Earnings call transcript: Acme United Q4 2024 misses EPS forecast

Acme United Corporation reported its financial results for the fourth quarter of 2024, revealing earnings per share (EPS) of $0.41, which fell short of the anticipated $0.53. However, the company surpassed revenue expectations, posting $45.94 million against a forecast of $42.3 million. Despite the earnings miss, Acme United’s stock remained stable, closing at $37.75, unchanged from its previous close. According to InvestingPro data, the company maintains a "GOOD" financial health score of 2.78 and has maintained dividend payments for 22 consecutive years, demonstrating long-term stability.

Key Takeaways

• Acme United’s Q4 EPS missed forecasts by $0.12.
• Revenue exceeded expectations by over $3 million.
• The company reported record net sales and EBITDA for 2024.
• Strong performance in U.S. markets, though European sales declined slightly.

Company Performance

In 2024, Acme United achieved record net sales of $194.4 million and an EBITDA of $20 million, marking a robust year with a 23% increase in net income to $10 million. The company also noted a 10% growth in EPS to $2.45. U.S. segment sales saw a significant 12% increase in Q4, while European sales experienced a slight decline, and Canadian sales remained steady. InvestingPro analysis reveals a strong current ratio of 4.41, indicating excellent liquidity with assets well exceeding short-term obligations. Discover more insights and detailed financial metrics with an InvestingPro subscription.

Financial Highlights

• Revenue: $45.94 million in Q4, a 10% increase from the previous year.
• Earnings per share: $0.41 in Q4, missing the forecast by $0.12.
• Gross margin for 2024 improved to 39.3%, up from 37.7% in 2023.

Earnings vs. Forecast

Acme United’s actual EPS of $0.41 fell short of the $0.53 forecast, representing a negative surprise of approximately 22.6%. The revenue of $45.94 million, however, exceeded expectations by 8.4%, highlighting the company’s strong sales performance despite the earnings miss.

Market Reaction

Despite the EPS miss, Acme United’s stock price remained unchanged at $37.75. The stability in the stock price suggests that investors may have been reassured by the company’s strong revenue performance and overall financial health. The stock is currently trading within its 52-week range of $32.85 to $50. With a beta of 0.7, the stock demonstrates lower volatility than the broader market. InvestingPro subscribers can access comprehensive valuation metrics and Fair Value estimates to make more informed investment decisions.

Outlook & Guidance

Looking ahead, Acme United is preparing for potential challenges in 2025, particularly with tariffs. The company remains optimistic due to its strong customer base and strategic initiatives to diversify production locations. Future EPS forecasts for 2025 range from $0.57 in Q1 to $0.71 in Q2, with annual revenue projections reaching nearly $200 million by 2025.

Executive Commentary

CEO Walter C. Johnson highlighted the company’s robust financial strength and strategic responses to tariffs, stating, "We have a strong customer base, excellent financial strength, and a solid book of new business." He also emphasized the company’s proactive measures in managing tariff impacts through diversified sourcing and productivity programs.

Risks and Challenges

• Tariff impacts: Potential increases in costs due to tariffs could affect profitability.
• European market performance: Slight declines in sales may indicate challenges in this region.
• Supply chain disruptions: Ongoing global supply chain issues could pose risks.
• Market competition: Intense competition in the cutting and first aid markets.
• Economic conditions: Broader macroeconomic pressures could impact consumer spending.

Q&A

During the earnings call, analysts inquired about Acme United’s preparedness for tariffs and the company’s strategic plans to mitigate potential impacts. There was also discussion about the recent Canadian acquisition and its expected contribution to future growth.

Full transcript - Acme United Corp (ACU) Q4 2024:

Conference Operator: Good day, and welcome to the Acme United Corporation’s Fourth Quarter twenty twenty four Earnings Call. At this time, I’d like to turn the call over to Walter Johnson, Chairman and CEO. Please go ahead, sir.

Walter C. Johnson, Chairman and CEO, Acme United Corporation: Good morning. Welcome to the fourth quarter and year twenty twenty four earnings conference call for ACT United Corporation. I’m Walter C. Johnson, Chairman and CEO. With me is Paul Driscoll, our Chief Financial Officer, who will first read a Safe Harbor statement.

Paul?

Paul Driscoll, Chief Financial Officer, Acme United Corporation: 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. 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.

Walter C. Johnson, Chairman and CEO, Acme United Corporation: Thank you, Paul. Acme United had a strong year in 2024. We had record net sales of $194,400,000 and record EBITDA of $20,000,000 You may recall, we sold our Arcuda and Chemos Hunting (LON:HTG) and Fishing business in November 2023 for $19,800,000 We used the after tax proceeds of approximately $15,000,000 to reduce debt and position the company for growth. The sale of CUDA and Cumulus represented a return of over 100 times our annual investment. During 2024, we reported net sales growth of 2% despite the reduction of approximately $9,000,000 in revenues from the businesses we sold.

Net revenues adjusted for the sale of CUDA and KYMELIS increased 6% during 2024. Our net income in 2024 was $10,000,000 compared to $8,100,000 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 were $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 $120,000,000 Refills of components for first aid kits were approximately $30,000,000 and growing. We introduced smart compliance 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 $75,000,000 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 $2,000,000 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 out 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 eight 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 and Medical (TASE:BLWV) 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 eight years, we have purchased 10 companies with production facilities in The United States and Canada and worked to diversify our sourcing to many global locations, including Thailand, Egypt, India and The Philippines. We would like to acknowledge Stephenson 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 twenty 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 financial strength and a solid book of new business.

I will now turn the call to Paul. Paul?

Paul Driscoll, Chief Financial Officer, Acme United Corporation: Acme’s net sales for the fourth quarter were $45,900,000 compared to $41,900,000 in 2023, an increase of 10%. Sales for the year ended 12/31/2024 were $194,500,000 compared to $191,500,000 in 2023, an increase of 2%. Excluding the impact of the Camillus and Kuda Hunting and Fishing product line sold on 11/01/2023, sales for 2024 increased 6%. Net sales in The U. S.

Segment increased 12% in the fourth quarter. Excluding Camillus and Cunha sales increased 8% for the year ended 12/31/2024, 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 12/31/2024, excluding Camillus and Kuta 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 12/31/2024, excluding Camillus Secunda 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 twenty twenty four 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 and A expenses for the fourth quarter of twenty twenty four were $15,500,000 or 34% of sales compared with $14,300,000 or 34% of sales for the same period of 2023. SG and A expenses for the twelve months of 2024 were $62,000,000 or 32% of sales compared with $59,000,000,000 or 31% of sales in 2023. Interest expense for the year went from 3,000,000 in 2023 to $1,900,000 in 2024 due to a decline in the average debt of approximately $16,000,000 Net income for the fourth quarter twenty twenty four was $1,700,000 or $0.41 per diluted share. After excluding the $9,600,000 gain on the sale of the Camillus included product lines in the fourth quarter of twenty twenty three, this compares to $1.55600000.0 dollars or $0.4 per diluted share in Q4 twenty twenty three, an increase of 9% in net income and 3% in diluted earnings per share. Net income for the year ended 12/31/2024 was $10,000,000 or $2.45 per diluted share.

After excluding the gain on the sale of Camillus Incuda, this compares to $8,100,000 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 12/31/2024 was $21,500,000 compared to $19,000,000 on 12/31/2023. During a twelve month period, we purchased the assets of a leased first aid for $6,100,000 paid $2,200,000 in dividends and generated approximately $5,000,000 in free cash flow.

Walter C. Johnson, Chairman and CEO, Acme United Corporation: Thank you, Paul. I will now open the call to questions. Great.

Conference Operator: Thank

Walter C. Johnson, Chairman and CEO, Acme United Corporation: you.

Conference Operator: Our first question is from Jim Rohn from Singular Research. Please go ahead.

Jim Rohn, Analyst, Singular Research: 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 kind of alluded to the fact that you’re ready based on expansion with respect to acquisitions over the 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 of The U. S. Is going to 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 U. S.

Or do you plan to continue cross border trade? So I’m just curious, looking forward to hearing your comments on that.

Walter C. Johnson, Chairman and CEO, Acme United Corporation: 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, 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 Still Magic, which makes still 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 may say 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 Thailand was in December of twenty twenty four. That’s going to be followed by many, many other items. We do a lot of production today in India, and that’s been as 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, our 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 MedMap. 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 BZK Wyatts is something that we have that most of our competitors do not.

And that would be a continue to be a plus. But the actual production, the sourcing in China, it’s all in our Toronto location, our 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 tariffs there.

It’s different than in The U. S. We don’t ship from The U. S. To Europe.

It goes directly from the sources in China. Our first aid production is done there as well, as well as 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. Secondly, we have an ongoing productivity program. I mentioned $2,000,000 last year. So every year, you expect productivity in your factories and the 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. So there’s pricing power and we have a leading brand. In the case of our First Aid with a leading brand in North America and again with 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 U.

S. And vertically integrate further. So it’s not perfect, but we’re prepared.

Jim Rohn, Analyst, Singular Research: Yes, 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 and you’re going to have to pay higher input prices? Or will it be based on the sales where you’re going to be having to sell at higher price points as a result of the tariff? Can you give us a sense of where the biggest hit is going to be and how that’s going to play out? Thanks.

Walter C. Johnson, Chairman and CEO, Acme United Corporation: Well, it’s a dynamic situation right now because tariffs, 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 that we’re giving real value to our customers.

Jim Rohn, Analyst, Singular Research: 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 the price points of your selling prices being higher as a result of the tariffs? Can you get a sense of how much impact that could possibly be?

Walter C. Johnson, Chairman and CEO, Acme United Corporation: 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 of 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 10% selling price increase. It doesn’t work that way.

Jim Rohn, Analyst, Singular Research: Okay, great. Thank you for the insight, gentlemen.

Walter C. Johnson, Chairman and CEO, Acme United Corporation: Thanks, Jim.

Conference Operator: And our next question here is from Jeffrey Matthews from Ram Partners. Please go ahead.

Walter C. Johnson, Chairman and CEO, Acme United Corporation: Thank you. And that was a great answer, Walter, and leads into my question, which is also about tariffs, but more broadly, we have an economic policy that’s kind of run out of the White House now and it sort of depends on what side of the bed the President got up on. And an advantage that you don’t have is that, if you’re a very large company like Apple (NASDAQ:AAPL) or Amazon (NASDAQ:AMZN) and you can pay $1,000,000 for his President’s inauguration committee, you now have a seat at the table and he’s going to be your friend. And my question is, does the small manufacturer who could get run over depending on where the tariffs are applied, does the small manufacturer have a voice at the table here? Well, we really do not have a voice at the table.

The and you’re absolutely right, we’re not Apple. On the other hand, within our market segments, we’re very big, whether that’s in the cutting area where we have the largest share in the world or in the scissors or in the first day where we’re major in North America, we do have pricing power. So while 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, have 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. Okay. But you’re flexible and you’re responsive and you’re 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, the Red Cross out of bankruptcy, I forget how long ago that was, but could you give an update on kind of how that is playing out and how that how it’s developing relative to your expectations at the time? Yes.

So for those who may not remember, we bought a company called Hawktree Solutions out of bankruptcy last September. So 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 CAD 1,000,000 and it had inventory of about 1,300,000. So we bought it below its cost of inventory. We have built that to about a $2,500,000 to $3,000,000 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. Terrific. Thanks, Walter.

Good luck. Thank you.

Conference Operator: Next (LON:NXT) question here is from Richard Dearnley from Longport Partners. Please go ahead.

Walter C. Johnson, Chairman and CEO, Acme United Corporation: Good morning. Paul, why did you stop releasing the European sales numbers?

Paul Driscoll, Chief Financial Officer, Acme United Corporation: I didn’t know I did stop releasing European sales numbers.

Walter C. Johnson, Chairman and CEO, Acme United Corporation: Yes, yes, U. S. And Canada, but no Europe.

Paul Driscoll, Chief Financial Officer, Acme United Corporation: No, I did mention Europe. I know I did. You mean in this call or on the

Walter C. Johnson, Chairman and CEO, Acme United Corporation: In the press release.

Paul Driscoll, Chief Financial Officer, Acme United Corporation: I’m pretty sure they’re in the press release. Yes, they’re in the

Walter C. Johnson, Chairman and CEO, Acme United Corporation: I read it.

Paul Driscoll, Chief Financial Officer, Acme United Corporation: Well, okay. It’s in front of me, it’s in there.

Walter C. Johnson, Chairman and CEO, Acme United Corporation: Oh, gosh. Okay. Sorry about that. That’s right. Well, Walter and Paul, if Westcutt was $75,000,000 for the year and up 10%, that would suggest a $7,000,000 increase in sales.

Sales of the $194,000,000 was up $3,000,000 Does that are you telling me that first aid was down for the year?

Paul Driscoll, Chief Financial Officer, Acme United Corporation: No. First aid was up approximately 5%. Included in the $191,500,000 last year was $9,000,000 of Camillus and Cuda. So Westcott was up 10% and First Aid was up 5%. But we don’t have the $9,000,000 at Camillus Incuda.

Walter C. Johnson, Chairman and CEO, Acme United Corporation: Right. Okay.

Paul Driscoll, Chief Financial Officer, Acme United Corporation: So when I say Westcott and DMP.

Walter C. Johnson, Chairman and CEO, Acme United Corporation: Right. And the $30,000,000 of refills, I thought refills were around $40,000,000

Paul Driscoll, Chief Financial Officer, Acme United Corporation: Well, I think in net sales, I believe it’s $30,000,000

Walter C. Johnson, Chairman and CEO, Acme United Corporation: 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 $40,000,000 at one point because that’s what I see. But then when they netted out for reporting, it might be down to 30, but it’s something like that. Okay. Okay.

Thank you. Thanks so much. Thanks, Jake.

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

Jake Patterson, Analyst, Toulanta Investment Group: Hey, just one question on the SG and A. I think second quarter you guys mentioned you expected it to decline as a percent of sales a little below 31%, picked up a good bit here in the fourth quarter. So just kind of just curious if that is still a fair assumption going forward?

Walter C. Johnson, Chairman and CEO, Acme United Corporation: The assumption being it’s somewhere between 3132%. That’s probably right.

Paul Driscoll, Chief Financial Officer, Acme United Corporation: Yes, yes, that’s right. Okay.

Jake Patterson, Analyst, Toulanta Investment Group: Well, you said I think you said a little below 31%. So I was kind of that was what I

Conference Operator: was interested in.

Walter C. Johnson, Chairman and CEO, Acme United Corporation: It’s somewhere in that range.

Jake Patterson, Analyst, Toulanta Investment Group: 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, Chief Financial Officer, Acme United Corporation: It’s well, it was up by one percentage point on net sales and that’s just it’s mostly inflationary reasons and typical wage increases. So other than that, there’s not much there.

Jake Patterson, Analyst, Toulanta Investment Group: Okay, cool. Appreciate it.

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

Walter C. Johnson, Chairman and CEO, Acme United Corporation: Well, if there are no further questions, this call is complete. Thank you for joining us. We look forward to discussing our first quarter of twenty twenty five with you in April. Goodbye.

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

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