CHICAGO — Lawson Products, Inc. today announced results for the third quarter ended September 30, 2017.
- Average daily sales increased 9.5% to $1.201 million during the third quarter of 2017 compared to $1.097 million in the third quarter of 2016
- Gross profit percentage increased to 60.8% in the third quarter compared to 60.6% a year ago
- GAAP operating income was $1.1 million compared to $2.4 million in the third quarter of 2016. Adjusted non-GAAP operating income, adjusted for stock-based compensation and severance, improved $1.5 million to $3.6 million from $2.1 million (see reconciliation in Table 1)
- Completion of the fifth and largest acquisition in 24 months on October 3rd that will add $34.0 million to annual consolidated sales. The acquisition is not reflected in the third quarter results.
- The quarter ended with $19.0 million of available cash, no outstanding debt and $36.0 million of availability on our revolving credit facility. As a result of the recent acquisition, the Company drew down $16.3 million of borrowings subsequent to the quarter.
“We are very pleased with our 68% improvement in adjusted operating income on a 9.5% increase in average daily sales. The consistent improvement in our financial performance is attributable to the increased productivity of the sales force, recent acquisitions, and the improving MRO marketplace. We continue to see strong increases with our large national customers and regional business allowing us to leverage our existing infrastructure,” said Michael DeCata, president and chief executive officer.
“We recently announced our fifth and largest acquisition in 24 months adding $34.0 million to our consolidated sales. With the acquisition of The Bolt Supply House Ltd., headquartered in Calgary, Alberta we gained 27 experienced sales representatives, 13 branch locations, and a 43,000 square-foot distribution center in Calgary. This acquisition will be accretive. Additionally, this acquisition allows the Lawson and Kent business to benefit through shortened customer delivery time by leveraging Bolt Supply’s western Canada presence. We continue to see growth opportunities, both organically and through acquisitions and will evaluate those that we believe will provide us with the best long-term sustainable benefits,” added DeCata.
Third Quarter Results
Net sales were $75.7 million for the third quarter of 2017 compared to $70.2 million in 2016 with one less selling day. The third quarters of 2017 and 2016 had 63 and 64 selling days, respectively. Average daily sales grew 9.5% to $1.201 million compared to $1.097 million in the previous year quarter. Sales were positively impacted by the 11% increase in sales rep productivity, the effect of acquisitions completed in 2016 and the continuing improvement in the MRO marketplace. Previous acquisitions contributed 1% of the sales increase for the quarter. Year to date average daily sales were up 8.2% over the prior year.
Third quarter gross profit as a percent of sales increased to 60.8% from 60.6% a year ago. Gross profit dollars increased 8.1% to $46.0 million compared to $42.6 million primarily driven by higher sales and vendor related initiatives.
Selling expenses increased to $24.4 million in the third quarter of 2017 from $23.6 million in the prior year quarter due primarily to an increase in compensation costs resulting from higher sales, partially offset by lower health insurance expenses. Selling expenses as a percent of sales decreased to 32.2% from 33.6% from a year ago as fixed selling costs were leveraged over a higher sales base.
General and administrative expenses increased to $20.6 million in the third quarter of 2017 from $16.6 million in the prior year quarter, primarily due to $3.0 million of higher stock-based compensation of which a portion varies with the company stock price and restoring incentive compensation accruals.
Operating income in the third quarter of 2017 was $1.1 million compared to $2.4 million a year ago. Adjusted non-GAAP operating income, adjusted for stock-based compensation and severance, was $3.6 million in the third quarter of 2017 compared to $2.1 million a year ago (see reconciliation in Table 1). The increase in adjusted non-GAAP operating income from a year ago was driven primarily by leveraging our operating structure on increased sales while at the same time managing our operating expenses.
Net income for the third quarter of 2017 was $1.3 million, or $0.14 per diluted share compared to net income of $1.8 million, or $0.20 per diluted share, for the same period a year ago.
“Lawson’s improved performance is due in large part to the growth initiatives and expense controls that we have undertaken over the past several years. We remain committed to our plan of driving sales rep productivity, expanding our sales force and pursuing acquisitions to improve our financial results,” concluded DeCata.
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