Acme United Corp. (NYSE MKT:ACU) Q3 2018 Earnings Conference Call Transcript

Oct 19, 2018 • 12:00 pm ET

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Acme United Corp. (NYSE MKT:ACU) Q3 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good day and welcome to the Acme United Corporation's Third Quarter 2018 Earnings Call. At this time, I would like to turn the conference over to Mr. Walter Johnsen, Chairman and CEO. Please go ahead.

Executive
Walter Johnsen

Good morning. Welcome to the third quarter 2018 earnings conference call for Acme United Corporation. I am Walter C. Johnsen, Chairman and CEO. With me is Paul Driscoll, our CFO, who will first read the Safe Harbor statement. Paul?

Executive
Paul Driscoll

(Forward-Looking Cautionary Statements)

Executive
Walter Johnsen

Thank you, Paul. Acme United had net sales of $34.7 million in the third quarter of 2018, an increase of 3%. Net income declined to $800,000 compared to $1.2 million in the second quarter last year. Earnings per share was $0.23 compared to $0.32. Our sales for the quarter and for year-to-date have set new records, however, we expected to do better.

Gross margins were about comparable to last year. SG&A and inventory increased in preparation for stronger growth, but actual sales were below our expectations. Severe weather conditions added to the difficulty of the quarter. We are addressing costs and inventory for a series of steps that I will describe in a moment.

Total sales in the quarter was split about evenly between first aid and cutting tools. Our first aid growth was driven by new business and industrial distributors and additional SmartCompliance accounts, but was offset by softness at our largest online account. Overall, first aid growth was 7%.

Our office customers are continuing to go through transitions. As you know, Staples plans to continue to close stores and they are acquiring office products dealers and purchasing -- intending to purchase, Essendant, a large office products wholesaler. Both are good customers and we are supporting their efforts. However, when stores closed their inventory has shifted to other stores and we temporarily lose sales. We have to successfully make the shift to other nearby retailers, and increasingly online.

NPD data shows that Westcott scissors have gained 7% in market share this year. So, we are executing well in the shifting environment. We had record back-to-school sales of scissors online and had excellent sales of our fishing tools and Camillus hunting knives. Sales of pencil sharpeners had a major retailer and office shears online fell during the third quarter.

I want to recognize our team in North Carolina for successfully coping with hurricane Florence in late September. We were closed for four days with no power and flooded roads. Our employees helped their neighbors and community and came back to work with a huge backlog of unshipped orders. They dug in and tackle that successfully with perhaps only $1 million of potential sales that shifted to the fourth quarter. Also in late September, Hong Kong had a direct hit with the typhoon that landed with 175 miles per hour winds. That blew our windows in our office building and, of course, disrupted shipping.

Our team in Hong Kong responded, we met all shipments. Approximately 10% of our products are covered by the new tariffs