Acme United Corporation (NYSE:ACU) Q4 2021 Results Conference Call March 1, 2022 12:00 PM ET
Company Participants
Walter Johnsen - CEO
Paul Driscoll - CFO
Conference Call Participants
Chris Sakai - Singular Research
Richard Dearnley - Longport Partners
Operator
Good day, and welcome to the Acme United Corporation's hosted Fourth Quarter 2021 Earnings Conference Call.
At this time, I would like to turn the conference over to Mr. Walter Johnsen, Chairman and CEO. Please go ahead, sir.
Walter Johnsen
Good morning. Welcome to the fourth quarter and year-end 2021 earnings 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 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 such as, among others, those arising 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 and in our current earnings release.
Walter Johnsen
Thank you, Paul. Acme United had a strong year in 2021. Our team delivered its 12th consecutive year of record sales with earnings reaching an all-time high. We integrated the First Aid Central and Med-Nap acquisitions, installed new warehouse management software in our largest distribution center and strengthened our balance sheet.
Sales for the year were $182 million compared to $164 million in 2021, an increase of 11%. Our net income was $10.1 million versus $8.1 million in the prior year, up 25%. Our earnings per share increased 11% to $2.57 versus $2.31 in 2020. We gained in most of our key markets, including Westcott, First Aid Only, Camillus, DMT and Cuda. Our Canadian and European subsidiaries had record sales. We successfully managed the tight balance between raising the selling prices of our products and managing underlying costs.
Some of the increases included product costs due to inflation in China and higher cost of shipping containers. We increased wages at our factories and distribution sites to attract and keep our workers, but we also had inefficiencies due to testing, quarantine and illness. The U.S. currency declined in global markets, increasing our costs. Our team in Canada successfully integrated First Aid Central, which we acquired in 2020. They substantially grew their e-commerce business, attracted new English and French-speaking customers and converted business from our office and industrial customers in Canada and the U.S.
They did an outstanding job. The Med-Nap business, which we acquired in December 2020, manufactures alcohol wipes and prep pads in Brooksville, Florida. During 2021, it was successfully integrated into the Acme United enterprise software and quality control and regulatory programs. We installed new equipment for additional capacity, brought in new customers for the consumer and medical markets and began developing the next generation of products for use in our first aid kits and for outside sales.
We installed new warehouse management software at our Rocky Mount, North Carolina facility. As you may know, this site has 345,000 square feet of warehouse, manufacturing and office space on 33 acres. The new software increased the accuracy of win locations, units of measure, and product packaging specifications. It improved picking and shipping and enhanced our capabilities for small parcels. Importantly, it provided the backbone to expand to our other locations and to be enhanced as our business grows.
The company improved its balance sheet during 2021. It obtained a fixed rate mortgage of $11.8 million on its plants in Rocky Mount, North Carolina and Vancouver, Washington, with a rate of 3.8% and a term of 7 years. The new mortgage replaced variable rate debt. The U.S. small Business Administration also forgave our $3.5 million Paycheck Protection Program loan, which enhanced our equity. I want to thank our associates at Acme United for delivering outstanding performance in 2021. It was a tough task and they delivered.
As we look to 2022, we anticipate continued challenges with inflation, product availability and uncertainty. However, our business is strong, and we are projecting substantial growth. We will not be providing guidance at this time, but we believe our revenues will exceed $200 million in 2022.
I will now turn the call to Paul.
Paul Driscoll
Acme's net sales for the fourth quarter were $45.8 million compared to $40.9 million in 2020, an increase of 12% in sales for the year ended December 31, 2021, were $182 million compared to $164 million in 2020, an increase of 11%.
Net sales in the U.S. segment increased 11% in the quarter and 9% for the year ended December 31. The sales increase for both periods was mainly due to market share gains in first aid and medical products as well as higher sales of Westcott craft products. Net sales for Europe increased 15% in local currency for both the fourth quarter and the year ended December 31.
The sales increase for both periods was primarily due to sales growth in the e-commerce channel across all product lines and market share gains in Westcott school and office products. Net sales in local currency for Canada increased 17% in the quarter and 22% of the year. The sales increase for both periods was primarily due to sales growth of first aid products. The gross margin was 35.1% in the fourth quarter of 2021 compared to 36.8% in 2020.
The decline was primarily due to cost inflation pressures, higher catenation costs and labor costs. Price increases partially offset the cost increases. Gross margin for the year ended summer 31, 2021, was 35.6% compared to 36.3% for 2020. SG&A expenses for the fourth quarter of 2021 were $13 million or 28.4% of sales compared with $12.2 million or 29.7% of sales for the same period of 2020.
SG&A expenses for the year ended December 31, 2021, were $52 million or 28.6% of sales compared with $48 million or 49.4% of sales in 2020. Net income for the fourth quarter of 2021 was $2.3 million or $0.60 per diluted share compared to a net income of $2 million or $0.54 per diluted share for the same period of 2020, an increase of 14% in net income and 11% in earnings per share.
Net income, excluding the impact of the PPP loan forgiveness for the year ended December 31, 2021, was $10.1 million or $2.57 per diluted share compared to $8.1 million or $2.31 per diluted share in the comparable period last year, an increase of 25% in net income and 11% in earnings per share.
The company's debt less cash on December 31, 2021, was $39.7 million compared to $41.3 million on December 31, 2020. During the 12-month period ended December 31, 2021, the company distributed $1.8 million in dividends, repurchased $1.5 million of common stock and received forgiveness for the PPP loan of $3.5 million.
Walter Johnsen
Thank you, Paul. I will now open the call to questions.
Question-and-Answer Session
Operator
[Operator Instructions]. Our first question comes from Chris Sakai at Singular Research.
Chris Sakai
Walter, I'm on for Jim Marrone today. Just had a question regarding supply chain issues. Are you seeing any disruptions in your supply chain? And are your inventory levels -- are you comfortable with your inventory levels?
Walter Johnsen
Chris, that's a very good question. The supply chain continues to be a very difficult problem. You may know and many of our investors do know that we actively increased our inventory by about 30% 18 months ago. And that additional inventory has allowed us to meet the kinds of sales performance that we're generating. However, the supply chain continues to expand out and your risk of miscalculating 8 months out is high. And fortunately, we make products that are in demand, and the items that we buy are pretty generic and they can be easily sold within our organization.
But the supply chain is a problem. We're also in the midst of a conflict that is disrupting shipping. And we're dealing with that as well. I'm very comfortable that our inventory levels will be able to support the growth that we're projecting for this year, and we're working very hard to meet our customer expectations, and we're doing that. But this is not an easy task.
Chris Sakai
Okay. Great. And I just wanted to ask about -- I know you mentioned the conflict. Is that the Russia-Ukraine war? And I wanted to ask, how is that affecting your business, if at all?
Walter Johnsen
Well, yes, the conflict I was referring to is the war in the Ukraine. And I find it very, very disturbing to watch the plight of the people that are being harmed right now. Relative to -- impact on Acme United is very, very insignificant. We -- through our European business, we do about EUR 40,000 a year of sales into Russia. So it's very insignificant. But you can imagine that ships are being diverted in various places to avoid conflict. And I just read that some of the major shipping lines are now diverting vessels away from Russia and putting them in service elsewhere in the world. That actually helps some supply chain issues that we're facing. But the conflict is just a terrible thing that's happening right now.
Operator
[Operator Instructions]. We'll go next to Richard Dearnley of Longport Partners.
Richard Dearnley
Could you sort of frame price increases relative to the cost increases? And then are you seeing any price resistance yet?
Walter Johnsen
Well, we are -- it's a complicated question, Dick. And part of the complication is there are so many price increases or -- I mean, cost increases, whether that's the cost of shipping containers or the impact of COVID in China, which is hurting delivery to the ports, the congestion in the U.S. ports. You may know that we -- the U.S. administration had tried to eliminate some of the congestion in the L.A. and Long Beach ports. And the result of that is you don't see the ships offshore anymore, but they're traveling at about 1/3 slower speed from China.
And so they're, on the water, just moving slower. But the actual problems are continuing in the West Coast ports. The change in the past several months has been because the East Coast ports had better delivery schedules, they got overwhelmed. And so the vessels went through the Panama Canal and went to Long Beach, Savannah and Charleston. And now they too are plugged up. And so you've got cost pressures in many places. As we work on price increases, we're working on what we think are appropriate increases, bearing in mind that you want value for your customers. And ultimately, delivery of value is what we do for a living.
The pressures that we see are continuing. We're seeing, potentially, inflation in the U.S. of about 10% annually versus 7.5%, which was reported in January. And that's a direct result of the price of oil and how that gets into plastics, how it gets into the cost of fuel, both for the delivery of vessels, the vessels coming from all over the world as well as outbound freight. So it's a very complicated pricing model. And what we're doing is the best we can, estimating the costs and passing those through appropriately to our customers.
Richard Dearnley
And so, so far, you’re not – I mean, everyone’s sort of stuck in the same boat. So the general thinking is that there is little resistance to raising prices because we’ll just raise our prices. But I was wondering if anyone is starting to talk about oops, that’s too high. Now you’re probably exempt from that. I mean with the price of oil at 105 or wherever, 106 today, this isn’t going to stop in the short term, in the very short term anyway.
Walter Johnsen
Well, that’s exactly right. There is a lot of price pressure, and it’s continuing and it’s increasing. And it’s across the board. So most of our products sell for under $25 in retail. So they’re not likely to face the same kind of consumer resistance that, for example, a refrigerator or a used car might.
Operator
[Operator Instructions] And I currently have no other questions holding. Gentlemen, I'll turn the conference back to you for any additional or closing comments.
Walter Johnsen
Well, thank you very much. Again, I would like to thank our team for the work they did this year -- did in 2021. It was outstanding. It was with an awful lot of focus and really difficult and unrelenting pressure to get things done, and we get it. If there are no further questions, this call is complete, and we look forward to speaking to you again in the first quarter in April. Thank you so much for joining us. Goodbye.
Operator
Ladies and gentlemen, that concludes today's call. We thank you for your participation. You may disconnect at this time.
Ladies and gentlemen, that concludes today's call. We thank you for your participation. You may disconnect at this time.
- Read more current ACU analysis and news
- View all earnings call transcripts