Acme United Corporation (AMEX:ACU) Q4 2024 Earnings Call Transcript

Acme United Corporation (AMEX:ACU) Q4 2024 Earnings Call Transcript February 28, 2025

Acme United Corporation misses on earnings expectations. Reported EPS is $0.41 EPS, expectations were $0.53.

Operator: Good day, and welcome to the Acme United Corporation’s Fourth Quarter 2024 Earnings 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 2024 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 the 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 the challenging global macroeconomic environment characterized by continued high inflation, high interest rates and the imposition of new tariffs or changes in existing tariff rates. In addition, we have experienced supply chain disruptions, and we may experience these disruptions in the future.

Walter Johnsen: Thank you, Paul. Acme United had a strong year in 2024. We had record net sales of $194.4 million and record EBITDA of $20 million. As you may recall, we sold our Cuda and Camillus hunting and fishing business in November 2023 for $19.8 million. We used the after-tax proceeds of approximately $15 million to reduce debt and position the company for growth. The sale of Cuda and Camillus represented a return of over 100x our investment. During 2024, we reported net sales growth of 2% despite the reduction of approximately $9 million in revenues from the businesses we sold. Net revenues adjusted for the sale of Cuda and Camillus increased 6% during 2024. Our net income in 2024 was $10 million compared to $8.1 million in 2023, an increase of 23%.

We adjusted our expenses to compensate for the loss contribution of the businesses we sold and generated productivity savings. This performance was better than we planned. Earnings per share was $2.45 in 2024 compared to $2.23 in 2023, an increase of 10%. Our First Aid business had strong performance. Its revenues were approximately $120 million, refills of components for first aid kits were approximately $30 million and growing. We introduced SmartCompliance first aid cabinets with RFID technology in 2024, which permit automatic replenishment of refills. This is the annuity segment of our business that builds on our growing installed base of industrial first aid kits. Automatic replenishment provides substantial savings to our customers and captures a high percentage of items needed to keep the kits compliant with OSHA and ANSI standards.

Our Westcott cutting and DMT sharpening business had excellent performance in 2024. Net revenues in this segment were approximately $75 million, an increase of 10% compared to 2023. We gained share in the craft market, expanded our distribution of high leverage and proprietary adjustable blade scissors and broadened the family of cutters to open boxes in industrial settings and in homes. We are excited about our new sharpening tools that we successfully introduced in the kitchen and culinary markets and the outstanding growth that we experienced in this category in 2024. Our productivity initiatives resulted in over $2 million in annual savings. We attacked expenses on many fronts, including reducing the cost of first aid boxes, automating the placement of items into unitized packages, bidding our freight and carrier charges and installing new software tools to optimize placement of items in our warehouses.

We installed new warehouse racking in our largest distribution center. This facility in Rocky Mount, North Carolina has over 340,000 square feet on 33 acres of land and has been the backbone of our expansion during the past 8 years. The new racking increases our capacity by 30% and positions us to handle additional growth. Our businesses in Canada and Europe also had a good year. We moved into a new facility in Laval, Canada to handle growth in First Aid Central. Our European business made investments to expand in the First Aid in Medical segment and generated another profitable year. We anticipate that there will be challenges with tariffs in 2025, and we feel we are ready. During the past 8 years, we have purchased 10 companies with production facilities in the United States and Canada and work to diversify our sourcing to many global locations, including Thailand, Egypt, India and the Philippines.

We would like to acknowledge Stevenson Ward, who will be retiring from our Board of Directors in April. Steve has been Chair of our Audit Committee and a valued confidant, colleague and friend. He leaves us a much stronger company than when he arrived more than 20 years ago. I would like to personally say thank you to Steve Ward. As we look into 2025, we are optimistic and confident. We have a strong customer base, excellent financials, and a solid book of new business. I’ll now turn the call to Paul.

Paul Driscoll: Acme United Corporation’s net sales for the fourth quarter were $45.9 million compared to $41.9 million in 2023, an increase of 10%. Sales for the year ended December 31, 2024, were $194.5 million compared to $191.5 million in 2023, an increase of 2%. Excluding the impact of the Camillus and Coogee hunting and fishing product lines sold on November 1, 2023, sales for 2024 increased 6%. Net sales in the US segment increased 12% in the fourth quarter. Excluding Camillus and Kuda, sales increased 8% for the year ended December 31, 2024, due to market share gains with First Aid, Westcott, Kraft products, and DMT sharpeners. Net sales in Europe declined 1% in local currency for the quarter. Sales for the year ended December 31, 2024, excluding Camillus and Kuda, increased 8% compared to 2023.

The sales increase for the year was mainly due to market share gains in the office channel. Net sales in Canada were constant in local currency for the quarter. Sales for the year ended December 31, 2024, excluding Camillus Acuna, increased 1% compared to 2023. Sales of first aid products were strong; however, there was a decline in sales of school and office products. The gross margin was 38.7% in the fourth quarter of 2024 compared to 39.1% in 2023. The gross margin for the year was 39.3% compared to 37.7% in 2023. The higher gross margin for the year was mainly due to productivity improvement initiatives in our manufacturing distribution facilities. SG&A expenses for the fourth quarter of 2024 were $15.5 million or 34% of sales compared with $14.3 million or 34% of sales in the same period of 2023.

SG&A expenses for the twelve months of 2024 were $62 million or 32% of sales, compared with $59 million or 31% of sales in 2023. Interest expense for the year went from $3 million in 2023 to $1.9 million in 2024, due to a decline in the average debt of approximately $16 million. Net income for the fourth quarter of 2024 was $1.7 million or $0.41 per diluted share. After excluding the $9.6 million gain on the sale of the Camillus and Kuda product lines in the fourth quarter of 2023, this compares to $1.5 million or $0.40 per diluted share in Q4 2023, an increase of 9% in net income and 3% in diluted earnings per share. Net income for the year ended December 31, 2024, was $10 million or $2.45 per diluted share. After excluding the gain on the sale of Camillus Acuna, this compares to $8.1 million or $2.23 per diluted share in 2023, an increase of 23% in net income and 10% in diluted earnings per share.

The company’s bank debt less cash on December 31, 2024, was $21.5 million compared to $19 million on December 31, 2023. During a twelve-month period, we purchased the assets of a lease first aid for $6.1 million, paid $2.2 million in dividends, and generated approximately $5 million in free cash flow.

Walter Johnsen: Thank you, Paul. I will now open the call to questions.

Q&A Session

Operator: Great. Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be one moment, please, while I pull up for questions. Our first question is from Jim Marrone from Singular Research. Please go ahead.

Jim Marrone: Good afternoon, gentlemen. I have two questions. Both of them are related to the tariffs. With my first question, in your prepared remarks, you said that your company is ready for the upcoming tariffs, and you alluded to the fact that you’re ready based on expansion with respect to acquisitions over a few years. So I just was hoping that maybe you can just put a little bit more clarity to those prepared comments. And related to that, how do you plan on attacking or being prepared for tariffs both the tariffs the US is gonna impose as well as the retaliatory tariffs? Do you plan on your operations in Canada, like, selling from within and avoiding cross-border shipments as well as within the US? Or do you plan to continue cross-border trade? So I’m just curious. I’m looking forward to hearing your comments on that.

Walter Johnsen: Oh, that’s really a very helpful question, Jim. The first part is the preparation. So over the past eight years, we’ve purchased manufacturing sites in Vancouver, Washington. That was first aid only. That’s one of our major first aid production sites where we make first aid products. We also make first aid products in Rocky Mount, North Carolina. We bought Spill Magic, which makes spill cleanup powder. And in the medical area, we use that powder for bloodborne pathogen kits and bodily fluid cleanup kits. That production is in Santa Ana, California, and Nashville, Tennessee. We bought MedNAP, which makes alcohol prep pads, BZK wipes, calamine lotion, hand sanitizers, and other items, triple antibiotic wipes. That’s in Brooksville, Florida, and we’re working on an expansion there.

All domestic production. What we did in our Asian business is a dual sourcing strategy in places like Egypt, which has a broad cotton industry. You may think of Egyptian cotton or Egyptian linen as an example. So gauze, tape, and it’s very competitive with China. So we’ve moved quite a bit of production into Egypt as well as into China. In the case of some of our production that’s currently in China, we’re moving pieces of it from the previous Trump tariffs into Thailand and the Philippines. The first production of Thai paper cutters, as an example, with a certificate of awards made in Lynn, was in December of 2024. That’s gonna be followed by many, many other items. We do a lot of production today in India. And that was part of the diversification out of China.

So as you look at first the preparation, it’s been something we’ve been responding to over the past eight years. And we are very broadly diversified compared to where we had been. Now specifically, the retaliatory tariffs and the question of how we address those. Our subsidiaries are set up so that, for example, in Canada, a first aid central business produces first aid kits in Canada. There’s very little cross-border shipping, there is some. For example, we make BZK wipes in Brooksville, Florida at MedNAP. We ship them into Canada because there’s a drastic shortage of those items in Canada. And even if there was a retaliatory tariff, the availability of the BZK wipes is something that we have that most of our competitors do not. And that would continue to be a plus.

But the actual production, the sourcing in China, it’s all in our Toronto location or Montreal location, and our warehouse in Mount Forest. So it’s really separate. In the case of Europe, it’s similar. Our European business is a subsidiary that deals directly with China, and they have these tariffs there. It’s different than in the US. We don’t ship from the US to Europe. It goes directly from the sources in China. First aid production is done there as well as in the other locations. So I’m not really too concerned about retaliatory tariffs. I think we’re positioned to be able to respond to those very easily because we’re whole within those locations. Now, when tariffs happen, we do a couple of things. First, we work with our suppliers to figure out ways to reduce cost.

And they tend to respond to that. Second, we have an ongoing productivity program. I mentioned $2 million last year. So every year, you expect productivity in your factories, and your suppliers have similar goals. Third, we do regular price increases for inflation. And that covers part of the cost of tariffs. And frankly, if there’s a tariff that’s so big, like, two or three, well, we’re the largest scissor maker globally. So there’s no one that can replace the volumes that we have. This is pricing power. I’m only a leading brand. In the case of our First Aid, we’re the leading brand in North America. And, again, a very diversified sourcing base. Finally, if the tariffs were to be very, very high globally, we have the capability in our first aid business to bring it back gradually into pieces of the US and vertically integrate further.

So it’s not perfect. But we’re prepared.

Jim Marrone: Yeah. That’s great. Great insight. Thank you for that clarity. However, here’s my follow-up. And right. It’s not perfect, but you’re prepared. So can you perhaps just comment like, if the tariffs were to be imposed, like, where exactly will your business get hit the most? Will it be based on the input prices becoming higher, you’re gonna have to pay higher input prices? Or will it be based on the sales where you’re gonna be having to sell at higher price points as a result of the tariff? Can you give us a sense of how that’s gonna play out, where the biggest hit’s gonna be? And thanks.

Walter Johnsen: Well, it’s a dynamic situation right now because tariffs, you know, there’s an extra 10% that was just announced for implementation next week, and for China. So with that, as an example, first, it’s on your cost, not your selling price. Right? Because you’re importing. We pay the tariff. We will be working with our suppliers to adjust their costs. We will adjust maybe the mix of some products. We will be getting productivity. And there is a price increase that will go with inflation. And we’ve already announced those, and they’re happening. So it’s a mix. But generally, when we’re done, we try to be pretty close to margin breakeven. Being sensitive to the fact that we’re giving real value to our customers.

Jim Marrone: Right. And what about on the other end, on the sales side? So like, how much of an impact can you imagine having to sell with regards to the goods that are shipped cross-border, as far as you know, the price points of your selling prices being higher as a result of the tariffs? You got a sense of how much impact that could possibly be?

Walter Johnsen: Well, again, it just depends on the rest of the supply chain. But we’ve already put a price increase. Remember, there is inflation, so you’ve got that covering on your selling price. And there may be a pickup in a little bit of that. But then maybe the customer trades to a different item. And we work with them to keep the utility, what they’re buying comparable, and they don’t actually get a price increase. They have a substitution. So it’s not quite so simple. And I know the press says, well, you got a 10% increase in a 10% selling price increase. It doesn’t work that way.

Jim Marrone: Okay. Great. Thank you for the insight, Walter.

Walter Johnsen: Thanks, Jim.

Operator: As a reminder, if you’d like to ask a question, it is star one. And our next question here is from Jeffrey Matthews from Rant Partners. Please go ahead.

Jeffrey Matthews: Thank you. And that was a great answer, Walter. And it leads into my question, which is also about tariffs, but more broadly, we have an economic policy that’s kinda run out of the White House now, and it sort of depends on what side of the bed the president got up on. An advantage that you don’t have is that if you’re a very large company like Apple or Amazon, and you can pay a million dollars to the president’s inauguration committee, you now have a seat at the table, and he’s gonna be your friend. And my question is, does the small manufacturer who could get run over depending on, you know, where the tariffs are applied, does the small manufacturer have a voice at the table here?

Walter Johnsen: Well, we really do not have a voice at the table. And you’re absolutely right without Apple. On the other hand, within our market segments, we’re very big. You know, whether that’s in the cutting area where we have the large share in the world, or in the scissors, or in the first paper where we’re major in North America. We do have pricing power. So well, and we do have negotiating power with our suppliers. But we are clearly not influencing policy. And so we’re responding. We also, as you can imagine, purchased inventory in advance of these tariffs so that we have time to adjust our pricing mix and product mix to meet what might come forward. But you’re absolutely right. We do not have a seat at the table.

Jeffrey Matthews: Okay. But you’re flexible and you’ve got your eyes wide open, and I would have expected no less, but I appreciate that answer. My follow-up is the Canadian acquisition you made of the Red Cross out of bankruptcy, that I forget how long ago that was. But could you give an update on kinda how that is playing out and how that is developing relative to your expectations at the time?

Walter Johnsen: Yeah. So for those who may not remember, we bought a company called Hawktree Solutions out of bankruptcy last September. Well, this is September 2023. And they had been supplying first aid kits to the Canadian Red Cross and to other customers in Canada. When COVID happened, they started to supply gloves and other PPE items to the Canadian government. And they ballooned in sales, which was terrific. And then they financed themselves with quite a bit of debt for continued growth, then COVID ended, and the debt was called, and the company went bankrupt. So we bought that business for about one million dollars Canadian. And it had inventory of about $1.3 million. So we bought it below its cost of inventory. We have built that to about a $2.5 to $3 million business right now, profitably.

We’ve renewed the contract with the Canadian Red Cross. We’re introducing the Elite First Aid first responder bags to the Canadian market through it’s all First Aid Central today, but it’s through the customer base that Elite had. And we’ve used the inventory very effectively. So it’s a part of the business, and it’s been a good acquisition.

Jeffrey Matthews: Terrific. Thanks, Walter. Good luck.

Walter Johnsen: Thank you.

Operator: Once again, as a reminder, if you’d like to ask a question, it is star one. Next question here is from Richard Dearnley from Longport Partners. Please go ahead.

Richard Dearnley: Good morning. Paul, why did you stop releasing the European sales numbers?

Paul Driscoll: I didn’t know I did stop releasing European sales numbers.

Richard Dearnley: Yeah. Yeah. In US and Canada, but no Europe.

Paul Driscoll: No. I did mention Europe. I know I did.

Richard Dearnley: You mean in this call or on the press release?

Paul Driscoll: I’m pretty sure they’re in the press release. Yeah. They’re in the press release.

Richard Dearnley: Oh, okay. Well, it’s in front of me. It’s in there. Oh, gosh. Okay. Sorry about that. Well, Walter and Paul, if Westcott was $75 million for the year and up 10%, that would suggest, you know, a $7 million increase in sales. You know, sales, the $194 million was up $3 million. Does that mean you are telling me that first aid was down for the year?

Paul Driscoll: No. First aid was up approximately 5%. Included in the $191.5 million last year was $9 million of Camillus and CUDA. So Westcott was up 10%, and first aid was up 5%.

Richard Dearnley: But you we don’t have the $9 million at Camillus and CUDA.

Paul Driscoll: Right. Okay. So when I say Westcott and DMT. Right. And the $30 million of refills, I thought refills were around $40 million.

Paul Driscoll: Well, I think in net sales, I believe it’s $30 million.

Richard Dearnley: Is there when we look at what’s going out the door, we’re looking at gross sales, and that has rebates in it and things, and that’s what we measure. So I may have said $40 million at one point, that’s what I see. But then when they net it out for reporting, it might be down to $30 million. Put it something like that.

Richard Dearnley: Mhmm. Okay. Okay. Thank you.

Walter Johnsen: Thanks so much. Thanks, Dick.

Operator: Next question here is from Jake Patterson from Atlanta Investment Group. Please go ahead.

Jake Patterson: Hey. I just have one question on the SG&A. I think in the second quarter you guys mentioned you expected it to decline as a percent of sales a little below 31%. It picked up a good bit here in the fourth quarter. So I was kinda just curious if that is still a fair assumption going forward.

Paul Driscoll: The assumption being it’s somewhere between 31% and 32%. That’s probably right. Yeah. Yeah. That’s right.

Jake Patterson: Okay. Well, you said I think you said a little below 31%. So I was kinda that’s what I’ve been more interested in.

Paul Driscoll: It’s somewhere in that range.

Jake Patterson: Okay. And then I guess, like, the uptick this year, is there anything you could call out specifically like growth investments or anything?

Paul Driscoll: It’s well, it was up by one percentage point on net sales, and that’s just it’s mostly in inflationary reasons and typical, you know, wage increases. So other than that, there’s not much there.

Jake Patterson: Okay. Cool. Appreciate it.

Operator: There are no further questions at this time. I’d like to turn the floor back over to Mr. Johnsen for any closing comments.

Walter Johnsen: Well, if there are no further questions, this call is complete. Thank you for joining us. We look forward to discussing our first quarter 2025 with you in April. Goodbye.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you again for your participation.