Acme United Corporation (AMEX:ACU) Q4 2022 Earnings Call Transcript
Acme United Corporation (AMEX:ACU) Q4 2022 Earnings Call Transcript March 2, 2023
Operator: Good day and welcome to the Acme United Fourth Quarter 2022 Conference Call. At this time, I'd like to turn the call over to Walter Johnsen, Chairman and CEO. Please, go ahead, sir.
Walter Johnsen: Good morning. Welcome to the fourth quarter and year-end 2022 earnings conference call for Acme United Corporation. I'm Walter C. Johnsen, Chairman and CEO. With me is, Paul Driscoll, our Chief Financial Officer, who will first read a Safe Harbor statement. Paul?
Paul Driscoll: Forward-looking statements in this conference call, including, without limitation, 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 Securities Litigation Reform Act of 1995. 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 disruptions, including those resulted from the COVID-19 pandemic and we may experience supply chain 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 in our current earnings release.
Walter Johnsen: Thank you, Paul. Acme United encountered and addressed a difficult macroeconomic environment in 2022. We faced supply chain issues at ports in Asia, the US and Europe; war in the Ukraine; rapidly increasing container expenses; product costs continually increasing; wage inflation; rising interest rates; and shortages of workers. Despite these issues, we had net sales in 2022 of $193.9 million compared to $182.1 million in 2021, an increase of 7%. This was the 13th consecutive year of record sales. Our net income was impacted by the increased costs. In particular we had over $4 million of extra expenses in container costs, port demurrage fees and drayage which we did not pass to customers. Net income for 2022 was $3 million, compared to $10.1 million in 2021 and earnings per share of $0.82 versus $2.57 last year.
While our financial performance was not what we had planned, we supported our customers with timely deliveries at fair prices. It was a difficult period and we emerged -- positioned we believe for improved performance. During 2022, we expanded the first aid in medical business, introduce new Westcott cutting products, broadened distribution of our Camillus hunting knives and tools, and purchased the assets of two companies. We broadened our first aid and medical product lines, which now account for more than 55% of Acme United's revenues. During 2022 we expanded distribution in the industrial and retail markets in the United States and integrated the Med-Nap line of Prep-pads and BZK wipes into our refills. We also acquired Safety Made in June 2022 entering the market for personalized medical and safety products.
In September 2022, we acquired Ready 4 Kits and merged it into Safety Made. Our team expanded distribution of our line of refills for industrial first aid kits during the year. These are the components that are used in the kits and which must be added as items are used or expired. We introduced a new generation of technology in our first aid cabinets providing an easier option for replenishment of refills to our customers. Sales of refills in 2022 were a fast-growing annuity portion of our business. Our Westcott Group performed well in 2022 despite a very difficult retail environment. We continued as the largest supplier of scissors globally and our Westcott scissors became arguably the world's most recognized brand. We expanded the Westcott product line of ceramic cutters to open boxes and packages as well as introduce new high leverage sensors for use in the craft and industrial markets.
The Camillus hunting knife category was a solid contributor in 2022 and has gained new hardware and mass market distribution for 2023. The Cuda fishing tool and -- the Cuda fishing knife and tool product family has grown from its roots in the offshore fishing market to best-in-class freshwater tools developed for a rugged environment. In Canada, we expanded our first aid and medical business through First Aid Central, which we acquired in 2020. We successfully introduced many of our US product lines to global customers in Canada and added major industrial distributors as well as retailers. At year end we leased additional space to double our first aid production capacity in Canada. In Europe, we acquired the Eumex product line of scissors and writing instruments to expand our office products offering.
We continue to gain market share in first aid and medical products and have secured new listings for 2023. During 2022, Acme United initiated cost reductions that are anticipated to save over $5 million in 2023. These savings are due to improved efficiency in our production and warehouse facilities, reduced transportation costs and lower spending in SG&A than in 2022. We believe the risk of supply chain disruptions has been reduced and we are now lowering our inventory. During 2023, our goal is to reduce inventory by $5 million and to use the resulting cash flow to reduce debt and fund potential acquisitions. While we are not providing guidance for 2023, at this time we are focusing -- we are forecasting growth over the 2022 level with much improved profitability.
I will now turn the call to Paul Driscoll.
Photo by Konstantin Evdokimov on Unsplash
Paul Driscoll: Acme's net sales for the fourth quarter were $44.1 million, compared to $45.8 million in 2021, a decrease of 4% or 2% in constant currency. Sales for the year ended December 31, 2022 were $194 million compared to $182 million in 2021, an increase of 7% or 8% in constant currency. Net sales in the US segment decreased 2% in the quarter but increased 8% for the year ended December 31st. The decline in the quarter was mainly due to some large customers reducing their inventory. The growth for the year was primarily due to increased sales of first aid and medical products. Net sales for Europe increased 13% in local currency for the fourth quarter and 10% for the year ended December 31. The sales increase for both periods was mainly due to new customers in the office channel.
Net sales in local currency for Canada decreased 16% in the quarter due to reduced consumer demand for knives and fishing tools in comparison to the same period in 2021 when there were unusually high sales of these products driven by the pandemic. Customer inventory reductions also affected the fourth quarter. Sales for the year ended December 31, 2022 were constant in local currency. Gross margin was 32% in the fourth quarter of 2022, compared to 35.1% in 2021. The gross margin for the year ended December 31, 2022 was 32.8% compared to 35.6% in 2021. The decline in both periods was primarily due to higher ocean freight and related transportation costs for imported goods. Also contributing to the decline were weaker currencies in Europe and Canada where we purchase most of our inventory in US dollars.
SG&A expenses for the fourth quarter of 2022 were $40 million or 32% of sales compared with $30 million or 28.4% of sales for the same period of 2021. SG&A expenses for the year ended December 31, 2022 were $57.3 million or 29.5% of sales compared with $52 million or 28.6% of sales in 2021. Interest expense for the fourth quarter of 2022 was $920,000 compared to $240,000 in the fourth quarter of 2021. Interest expense for the year ended December 31 2022 was $2.4 million, compared to $900,000 for the same period of 2021. The increase for both periods was due to higher debt and higher interest rates. And our overall average interest rate in 2022 was 4% compared to 2% for 2021. Our overall average interest rate for the three months ended December 31, 2022 was 5.7% compared to 2% for the same period in 2021.
The net loss for the fourth quarter of 2022 was $597,000 or minus $0.19 per diluted share compared to a net income of $2.3 million or $0.60 per diluted share for the same period of 2021. Net income for the year ended December 31, 2022 was $3 million or $0.82 per diluted share. Excluding the impact of the PPP loan forgiveness of $3.5 million net income was $10.1 million, or $2.57 per diluted share for the year ended December 31, 2021. The three and 12-month 2022 results were impacted by the exceptional supply chain costs and higher interest expense. The company's debt less cash on December 31, 2022 was $55 million, compared to $40 million on December 31, 2021. During the year ended December 31, 2022 the company paid approximately $11 million for the acquisition of the assets of Safety Made and paid $1 million in dividends.
We increased inventory during the 12-month period by approximately $9 million to prepare for continued growth and to be positioned to offset the impact of supply chain disruptions related to COVID-19. The increase in inventory was also a result of higher product costs. Our year-end inventory decreased $2.9 million compared to the end of the third quarter of 2022. We plan to reduce inventory by another $5 million in 2023.
Walter Johnsen : Thank you, Paul. I will now open the call to questions.
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