving, believe it's over 800,000 annually, and we're getting the benefits of that. That's for the automatic packaging of the material that goes into the Spill Magic products at our Smyrna, Tennessee plant, which is our major plant for Spill Magic. So those are just examples.
Speaker Change: Another productivity program, that's fairly impactful relative.
Speaker Change: Relative to our Canadian market the acquisition of Hawk tree solutions has been successful with as you may know we bought it.
Speaker Change: Out of bankruptcy.
Speaker Change: And in September It was at one time, a 50 million dollar business at over expanded with a personal protection equipment.
Speaker Change: The price of that stuff declined.
Speaker Change: They were stuck with write downs of inventory and a decline of their customer base and it went into receivership and we bought it as you may remember for a million dollars and had about a million three of inventory that we purchased.
Walter C. Johnsen: There are others. In the warehouse, we're looking at some automated... Packing and Picking Equipment, and that'll be at the end of the year. I can't give you specifics on it because I just don't remember them, but it's another productivity program that's fairly impactful.
Speaker Change: It came with the license with the Canadian Red Cross.
Speaker Change: Houston, they're training and some of their.
Speaker Change: Rescue and safety operations.
Walter C. Johnsen: [inaudible] expanded with personal protection equipment. The price of that stuff declined. They were stuck with write-downs of inventory and a decline in their customer base and went into receivership. And we bought it, as you may remember, for $1 million, and we had about $1.3 million of inventory that we purchased. It came with a license for the Canadian Red Cross to be used in their training and in some of their rescue and safety operations.
Speaker Change: We've got.
Speaker Change: Consolidated that into our facility in Laval, we've expanded some of the the sales efforts were brought in their customers today, it's a fully functioning part of our first aid business in Canada.
Speaker Change: You may remember that we doubled our space in Canada in.
Speaker Change: The first quarter or the end of the yeah in the first quarter.
Speaker Change: So we're expecting sizable growth there and we're experiencing it.
Speaker Change: No.
Walter C. Johnsen: We've consolidated that into our facility in Laval. We've expanded some of the sales efforts, and we've brought in their customers. Today, it's a fully functioning part of our first aid business in Canada. You may remember that we doubled our space in Canada in the first quarter, or at the end of the first quarter, and so we're expecting sizable growth there and we're experiencing
Speaker Change: Great. Thank you very much for your answers.
Speaker Change: Thank you Jim.
Speaker Change: Thank you there are no further questions at this time I would like to turn the floor back over to Mr. Walter Johnson for any closing remarks.
Walter C. Johnsen: Well I'd like to thank you for joining us today, we're optimistic about the coming quarters and I look forward to presenting the results of that in the next.
Jim Marrone: Great, thank you very much for your answer.
Walter C. Johnsen: Our quarter earnings release and.
Operator: Thank you. There are no further questions at this time. I would like to turn the floor back over to Mr. Walter Johnsen for any closing remarks.
Speaker Change: In July thank you for joining us goodbye.
Okay.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Walter C. Johnsen: I'd like to thank you for joining us today. We're optimistic about the coming quarters, and I look forward to presenting the results of that in the next..., a quarterly earnings release in July. Thank you for joining us.
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Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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