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Acme United Corp
AMEX:ACU
Acme United Corp
AMEX:ACU
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Earnings Call Transcript
Earnings Call Recording
Other Earnings Calls
Good day, and welcome to the Acme United Corporation's First Quarter 2025 Financial Results Conference Call. At this time, I'd like to turn the call over to your host, Mr. Walter Johnsen, Chairman and CEO. Please go ahead, sir.
Good morning. Welcome to the First Quarter 2025 Earnings Conference Call for Acme United Corporation. I'm Walter C. Johnsen, Chairman and CEO. With me is Paul Driscoll, our Chief Financial Officer, we'll first read the safe harbor statement. Paul? .
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, high interest rates and the acquisition 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. We are also subject to additional risks and uncertainties as described in our periodic filings with the Securities and Exchange Commission and in our current earnings release. .
Thank you, Paul. Acme United had a solid quarter in 2025. Our net sales were $46 million compared to $45 million in the first quarter of 2024. Net income for the first quarter of 2025 was $1.7 million compared to $1.6 million last year. Earnings per share increased 5% from $0.39 to $0.41. Our first aid business in the first quarter of 2025 increased 14%, which drove our growth. The Westcott cutting tools had a very large initial order of craft products to a major mass market retailer in the first quarter of last year. .
Sales of these craft items were strong and the product family continues to grow. Our DMT sharpeners continued to gain placement in major retailers in the kitchen segment and had strong growth in the quarter. The European business decreased 7% in the first quarter due to a large promotion in 2024 that did not repeat this year. We have broadened the first aid in medical product line in Europe and begun new distribution in Switzerland and the Netherlands.
We plan to strengthen the first aid sales team in Germany and are preparing for our first sales both at the Medica show in Dusseldorf in the fall. The Canadian office channel sales were soft, but the first aid business continued to grow. We have new first aid distribution in the mass and industrial markets, and we are also increasing the sales team in Canada.
Last month, we installed our first robotic system in our Rocky Mount, North Carolina plant. This system has 4 robots that process bulk antiseptic packets for our first aid product line, oriented for packaging full smart compliance boxes and fill them. This custom design machine cost about $650,000, replaces 7 employees and has less than a 2-year payback.
We have just ordered a second system for our Vancouver, Washington first aid plant. Our Steel Magic product line has increased substantially since we purchased the company about 5 years ago. Its items include bodily fluid and blood-borne pathogen, cleanup kits as well as general materials for removing fluids from spills. We have outgrown our current facility outside Nashville, Tennessee and are evaluating a new facility to purchase.
Our intention is to install automated powder transfer and filling equipment once we own an appropriate site. As you may know, tariffs are paid by the importer on the cost of products. We have focused relentlessly on reducing our internal overhead and work with some of our customers to ship domestically in full containers. We have generated over $2 million in annual productivity savings from capital projects in our production operations.
We are uncertain what the tariff levels will be in the coming months, but we are experienced in dealing with past tariffs and high inflation. Although the tariff uncertainty is uncomfortable, we also view it as an opportunity to gain market share. We have 8 plants in the United States that we intend to use to build competitively priced products and a broad network of sources in India, Egypt, Thailand and other locations.
The current environment may create new opportunities for acquisitions. We believe that our strengths in sourcing and manufacturing and strong financial resources could add significant value to potential acquisitions. I will now turn the call to Paul.
Acme net sales for the first quarter of 2025 were $46 million compared to $45 million in 2024, a 2% increase. Net sales in the U.S. segment increased 3% in the quarter, mainly due to sales of First Data medical products. Sales of school and office products declined due to our first time craft sale in the first quarter of 2024.
Net sales in Europe for the first quarter of 2025 declined 4% in local currency compared to the first quarter of 2024 due to timing. Net sales in Canada for the first quarter of 2025 increased 6% in local currency due to higher sales of first aid products. The gross margin was 39.0% in the first quarter of 2025 versus 38.7% and in the first quarter of 2024. SG&A expenses for the first quarter of 2025 were $15.5 million or 34% of net sales compared with $148 million or 33% of net sales for the same period of 2024. Net income for the first quarter of 2025 was $1.65 million or $0.41 per diluted share compared to net income of $1.63 million or $0.39 per diluted share for the same period of 2024, an increase of 1% in net income and 5% in earnings per share. The company's bank debt less cash on March 31, 2025, was $27 million compared to $32 million on March 31, 2024. During the 12-month period, we purchased the assets of Elite First Aid for $6.1 million, paid $2.2 million in dividends and generated approximately $12 million in free cash flow.
Thank you, Paul. I will now open the call to questions. .
Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from Jim Marrone with Singular Research. .
Yes, the quarter. My first question is with regards to acquisitions, and the second will be with regards to tariffs within -- with regards to the acquisitions you mentioned in your prepared comments that you're looking at making an acquisition in the near future. I'm just curious whether it will be a geographic 1 or with regards to product line? And should it be profit line? Will it be focused on medical kits and having tools? Or would you be expanding into other products related to what you currently have? And then I'll end to ask a question with regards to tariffs after your answered the acquisitions.
Okay. Thank you for that question. Regarding the acquisition strategy, we have 2 major businesses, the cutting tool business and of course, birthday -- and either 1 of them are great places to add acquisitions. We have been working very hard in the space. And as you can imagine, there are ways to expand there, both with our competitors horizontally as well as companies that supply components that go into our first aid kits. Geographically, we're looking at North America in either of those product lines. .
Let me go on a little bit about why this is a special time for us. First, we have large market shares in both of our businesses. So we have not only the ability to have leverage on our suppliers, but also we have a good pulse of the market globally.
Secondly, if these tariffs hold, they will put substantial working capital pressure on our competitors as they buy inventory at a higher price to replace what they sold as well as they replace receivables with a higher level of receivables, because you priced out a higher product. Some of our competitors don't have balance sheets to sustain that, and we do.
So as we're looking at the acquisition area, we can see our competitors having substantially harder margin pressure than perhaps we will and they will have a more difficult time of financing their ongoing businesses. So we're looking aggressively in both areas. Jim, you want to ask the second question on tariffs?
Yes, I can. But before I do that just with regards to the acquisition. So -- do you anticipate like attractive valuations on offers that as a result of these headwinds? And if so, like what kind of EV to be the kind of multiples were you looking at?
Well, first, we pay fair prices. So I don't expect us to be finding great bargains, but you never know. Relative to how we value a company, that really depends a lot on what value added we bring to the situation. As you know, some of our best deals have had no sales at all, for example, Camillus knife Company, which we bought out of bankruptcy and we sold it for 100 times. So it's not really a formula based on valuation. But clearly, we're fair -- we pay fair prices in the market, and that would continue. .
Great. With regards to the tariffs, you said there was a lot of tariff uncertainty. Are you looking at it from the supply side as far as you're buying products at? Or are you looking at it in terms of your sales? And any potential headwind from that? And also, aside from the tariffs or maybe some recessionary headwinds and do you anticipate that impact from the business at all?
Well, let me just address the tariffs in a broader sense, right now, anything that we look at buying in China has 145% tariff. A week ago, the tariff was less -- 3 weeks ago, it was 20%. We don't know what the tariffs will be 3 weeks from now for China. That's the biggest manufacturer in the world for everybody.
So you can imagine many customers and including ourselves, are postponing delivery of product until your clarity on what duty we pay. If we, for example, import product from China today, we pay 145% tariff. if the tariff drops to 30%, we're still stuck with 145% we paid right now. Companies all the major mass market retailers do a lot of direct importing from China. So they're paying the duties. They're doing the same thing we are. We're operating on the inventory that we have today, by and large, and what we're producing in the U.S. and Canada. And we're being very cautious about how fast we ship that product because we don't want to get a paying a high tariff, which perhaps drops.
At some point, we'll have to say pencils down, we're paying the tariff and we bring product in, and that would be a more sizable price increase. So when I talk about uncertainty, what I'm talking about is the price you pay for the product and the ultimate price you pay that you charge the consumer and we're trying to be smart about that to pass the best value we can to that consumer.
Great. And are you looking at alternative sources to the sourcing from China? Like is there any options with regards to U.S. these bylines and adjustment that way. .
Well, sure. The -- remember that we have 8 plants in the United States, we're making a lot of products here, and we're getting busier here. That's why we're expanding Spill Magic in Tennessee. That's why we're increasing our automation in the U.S., both in Rocky Mountain and in Vancouver, Washington.
So 1 major source for us, at least, is we're a domestic producer. The second is -- many of the factories in China are moving production to locations like Vietnam, Thailand, Cambodia. And we've been participating with that for some time. although there were tariffs now, and we don't know the certainty of where they'll be. But in December, we began shipping some items out of Thailand that formerly were made in China.
We've shifted other products to India. And we've got a robust sourcing, but you can't move overnight. And the tariff regime that has gone in place in 2 weeks means, although there's room to expand over 6 months, there's not much room to change in 2 days. I hope that helps a little bit.
It does a Walter for that clarity. And again, good order.
Our next question comes from Jeffrey Matthews with RAM Partners. .
I have 3 questions, Walter. The first on guidance. You haven't talked about the year ahead financially. -- and at the LD Micro conference last week, you did talk -- I think it was $3 million of inventory that you wisely bought ahead when the current administration was elected. .
I assume you're on LIFO. So does that mean if you have to start ordering stuff from China, you're going to take a big hit in the near term on your cost of goods sold? Or do you -- is there just no clarity at all right now to make any kind of comment on that?
We're on FIFO, first of all. Oh, okay .
Yes. And I don't expect a big hit. But we do have when we start -- that inventory that we brought in is a safety stock, and it's 1 that was very good to have done. You eventually run through your inventory and you do eventually have to buy at a higher price and you have to match your pricing to your costs.
So we've been modeling that very, very carefully. And we've gone through the first 2 tariff increases that occurred and that's the first 20%. And we're now implementing those increases. But the big 1 to 145% for China we haven't. And we're trying to be smart with it.
As far as guidance, I think it'd be -- even Walmart pulled off guidance because you have to have a stability of your cost base to be able to forecast what your sales is going to be. And I think that will occur, but it hasn't occurred yet. And remember, this is the 17th and I think it was April 2 when liberation Day was announced. So it's been 2 weeks of chaos and a lot of modeling. And what we've done is we haven't pushed through a price increase. We've kept our head and we've watched as things have unfolded. But we will begin to be announcing the next round of price increases, which will probably come pretty much matching the increased costs.
Got it. Okay. And then a follow-up on the acquisition side. In the past, you've been very opportunistic -- and I can't think of a company with a better track record, frankly. Maybe Burks Hathaway if you exclude precision cast parts, but you've had just a terrific track record on acquisitions.
Could there be a larger, more transformative deal in this environment for you than you've typically done? Or do you think it's going to look more like the opportunistic smaller tuck-in or new product line acquisitions that you've done in the past?
Well, that's an interesting question, because what we've been doing opportunistically is when something fits well and the pricing is good, we've acted. And if it was a larger company, we have the wherewithal to do that and it's scalable. The team certainly knows how to execute the due diligence and the implementation of these transactions. .
So I certainly got an open mind to a larger deal. And there's a good flow of things. But what I'm finding is when we call today for this list of companies that we've had over 15 years, we're getting a pretty favorable response as far as yes, let's figure out what that makes sense. So it's this change here. But as I pointed out, the difficulty is you've got a price right and you've got to buy right in a quickly changing environment. And it's -- I can tell you, none of us have slept very well for the last 2 weeks. .
Yes. I appreciate that. And then my third and final question sort of to follow up on the whole tariff thing and what you've been going through the last couple of weeks there's an idea that -- the Wall Street Journal talked about, which is that the administration is trying big picture to isolate China and they are trying to get other consuming countries to or well, anybody out there to work more with the U.S. and less with China as a way of isolating China, but given how you've always talked in the past about how efficient their manufacturing base is, how easy it is to source products, how easy it is to develop products there, it seems to me that's a very long proposition. And I just wonder what your take on that idea is that that they could isolate China and sort of win this battle. .
Well, I really don't want to get into a philosophy on that. What I can tell you is the Chinese are very efficient. They're very hard working. I happen to enjoy being in China, and I'll be there in June meeting with many of our factories. .
And the things that are going on that we read about in the U.S. press is only half the story. And I would just suggest that the administration may be take a lighter hand and look at the value China brings to the world because it's a lot.
Thanks, Walter. And congratulations and good luck. And as shareholders, we appreciate the hard work.
Our next question comes from Jake Patterson with Talanta Investment Group.
Really just curious on the cutting revenue being down a decent bit this quarter. I know you guys mentioned you had a big benefit from last year, but even if I look at last year's number and adjust out the divestments, that business is only up like 2.5%. So just trying to kind of compare that to your comments from the last 2 calls about being pretty excited for Westcott 25 in the distribution, a big year ahead. And kind of curious to see if that is still the case.
Jake, it's hard to call going into where we are right now. The consumer will be impacted by increased prices, now scissors are as an example, and that's our biggest line in Westcott are not particularly expensive. And what might be an increase in our cost when it gets to retail is a couple of dollars, so it's not huge.
But the consumer will be impacted overall because some things will go up a lot. And I would suggest things like cars, refrigerators, capital goods. And they'll be stressed. So there's also uncertainty because there will be some layoffs and there have been some layoffs with the strategy the administration is doing.
When you back out and you say, well, Westcott grew 2.5% last year. But that's about right. It grows at 2% to 4%, and then the first aid grows at 8% to 12% this quarter was 14%. We did have a large promotion last year with a mass market retailer. It was very successful. The products are still in the planograms. They're adding to them. The craft area continues to be a growth segment for us. We had a bankruptcy at the end of the year with Joann Fabric and so those customers are shopping elsewhere, and we're trying to address them.
But the mix going forward I would expect Westcott to get hit harder than first aid in our medical side just because the consumer is going to be more stressed with the tariffs -- especially if it's 145%, if that holds for China, again, it's the biggest manufacturer in the world. You just don't jump to Vietnam, which doesn't have that many people anyway.
I mean this is impossible. I hope that helps a little bit.
Definitely does. I guess, 1 more quick one, I guess. So pivoting to the First Aid business. I know you guys said you had a lot of trials for the new automatic refill kits -- and it's not -- wasn't in your '25 forecast. I'm assuming that might be impacted a little bit, too, but just wondering if there's anything you can share on the progress there and what your customers are saying?
Well, our customers -- we're at a trade show this month that was very successful, and it was 1 of the items that we had a great deal of interest in with some pretty big customers. But it takes time to get these to actually occur. And it's not in any forecast.
We think what the -- for those listening, what Jake is talking about is our Smart Compliance latest version of first aid. It's an industrial first aid kit with a scanner that can tell when the components are either obsolete missing or about to need to be reordered.
So it's automatic replenishment. And the latest generation can be hardwired into a customer's system and automatically tell the safety manager, it's time to reorder, They can go to the distributor or us, whatever the customer wants to actually get the replenishment orders and it saves about 1/3 to half, what they would normally spend for refills in a year, and that's a lot.
So it's a very exciting product. And we think it's going to have a lot of legs, but it's not in any forecast. So we'll see. And as we get things to actually happen, Jake, then I'd love to talk about it. But right now, just to be aware, we've introduced it.
Our next question comes from Richard Dearnley with Longport Partners. .
Just to play off Jeff's question about trainer policy. It looks like the administration wants to the art of the deal, make a deal, be in the press lumpier test, et cetera. It's -- and there was just an announcement that they're close to a deal with the EU on the news very recently. It would seem logical to set China up as the bad guy and then make a deal. I realize that's just a random observation, but do you have any thoughts about that? I mean as you say, they supply the world and bring a lot of value to the world are probably not going to go away.
China is really integral to the world. And I think we're looking at this very lopsided. One of the things that I know being in the business we're in, when COVID happened, and the world needed gloves and masks and personal protection equipment, China met at all and they supplied them flawlessly again and again and again, and we expanded in a way that he was inconceivable.
And they do a lot of good things. And I really have not in the position to figure out the strategy of the administration. If I did, I'd probably figure out how to price the product, we don't know that either. But I don't know their strategy.
Right I understand. Then the uptick in first aid, how much of that increase is do you think is longer term organic versus first aid was pretty flattish through '24 -- and so it has an easy compares -- now -- so -- and 14% looks good, but it's against easy numbers. Any feeling on that?
Well, a number of found numbers to be easy, to be honest. And where we are right now, honestly, Dick, where we are right now to be talking about is it up 14%, 13%, 12%, I think it could be up 25%. And part of it is where we price so much right now in this -- the remainder of the year is what we price off the tariffs. And then you have organic growth underneath that.
And we've been saying for many years, first aid grows 8% to 12%, and that's probably what I would stick to. But there's going to be -- this year, there will be -- if these tariffs to hold, there will be price increases and there will be growth because of that in addition to the underlying organic -- and that will be with Westcott as well. But again, you've got a trade-off on some demand slide -- and we've modeled that internally. But there's a lot of assumptions
Next question comes from Peter Mork with Mork Capital Management.
Walter, Jake already got my question. I was going to follow up just on the Smart compliance, and it sounds like things are going well. Just it will be interesting to get just kind of that installed base. Any color you guys could give as the year progresses. I think be good. But maybe as a second question, just the DMT pull-through sharpeners, how First off, we've got both models we like and that are elsewhere those things really do work. Are you looking to expand more into the kitchen with DMT? Or what's kind of your thoughts around that product?
So for those that don't know, what we did in the past year was take the DMT sharpening stones made in Marlboro Massachussets. They're arguably the best in the world with the dispersion of diamonds and the flatness of the stones. And we put them in a patented sharpener, when you run the knife through it, the cones automatically adjust to the angle of the cutting edge of the blade.
And so it's accurate, and it really works. The product is now being sold in Europe, it's being sold at a number of major mass market retailers in the kitchen area in the U.S., and we're expanding off of that. And relative to going further into the kitchen area, I don't see us going into forks and spoons and plates, but we could easily be putting higher end and more stylish products on the market to some of the higher-end retailers and also industrial grade.
So I think within that arena, it's a very fertile area. And we're growing nicely and gaining market share. still small, but it's an exciting piece for us. And really, as you pointed out, Peter, it really does work.
Yes, it definitely does. So great quarter.
Our next question comes from Steve Chick with Yucaipa Garden Capital.
Walter, if anybody can navigate through this environment, I think it's you guys. So I had a question on if on front loading. And with some of the inventory that you bought in advance, I think you said was $3 million. I'm wondering if you're seeing any activity from your customers thinking along the same lines maybe as we're coming into or we're in April here. Are you seeing customers trying to buy kind of advances maybe the cost increase ease now? .
Well, as you can imagine, the customers that have placed orders with us we're going to fill first. And so there's a schedule for that. These are placed well in advance and we're prepared to supply them. there have been examples where some customers have wanted to buy, for example, all of our items in 1 area. And we just can't do that, because if we do it, and we're not supplying the customers who work with us long term and given us advanced orders.
So it's a very careful balance we want to solve everybody's problem. But we also have customers with standing orders that have got to have priority. So throttling back sales might sound like an unusual situation. But until we repriced the book, we have to -- does that make sense to you, Steve?
Yes, I think so. Can you just remind us of your inventory? What roughly is -- what percentage is sourced from China? .
We import about 40% from China. .
Okay. All right. Okay. Thank you -- thank you. .
[Operator Instructions] There are no further questions, and we've reached the end of the question-and-answer session. I would now like to turn the call back over to Walter Johnsen for closing comments. .
I'd like to thank all of you for joining us. This really is complicated time. And when you're going to do well with it. I'm confident of that. but it's rocky. And I want to thank you for attending this call. And we look forward to updating you in the coming quarters as it moves forward, travel just joking. Have a good day. Goodbye. .
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.