Hawkins, Inc. (Nasdaq: HWKN) today announced results for its fiscal
2021 first quarter ended June 28, 2020. Highlights include:
- Ninth consecutive quarter of year-over-year operating income
growth, with record operating income of $15.9 million, an increase
of 14% over the $14.0 million recorded in the first quarter of the
prior year.
- Sales of $143.2 million for the first quarter, a decrease of 3%
from the first quarter of fiscal 2020, with strong growth of 11% in
our Health and Nutrition segment.
- Record first quarter net income of $11.8 million, an increase
of 20%, compared to $9.8 million in the prior year.
- Record first quarter diluted earnings per share (EPS) of $1.11,
which was $0.19, or 21%, higher than EPS of $0.92 in the first
quarter of fiscal 2020.
- Acquisition of American Development Corporation of Tennessee,
Inc., effective July 28, 2020, which is expected to be accretive
this fiscal year.
“We were very pleased with our continued
profitability growth, including a 20% increase in net income this
quarter,” said Patrick H. Hawkins, Chief Executive Officer and
President. “As we expected, our business segment operating results
were mixed in the first quarter due to the varying impacts of
COVID-19, with our Industrial and Health and Nutrition segments
benefiting from increased demand for bottled bleach, bleach for
bottling, and health and nutrition products, while our Water
Treatment segment was weaker as a result of softness in end markets
serving municipal and fitness pools and the ethanol industry. We
expect continued mixed results across our business segments due to
the COVID 19 pandemic, but do expect earnings growth this fiscal
year.”
Mr. Hawkins continued, “In addition to a strong
quarter, we are pleased to announce that we closed on the
acquisition of American Development Corporation of Tennessee, Inc.,
a company we have followed for years as they have grown their
business. ADC is a great cultural fit with Hawkins and will
expand our Water Treatment footprint in Tennessee and the
surrounding states to support further growth.” Mike
Wetherington, ADC President and Chief Executive Officer, said,
“Hawkins has always been a great competitor and I have admired the
way they treat their employees, customers, and suppliers, so it was
a natural fit when I was looking for the right company to sell to
and grow ADC in the future.” Mr. Hawkins continued, “Mike
will continue to be involved with the business going forward and we
could not be more pleased to now have ADC part of Hawkins and look
forward to continued growth together.”
First Quarter Financial
Highlights:
Sales were $143.2 million for the current
quarter, a decrease of 3%, from sales of $147.3 million for the
same period a year ago. Industrial segment sales decreased $3.8
million, or 5%, to $71.5 million for the current quarter, as
compared to $75.3 million for the same period of the prior year.
The decrease in sales dollars from the prior year was driven
primarily by a temporary increase in sales in the first quarter
last year attributable to heavy rains and flooding along the
Mississippi River, which increased demand from certain customers in
that quarter. Sales also decreased in the current quarter as a
result of weak economic conditions in the ethanol industry, which
decreased sales of products into that industry. The decrease was
somewhat offset by increased sales of certain of our manufactured,
blended and re-packaged products, largely our bleach products as a
result of increased demand due to COVID-19, as well as increased
sales of certain pharmaceutical, food and agricultural products.
Water Treatment segment sales decreased $3.6 million, or 8%, to
$39.7 million for the current quarter, as compared to $43.3 million
for the same period of the prior year. The decrease in sales
dollars was driven by decreased volumes sold in the current quarter
due, in part, to customers filling up their tanks in March as a
result of supply concerns resulting from COVID-19, which decreased
their needs in the current quarter, as well as reduced sales to
certain end-markets as a result of COVID-19. Sales for our Health
and Nutrition segment increased $3.2 million, or 11%, to $32.0
million for the current quarter, as compared to $28.8 million for
the same period of the prior year. The increase in sales was driven
by increased sales of both our manufactured and specialty
distributed products, partially as a result of increased demand
resulting from COVID-19.
Gross profit increased $2.2 million to $31.0
million, or 22% of sales, for the current quarter, from $28.8
million, or 20% of sales, for the same period of the prior year.
Despite lower sales dollars, gross profit for the Industrial
segment increased $1.6 million to $12.5 million, or 17% of sales,
for the current quarter, as compared to $10.9 million, or 15% of
sales, for the same period of the prior year. Industrial segment
gross profit increased due to a favorable product mix shift to more
sales of our manufactured, blended and re-packaged products. Gross
profit for the Water Treatment segment decreased $0.8 million to
$11.3 million, or 29% of sales, for the current quarter, from $12.1
million, or 28% of sales, for the same period of the prior year.
Gross profit in our Water Treatment segment decreased as a result
of decreased sales. Overall, LIFO had a minimal impact on the
quarter when compared to the prior year. Gross profit for the
Health and Nutrition segment increased $1.4 million to $7.2
million, or 23% of sales, for the current quarter, from $5.8
million, or 20% of sales, for the same period of the prior year.
The increase in gross profit was a result of higher sales compared
to prior year.
Company-wide selling, general and administrative
expenses increased $0.2 million to $15.0 million, or 11% of sales,
for the current quarter, from $14.8 million, or 10% of sales, for
the same period of the prior year. The increase includes a
year-over-year increase in compensation expense of $0.4 million
related to our non-qualified deferred compensation plan, which is
offset in other income.
Our effective income tax rate was 26.5% for the
current quarter, compared to 26.3% in the same period of the prior
year. The effective tax rate is impacted by projected levels of
annual taxable income, permanent items, and state taxes.
Earnings before interest, taxes, depreciation
and amortization ("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 EBITDA is presented below. EBITDA for the first
quarter of fiscal 2021 was $22.6 million, an increase of $2.7
million, or 13%, from EBITDA of $19.9 million for the same period
of the prior year. The increase was due primarily to improved gross
profit.
Net debt at the end of the quarter was $61.5
million, with a leverage ratio below 1.0x. With the acquisition of
ADC, our pro forma leverage ratio is approximately 1.3x.
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 |
(In thousands) |
June 28, 2020 |
|
June 30, 2019 |
Net income
(GAAP) |
$ |
11,788 |
|
|
$ |
9,807 |
|
Interest expense, net |
380 |
|
|
763 |
|
Income tax expense |
4,247 |
|
|
3,508 |
|
Amortization of intangibles |
1,268 |
|
|
1,268 |
|
Depreciation expense |
4,216 |
|
|
4,085 |
|
Non-cash compensation expense |
700 |
|
|
509 |
|
Adjusted
EBITDA |
$ |
22,599 |
|
|
$ |
19,940 |
|
HAWKINS, INC. |
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
(In thousands, except share and per-share
data) |
|
|
Three Months Ended |
|
June 28, 2020 |
|
June 30, 2019 |
Sales |
$ |
143,172 |
|
|
$ |
147,336 |
|
|
Cost of sales |
(112,196 |
) |
|
(118,539 |
) |
|
Gross profit |
30,976 |
|
|
28,797 |
|
|
Selling, general and
administrative expenses |
(15,038 |
) |
|
(14,836 |
) |
|
Operating income |
15,938 |
|
|
13,961 |
|
|
Interest expense, net |
(380 |
) |
|
(763 |
) |
|
Other income |
477 |
|
|
117 |
|
|
Income before income taxes |
16,035 |
|
|
13,315 |
|
|
Income tax expense |
(4,247 |
) |
|
(3,508 |
) |
|
Net income |
$ |
11,788 |
|
|
$ |
9,807 |
|
|
|
|
|
|
Weighted average number of shares
outstanding - basic |
10,515,728 |
|
|
10,604,306 |
|
|
Weighted average number of shares
outstanding - diluted |
10,642,673 |
|
|
10,665,709 |
|
|
|
|
|
|
Basic earnings per share |
$ |
1.12 |
|
|
$ |
0.92 |
|
|
Diluted earnings per share |
$ |
1.11 |
|
|
$ |
0.92 |
|
|
|
|
|
|
Cash dividends declared per
common share |
$ |
0.2325 |
|
|
$ |
0.2300 |
|
|
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 29, 2020, 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. Oldenkamp |
|
Chief Financial Officer |
|
612/331-6910 |
|
Jeff.Oldenkamp@HawkinsInc.com |
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