Hawkins, Inc. (Nasdaq: HWKN) today announced fourth quarter and
full-year results for its fiscal year ended March 29, 2020.
Highlights include:
- Eighth consecutive quarter of year-over-year operating income
growth, with diluted earnings per share of $0.45, increasing 29%
over the fourth quarter of fiscal 2019.
- Sales of $540.2 million for the full year, a decrease of 3%
from fiscal 2019, with continued growth in our Water Treatment
segment of 7% year over year.
- Record operating income for the full year of $41.7 million, an
increase of 13% over the $36.8 million recorded in fiscal
2019.
- Record net income of $28.4 million for the full year compared
to $24.4 million in fiscal 2019, an increase of 16%.
- Record diluted earnings per share (EPS) of $2.66 for the full
year, which was $0.38, or 17%, higher than EPS of $2.28 in fiscal
2019.
- Record operating cash flow of $58.9 million for the full year,
allowing us to pay down $25.0 million of debt in fiscal 2020,
ending the year with a leverage ratio below 1.0x and net debt of
$55.7 million.
“We are pleased to report a strong fiscal 2020,
with record operating income, net income, EPS, EBITDA and operating
cash flow,” said Patrick H. Hawkins, Chief Executive Officer and
President. “Those results have fueled our favorable balance sheet
and liquidity positions, positioning us well for the future.”
Mr. Hawkins continued, “Our financial
performance has been driven by our continued customer focus,
value-added services and products, and growth in our specialty
business lines. Our Industrial and Water Treatment segments had
strong years, with operating income in Industrial up 22% over the
prior year and Water Treatment up 20%. While sales dollars were
down year-over-year in Industrial, this was a result of lower sales
of bulk commodities driven by a weak ethanol industry, as well as
lower pricing on certain commodities due to lower costs. Sales of
our higher-margin specialty products were up from the prior year in
both Industrial and Water Treatment. Sales of certain products saw
an uptick toward the end of March due to increased demands and the
filling of customers' tanks as a result of COVID-19. Our Health and
Nutrition segment sales finished down 16% compared to the prior
year, but only down 9% in the fourth quarter due to increased
demands in the latter half of March as we have seen the market
shift to health and immunity supplements as a result of COVID-19.
As mentioned last quarter, we have continued to make progress in
this segment and are encouraged by what we are seeing.”
COVID-19 Update:
Hawkins operations qualify as Essential Critical
Infrastructure under guidelines issued by the U.S. Department of
Homeland Security and provides products and services that impact
millions of people across the United States each and every day,
including the critical products needed to maintain safe drinking
water, and ingredients essential for large-scale food,
pharmaceutical and other health product manufacturing and nutrition
products needed to support our critical infrastructure.
As previously disclosed, Hawkins announced
readiness plans on March 18, 2020. As part of those plans,
Hawkins:
- Implemented stringent procedures and practices to minimize
potential spread of COVID-19 and protect employees, customers and
suppliers;
- Increased bleach production to meet demand;
- Operates redundant plant capabilities to ensure business
continuity in critical areas of our Water Treatment group to serve
drinking water and wastewater needs of the many municipalities we
support;
- Increased inventory positions, where needed, to meet customer
demands across all areas of the business;
- Continues to work with suppliers to ensure business
continuity;
- Is providing work from home opportunities where possible;
- Granted flexibility with our leave and compensation
policies;
- Provides regular communication and updates to our employees
regarding our COVID-19 actions; and,
- Conducts regular Management meetings to address any issues that
arise.
The COVID-19 pandemic has created tremendous
uncertainty in the economy. The financial impact to the Company has
been mixed, as sales to certain end-markets such as food, bottled
bleach and health and nutrition have benefited our reporting
segments, while decreased sales to other end-markets such as
ethanol, pools and resorts have negatively impacted them. As
uncertainty continues with this pandemic, the Company expects mixed
results to continue for the foreseeable future. The Company expects
to continue to be cautious in its capital expenditures and
investments, and delay investments where deemed appropriate, while
still investing for the future by opening new Water Treatment
branches and making capital investments to drive higher margin
business. With its current debt levels and available borrowings,
the Company believes it is well-positioned to weather a continued
economic downturn.
Fourth Quarter and Fiscal Year Financial
Highlights:
For the fourth quarter of fiscal 2020, the
Company reported net income of $4.8 million, or $0.45 per diluted
share, compared to net income for the fourth quarter of fiscal 2019
of $3.8 million, or $0.35 per diluted share.
For the full year, the Company reported record
net income of $28.4 million, or $2.66 per diluted share, compared
to net income for fiscal 2019 of $24.4 million, or $2.28 per
diluted share.
For the fourth quarter of fiscal 2020, sales
were $132.4 million, a decrease of $0.6 million, or 0.5%, from
sales of $133.1 million a year ago. Industrial segment sales
decreased $0.6 million, or 1%, to $68.8 million for the current
quarter, as compared to $69.4 million a year ago. The decrease in
sales dollars from the prior year was driven primarily by lower
pricing due to lower costs of one of our major commodities, largely
offset by increased volumes sold of certain manufactured, blended
and re-packaged products. Water Treatment segment sales increased
$2.7 million, or 8%, to $35.9 million in the fourth quarter, as
compared to $33.2 million a year ago. The increase in sales dollars
was driven by increased volumes sold, in particular certain
manufactured, blended and re-packaged products that carry higher
per-unit selling prices, offset somewhat by lower pricing due to
lower costs of one of our major commodities. Health and Nutrition
segment sales decreased $2.7 million, or 9%, to $27.7 million for
the fourth quarter, as compared to $30.5 million a year ago. The
decrease in sales was driven primarily by decreased sales of our
specialty distributed products. On a sequential basis, the
year-over-year percentage decline in Health and Nutrition sales was
about half of what it was for the first three quarters.
For fiscal 2020, Industrial segment sales were
$275.2 million, a decrease of 2% from fiscal 2019 sales of $281.9
million. Water Treatment segment sales were $159.9 million for the
year, an increase of 7% over last year’s sales of $149.5 million.
Sales for our Health and Nutrition segment were $105.1 million in
fiscal 2020, a decrease of 16% from fiscal 2019 sales of $125.0
million.
Company-wide gross profit for fiscal 2020
increased $5.0 million, or 5%, to $100.9 million, or 19% of sales,
from $95.9 million, or 17% of sales, for the same period of the
prior year. During fiscal 2020, the LIFO reserve increased, and
gross profits decreased, by $0.6 million. Conversely, during fiscal
2019, the LIFO reserve decreased, and gross profits increased, by
$0.5 million. Total gross profit increased due to a strong
performance in our Industrial and Water Treatment segments.
Gross profit for the Industrial segment
increased $4.0 million, or 12%, to $38.9 million, or 14% of sales,
for fiscal 2020, from $34.9 million, or 12% of sales, for fiscal
2019. During fiscal 2020, the LIFO reserve increased, and gross
profits decreased, by $0.6 million. Conversely, during fiscal 2019,
the LIFO reserve decreased, and gross profits increased, by $0.8
million. In spite of the $1.4 million year-over-year unfavorable
LIFO impact and lower overall sales dollars, total gross profit
increased compared to a year ago due to a favorable product mix
shift to more sales of our higher margin manufactured, blended and
re-packaged products.
Gross profit for the Water Treatment segment
increased $3.9 million, or 10%, to $41.9 million, or 26% of sales,
for fiscal 2020, from $38.0 million, or 25% of sales, for fiscal
2019. During fiscal 2020, the LIFO reserve changed nominally and
therefore had a minimal impact on gross profit. In the prior year,
the LIFO reserve increased, and gross profits decreased, by $0.3
million. Gross profit increased as a result of increased
sales of our manufactured, blended and re-packaged products
compared to a year ago, offset somewhat by higher operating
costs.
Gross profit for our Health and Nutrition
segment decreased $3.0 million, or 13%, to $20.1 million, or 19% of
sales, for fiscal 2020, from $23.1 million, or 18% of sales, for
fiscal 2019. Gross profit decreased as a result of lower sales,
while gross profit as a percent of sales improved year-over-year
due to increased profitability on certain products as well as lower
operational costs.
Company-wide selling, general and administrative
("SG&A") expenses were relatively flat at $59.2 million, or 11%
of sales, for fiscal 2020 and $59.1 million, or 11% of sales, for
fiscal 2019. Included in the current year is a favorable adjustment
to compensation expense related to our non-qualified deferred
compensation plan of $0.2 million compared to a nominal adjustment
in the prior year. These adjustments are offset in other
income. Increases in other variable expenses largely offset
this year-over-year benefit.
Adjusted EBITDA, a non-GAAP financial measure,
is an important performance indicator and a key compliance measure
under the terms of our credit agreement. An explanation of the
computation of adjusted EBITDA is presented below. Adjusted EBITDA
for the three months ended March 29, 2020 was $13.1 million,
an increase of $1.2 million, or 10%, from adjusted EBITDA of $11.9
million for the same period in the prior year. Full-year
adjusted EBITDA was $65.3 million, an increase of $4.6 million, or
8%, from adjusted EBITDA of $60.7 million for fiscal 2019. The
increase was due to the combined impact of improved gross profit in
in our Industrial and Water Treatment operating segments.
Our effective income tax rate was relatively
flat at 27.2% for the twelve months ended March 29, 2020 compared
to an effective income tax rate of 27.1% for the twelve months
ended March 31, 2019.
About Hawkins, Inc.
Hawkins, Inc. distributes, blends and
manufactures chemicals and other specialty ingredients for its
customers in a wide variety of industries. Headquartered in
Roseville, Minnesota, and with 43 facilities in 20 states, the
Company creates value for its customers through superb customer
service and support, quality products and personalized
applications.
Reconciliation of Non-GAAP Financial
Measures
We report our consolidated financial results in
accordance with U.S. generally accepted accounting principles
(GAAP). To assist investors in understanding our financial
performance between periods, we have provided certain financial
measures not computed according to GAAP, including adjusted EBITDA.
This non-GAAP financial measure is not meant to be considered in
isolation or as a substitute for comparable GAAP measures. The
method we use to produce non-GAAP results is not computed according
to GAAP and may differ from the methods used by other
companies.
Management uses this non-GAAP financial measure
internally to understand, manage and evaluate our business and to
make operating decisions. Management believes that this non-GAAP
financial measure reflects an additional way of viewing aspects of
our operations that, when viewed with our GAAP results, provides a
more complete understanding of the factors and trends affecting our
financial condition and results of operations.
We define adjusted EBITDA as GAAP net income
adjusted for the impact of the following: net interest expense
resulting from our net borrowing position; income tax expense;
non-cash expenses including amortization of intangibles,
depreciation, goodwill impairment, and charges for the employee
stock purchase plan and restricted stock grants; and non-recurring
items of income or expense, if applicable.
|
|
|
|
Adjusted
EBITDA |
Three Months Ended |
|
Fiscal Year Ended |
(In thousands) |
March 29, 2020 |
|
March 31, 2019 |
|
March 29, 2020 |
|
March 31, 2019 |
Net income (loss) (GAAP) |
$ |
4,763 |
|
|
$ |
3,771 |
|
|
$ |
28,367 |
|
|
$ |
24,433 |
|
Interest expense |
498 |
|
|
809 |
|
|
2,511 |
|
|
3,361 |
|
Income tax expense (benefit) |
2,018 |
|
|
1,521 |
|
|
10,589 |
|
|
9,097 |
|
Amortization of intangibles |
1,268 |
|
|
1,269 |
|
|
5,073 |
|
|
5,454 |
|
Depreciation expense |
4,135 |
|
|
4,089 |
|
|
16,511 |
|
|
16,302 |
|
Non-cash compensation expense |
443 |
|
|
436 |
|
|
2,273 |
|
|
2,010 |
|
Non-recurring debt refinancing costs |
— |
|
|
— |
|
|
— |
|
|
92 |
|
Adjusted
EBITDA |
$ |
13,125 |
|
|
$ |
11,895 |
|
|
$ |
65,324 |
|
|
$ |
60,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HAWKINS,
INC.CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)(In thousands, except share and
per-share data)
|
Three Months Ended |
|
Fiscal Year Ended |
|
March 29, 2020 |
|
March 31, 2019 |
|
March 29, 2020 |
|
March 31, 2019 |
|
(unaudited) |
|
|
|
|
Sales |
$ |
132,413 |
|
|
$ |
133,051 |
|
|
$ |
540,198 |
|
|
$ |
556,326 |
|
Cost of sales |
(109,765 |
) |
|
(112,377 |
) |
|
(439,281 |
) |
|
(460,390 |
) |
Gross profit |
22,648 |
|
|
20,674 |
|
|
100,917 |
|
|
95,936 |
|
Selling, general and
administrative expenses |
(14,891 |
) |
|
(14,886 |
) |
|
(59,246 |
) |
|
(59,118 |
) |
Operating income |
7,757 |
|
|
5,788 |
|
|
41,671 |
|
|
36,818 |
|
Interest expense, net |
(498 |
) |
|
(809 |
) |
|
(2,511 |
) |
|
(3,361 |
) |
Other income |
(478 |
) |
|
313 |
|
|
(204 |
) |
|
73 |
|
Income before income taxes |
6,781 |
|
|
5,292 |
|
|
38,956 |
|
|
33,530 |
|
Income tax expense |
(2,018 |
) |
|
(1,521 |
) |
|
(10,589 |
) |
|
(9,097 |
) |
Net income |
$ |
4,763 |
|
|
$ |
3,771 |
|
|
$ |
28,367 |
|
|
$ |
24,433 |
|
|
|
|
|
|
|
|
|
Weighted average number of shares
outstanding-basic |
10,558,842 |
|
|
10,623,240 |
|
|
10,579,989 |
|
|
10,654,887 |
|
Weighted average number of shares
outstanding-diluted |
10,624,986 |
|
|
10,678,785 |
|
|
10,654,400 |
|
|
10,726,176 |
|
|
|
|
|
|
|
|
|
Basic earnings per share |
$ |
0.45 |
|
|
$ |
0.35 |
|
|
$ |
2.68 |
|
|
$ |
2.29 |
|
Diluted earnings per share |
$ |
0.45 |
|
|
$ |
0.35 |
|
|
$ |
2.66 |
|
|
$ |
2.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward-Looking Statements. Various remarks in this press
release constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These
statements include those relating to impact and duration of wage
pressures, the levels of investment and the impact of investments
on our business operations and financial condition, the timing of
new Water Treatment branch investments, and the duration and impact
of product shortages. These statements are not historical facts,
but rather are based on our current expectations, estimates and
projections, and our beliefs and assumptions. Forward-looking
statements may be identified by terms, including “anticipate,”
“believe,” “can,” “could,” “expect,” “intend,” “may,” “predict,”
“should,” or “will” or the negative of these terms or other
comparable terms. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and
other factors, some of which are beyond our control and are
difficult to predict. Actual results may vary materially from those
contained in forward looking statements based on a number of
factors, including, but not limited to, the impact and severity of
the COVID-19 outbreak, changes in the labor markets, our available
cash for investments, our business capital needs, changes in
competition and price pressure, changes in demand and customer
requirements or processes for our products, interruptions in
production resulting from hazards, transportation limitations or
other extraordinary events outside our control that may negatively
impact our business or the supply chains in which we participate,
our ability to locate suitable real estate for new branch
additions, changes in imported products and tariff levels, the
availability of products and the prices at which they are
available, the acceptance of new products by our customers and the
timing of any such acceptance, and changes in product supplies.
Additional information concerning potential factors that could
affect future financial results is included in our Annual Report on
Form 10-K for the fiscal year ended March 31, 2019, as updated from
time to time in amendments and subsequent reports filed with the
SEC. Investors should take such risks into account when making
investment decisions. Shareholders and other readers are cautioned
not to place undue reliance on forward-looking statements, which
reflect our management’s view only as of the date hereof. We do not
undertake any obligation to update any forward-looking
statements.
Contacts:Jeffrey P. OldenkampChief Financial
Officer 612/331-6910Jeff.Oldenkamp@HawkinsInc.com
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