Distributors

Lawson Products Announces Second Quarter 2019 Results

CHICAGO — Lawson Products, Inc. today announced results for the second quarter ended June 30, 2019.

“Our continued strong execution has delivered another quarter of great results and a strengthening of our balance sheet. This improvement was reflected across-the-board with total revenue increasing 6.3% over a year ago quarter, or 7.1% excluding currency fluctuations. Although reported operating income was lower, mainly due to the effect of the 17% increase in our stock price on stock-based compensation, our adjusted operating income grew nearly 31%. We also passed our stated milestone of achieving better than 10% adjusted EBITDA margin for the quarter, excluding the impact of the new lease accounting rule. Our results were driven by continued improvement in Lawson sales rep productivity, strong sales growth at The Bolt Supply House and a contribution from recently acquired Screw Products,” said Michael DeCata, president and chief executive officer.

“Our strategy to improve sales rep productivity through ongoing training, support and improved customer fulfillment processes has continued to produce positive results over the past few years. Going forward, we are well positioned to drive additional earnings through leveraging our infrastructure on organic growth and through acquisitions,” said DeCata.

Highlights

  • Sales of $96.1 million increased 6.3% year-over-year. Excluding the impact of currency fluctuations, sales grew 7.1%
  • Lawson MRO segment ADS increased 4.4% primarily driven by a 3.0% growth in sales rep productivity as measured by sales per rep per day
  • Reported operating income was $1.6 million compared to $5.6 million in the second quarter of 2018. Non-GAAP adjusted operating income excluding stock-based compensation and severance expense increased 30.9% to $7.9 million from $6.1 million a year ago. (See reconciliation in Table 1) As a percent of sales adjusted EBITDA was 9.8% which was negatively impacted by .3% from adopting the new lease accounting rule. On a comparable basis, this 10.1% for the quarter exceeded the 8.6% reported in the prior year
  • Reported GAAP net income was $1.3 million or $0.14 per diluted share in the second quarter of 2019 compared to $0.35 a year ago. Adjusted net income, excluding stock-based compensation and severance was $5.9 million or $0.62 per diluted share compared to adjusted per diluted share of $0.39 a year ago (See reconciliation in Table 2). On a year-to-date basis, adjusted diluted EPS has improved 72% to $1.10 (See reconciliation in Table 2)
  • Net cash generated from operations in the quarter of $8.3 million was used to reduce net borrowings by $7.6 million

Second Quarter Summary Financial Highlights

Three Months Ended June 30,

($ in millions)

2019

2018

Change

Net Sales

$

96.1

$

90.4

6.3

%

Average Daily Net Sales

$

1.502

$

1.412

6.3

%

Number of Business Days

64

64

Reported Operating Income

$

1.6

$

5.6

(70.8

)%

Adjusted Operating Income (1)

$

7.9

$

6.1

30.9

%

Adjusted EBITDA (1)

$

9.4

$

7.7

21.3

%

Margin (1)

9.8

%

8.6

%

+120 bps

Adjusted EBITDA Margin (2)

10.1

%

8.6

%

+150 bps

Reported Diluted Earnings Per Share

$

0.14

$

0.35

$

(0.21

)

Adjusted Diluted Earnings Per Share (3)

$

0.62

$

0.39

$

0.23

(1)

Excludes the impact of stock-based compensation, severance and other non-recurring items. (See reconciliation in Table 1)

(2)

2019 excludes the adoption of ASC 842 – Leases which requires certain expenses previously recognized as depreciation expense to be recorded as operating expenses. This accounting change reduced the adjusted EBITDA margin by 0.3% in 2019.

(3)

Excludes the impact of stock-based compensation, severance and other non-recurring items. (See reconciliation in Table 2)

Second Quarter Results

Net sales increased 6.3% to $96.1 million in the second quarter of 2019 compared to $90.4 million in the second quarter of 2018. Sales growth reflected a 3.0% increase in the Lawson segment sales rep productivity driven by increases with our government, core and Kent Automotive customers. The Bolt Supply House, which represents approximately 12% of consolidated sales, increased 14.0% reflecting strength across multiple product categories. In addition, Screw Products, which was acquired in the fourth quarter of 2018, contributed to the increase with sales of $0.7 million. Excluding the impact of currency fluctuations, consolidated sales increased 7.1% for the quarter. Average daily sales grew to $1.502 million compared to $1.412 million in the prior year quarter with 64 selling days in both quarters.

Gross profit increased $1.9 million to $51.0 million compared to $49.1 million in the second quarter of 2018, primarily due to sales growth. Consolidated gross profit as a percentage of sales was 53.1% for the second quarter of 2019 compared to 54.4% in the second quarter of 2018. Gross profit margin reflected an increase in the classification of service-related costs combined with growth in sales from Bolt Supply and Screw Products, which have lower gross margin profiles. The core Lawson MRO segment gross margin before giving effect of service-related costs was 60.5% in the second quarter 2019, essentially flat compared to a year ago.

The Company continues to efficiently manage its cost structure. Despite significant sales growth, reported selling expenses decreased slightly to $21.9 million in the second quarter compared to $22.0 million in the prior year quarter. As a percentage of sales, reported selling expenses decreased to 22.8% from 24.3% in the second quarter of 2018 primarily due to leveraging selling expenses over a larger sales base, an increase in service-related costs classified within gross profit and lower selling expenses at Bolt Supply and Screw Products.

General and administrative expenses increased $6.0 million to $27.6 million in the second quarter of 2019 compared to $21.6 million in the prior year quarter. The G&A increase over the prior year reflected a $4.8 million rise in stock-based compensation expense, related predominately to the 17% increase in our stock price, as well as an increase in severance expense of $1.4 million. Excluding these items, general and administrative expenses decreased as a percent of sales to 22.1% from 23.7% a year ago quarter. Other G&A costs were collectively lower than the prior year quarter. During the quarter the Company incurred $1.5 million of severance expense primarily related to the elimination of certain positions to better align various operating areas within the Company.

Reported operating income in the second quarter of 2019 was $1.6 million compared to operating income of $5.6 million in the prior year quarter. Adjusted non-GAAP operating income increased to $7.9 million in the second quarter of 2019 compared to $6.1 million in the prior year quarter. (See reconciliation in Table 1) For the quarter, adjusted EBITDA was $9.4 million, an improvement of 21.3% over the prior year quarter. (See reconciliation in Table1)

Reported net income for the second quarter of 2019 was $1.3 million, or $0.14 per diluted share compared to net income of $3.2 million, or $0.35 per diluted share, for the same period a year ago. Adjusted net income was $5.9 million or $0.62 per diluted share compared to $0.39 a year ago. (See reconciliation in Table 2) On a year-to-date basis, adjusted diluted earnings per share has improved 72% to $1.10. (See reconciliation in Table 2)

At June 30, 2019, Lawson had $7.7 million of available cash and cash equivalents, $8.8 million of borrowings and $30.7 million of available credit under its credit facilities.

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