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spk00: and welcome to the Acme United Corporation's hosted first quarter 2021 earnings conference call. At this time, I'd like to turn the conference over to Mr. Walter Johnson, Chairman and CEO. Please go ahead.
spk03: Thank you. Welcome to the first quarter 2021 earnings conference call for Acme 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?
spk02: 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. Thank you, Paul.
spk03: Acme United had a strong first quarter of 2021. Our net sales were $43.5 million, an increase of 22%. Net income was $2 million, compared to $1.5 in the first quarter of 2020, an increase of 60%. Our earnings per share were 52 cents compared to 36 cents last year, an increase of 44%. All of our major operations and product lines had sales increases. We were hitting on all fronts. Our Westcott cutting tools had strong sales in the mass market and online. Sales of first aid products increased about 10%. Our European business increased 42% due to strong e-commerce sales. First Aid Central in Canada continued its strong growth. We've been expanding our plant that manufactures DMT sharpening tools, and the new capacity is coming on stream. We see the sales impact from that expansion in the U.S., Canada, and Europe. There have been weaknesses as well. The office superstores, office products wholesalers, and independent office supply dealers had sales below last year during the first quarter. A year ago at this time, many offices had just closed due to the pandemic. Going forward, we anticipate additional demand in new first aid and office supplies as workplaces begin to re-engage in offices. Our factories and distribution centers are operating less efficiently than pre-pandemic, and we continue to have planned shutdowns for deep cleaning and safe operations. Fortunately, many of our associates are being vaccinated, and we anticipate a more normal workflow in the months ahead. We had anticipated growth and supply chain issues and added approximately $12 million of inventory during 2020. This has helped us with meeting strong demand and has buffered us in many ways from the well-publicized global shipping and transportation issues. Nevertheless, our costs for new shipments have increased due to rising labor costs, scarcity of shipping containers, increasing west-to-east shipping costs, delays at the ports, and weakness of the U.S. dollar. We have raised selling prices to our customers and anticipate continuing to do so. Although we are not providing guidance, we see continued strength in our business. Our cash flow is strong, and we are reducing debt in anticipation of future acquisitions. I will now turn the call to Paul.
spk02: Acme's net sales for the first quarter were $43.5 million compared to $35.8 million in 2020, a 22% increase. Net sales in the U.S. segment increased 18% in the quarter. The sales increase came primarily from Westcott craft tools and safety cutters. Sales of first aid and safety products were strong. Revenues included approximately $0.9 million from the sales of MedNav products. Net sales in Europe for the first quarter of 2021 increased 31% in local currency compared to the first quarter of 2020, mainly due to increased e-commerce sales and continued growth of DMT sharpening products. Net sales in Canada for the first quarter of 2021 increased 31% in local currency due to higher sales of first aid central products. The gross margin was 35.8% in the first quarter of 2021 versus 37.8% in the first quarter of 2020. The lower gross margin was mainly due to product mix and higher ocean freight costs as a result of a scarcity of shipping containers and congestion at global ports. SG&A expenses for the first quarter of 2021 were $12.6 million, or 29% of net sales compared with $11.5 million, or 32% of net sales for the same period of 2020. Operating profit in the first quarter of 2021 increased 48% compared to the first quarter of 2020. Net income for the first quarter of 2021 was $2 million, or 52 cents per diluted share compared to net income of $1.3 million or 36 cents per diluted share for the same period of 2020, a 60% increase in net income and 44% in earnings per share. The company's bank debt less cash on March 31, 2021 was $43 million compared to $33 million on March 31, 2020. During the 12-month period, we paid $9.3 million for the MedMap acquisition, spent $1.7 million on dividends, and generated $1.5 million in free cash flow. We increased inventory by $12 million during the 12 months. Thank you, Paul.
spk03: I will now open the call to questions.
spk00: Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, you may press star 1 to ask a question. Our first question comes from Michael Moore with Moore Capital Management.
spk04: Hi, Walter. Excellent quarter.
spk03: Thank you, Mike.
spk04: The question is, you said you're paying off your debt in anticipation of potential acquisitions. Are stock market is pretty pricey right now. I presume the private market is similar. Are there a lot of acquisitions out there now, or are people asking too much money for them?
spk03: Well, that's really a good question, and you know that we've been very careful buyers in the past, and that would continue. Yes. But we've also got a strong database of companies that we've talked to over the years, and many times when we talk to selling companies the first time nothing happens because they're not really ready to sell. And then maybe somebody wants to retire or, um, there's a family or a state, um, issue where they want to get liquidity and then things change. So what we're drawing on is many years of, um, contacting and generating over time most of our deals. Um, and they tend to be fairly priced, but they tend to be very strategic as well. At least that's the goal, and I think that's what we've accomplished. So we're rarely seeing or doing banked transactions with books. That's just not what we're playing in right now. So we're a little bit removed from what is a frothy stock market, but I can assure you that as we move forward with future acquisitions, we pay attention to the value pretty carefully.
spk04: Very good. Thank you.
spk03: Thanks.
spk01: Thank you. Again, if you'd like to ask a question, you may press star one now. Our next question comes from Richard Journally with Longport Partners.
spk00: Good morning.
spk05: I guess, what's your take on back to school this year? I realize it's probably a bit of a guess.
spk03: Well, actually, it's not a guess at all. There's 3.8 million births a year. Each year, those students progress pretty much intact through grades 1, 2, 3, 8, and they need supplies. Last year, our overall school business was slightly ahead of the previous year, in part because we gained market share, in part because... The timing was different, but basically people bought and they bought some for home and some for the school. My expectation for back to school this year is another good year in back to school. The timing might be a little bit different. We may find more in-person education at schools this year, in which case I would expect quite a bit of sales in the third quarter. I'd also expect some in the second quarter for the retailers that are setting planograms for the summer. So I'm expecting really a normal back-to-school this year. The timing might be more into the third quarter than in previous years, but it will be, I think, about the same as it's been for every year.
spk05: I see. And then... FAS and all suggested on their call that there was an excess of personal protection equipment. Are you seeing a slowdown in kit sales? I mean, you said first aid was strong, so we're up 10%.
spk03: Yes, that's a good observation. We really are not selling personal protection kits. We do for, like, spill cleanup kits. We do for bloodborne pathogen kits. But these are not the kinds of kits that are being sold for protection of COVID. There is an oversupply of masks, N95 masks, And there may be an oversupply of some outer garments, but that's not really something that we really participate in. That's not where you are.
spk05: Right.
spk03: Yeah, we missed out on some of the activity a year ago where there was incredible demand for that. On the other hand, we stuck more to what we do and regularly sell, which is in the first aid and safety area. And that business is strong and continues to be.
spk05: Great. Okay. Thank you. Thank you.
spk01: Thank you. Again, that is Star 1 if you'd like to ask a question. There are no additional questions at this time.
spk03: Okay. Well, if there are no further questions, then this call is complete. We look forward to sharing our next quarter's results in July, and thank you for joining us. Goodbye.
spk00: Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect.
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