CHICAGO — Lawson Products, Inc. today announced results for the second quarter ended June 30, 2020.
“Lawson reacted quickly to the unprecedented negative impact that COVID-19 had on the economy and the Company. We focused on the health and safety of our team including social distancing, protective coverings, increased sanitizing and working remotely whenever possible. Lawson’s team members have been our greatest strength throughout this aberrant period. Through their terrific efforts, commitment and positive attitude, our streamlined team achieved solid adjusted operating results while fortifying our cash and financial position,” said Michael DeCata, president and chief executive officer.
“During the quarter, we successfully undertook a series of actions that continued a high level of service to our customers, protected operating margins and maintained our strong financial position. Our adjusted EBITDA margin of 8.7% was a direct result of our actions. Looking ahead, we are focused on improving sales to further leverage our streamlined cost structure and expand operating margins. The current disruptive conditions have challenged us to be more productive in many areas of the organization that will have continuing long-term benefits. Although there is uncertainty about the pandemic and general economy, we believe the actions we’ve taken, their near term results and long-term implications best serve our shareholders and employees by positioning Lawson to achieve solid growth into the future. In addition, we will be opportunistic in utilizing our strong balance sheet and cash position to make accretive acquisitions,” concluded DeCata.
Sales of $72.1 million decreased 24.9% year-over-year. As the quarter developed, sequentially, May Average Daily Sales (ADS) increased nearly 23% over April while June ADS increased another 6% over May. Average daily sales were $1.127 million in the second quarter of 2020 compared to $1.502 million during the same quarter 2019.
Reported gross margin was 53.1% for the quarter, the same as a year ago. This was achieved despite a shift in sales mix toward lower margin product categories.
Net cash generated from operations in the quarter of $14.7 million was achieved through effective working capital management with a keen focus on preserving our cash position. Lawson ended the quarter in a positive cash position of $8.3 million, net of debt, along with having $97.3 million of availability under its committed credit facility.
Reported net income was $0.6 million for the quarter, or $0.07 per diluted share compared to $0.14 in the second quarter of 2019. On an adjusted basis excluding stock-based compensation and severance expense, diluted earnings per share were $0.37. (See reconciliation in Table 2)
Second Quarter Results
Net sales in the second quarter of 2020 were $72.1 million compared to $96.1 million in the second quarter of 2019. The decrease year-to-year reflects the economic impact of the COVID-19 pandemic with the most significant decline occurring in April when sales decreased 35%. Sequentially, May sales improved 23% and June sales further improved 6% as average daily sales started to recover during the quarter. During April, the Company experienced a demand surge for its safety and cleaning products with softer trends in its automotive product line. As the quarter progressed, product category mix trends normalized. The Bolt Supply House sales were also impacted by COVID-19 restrictions placed on many of its customers along with additional restrictions on its branch locations. Average daily sales for the full business declined to $1.127 million compared to $1.502 million in the prior year quarter with both quarters having 64 selling days.
Reported gross profit was $38.3 million compared to $51.0 million in the second quarter of 2019, primarily driven by lower sales due to the impact of COVID-19. However, consolidated gross profit as a percentage of sales remained steady at 53.1% for the second quarter of 2020 compared to 2019. The core Lawson MRO segment gross margin excluding service-related costs, was 59.7% in the second quarter 2020, compared to 60.5% a year ago quarter, reflecting reduced operating leverage on a lower sales base, higher net freight costs and a mix shift, primarily during April, toward lower margin safety and cleaning products.
Selling expenses decreased to $16.3 million in the second quarter of 2020 compared to $21.9 million in the prior year. As a percentage of sales, reported selling expenses decreased to 22.6% from 22.8% in the second quarter of 2019. The decrease in selling expense primarily reflects efforts to manage sales employee compensation to be in line with lower sales with fewer sales personnel.
General and administrative expenses decreased $6.2 million to $21.4 million in the second quarter of 2020 compared to $27.6 million in the prior year quarter. The decline in G&A expense is primarily due to initiatives to align the cost structure with the demand environment as well as a decrease in stock-based compensation expense, a portion of which fluctuates with the Company’s stock price. Our cost management actions included furloughing 100 employees, temporary compensation reductions, canceling travel and trip awards, eliminating certain less productive sales representative positions and consolidating the Suwanee, GA distribution center operations into the McCook, IL facility. Excluding expenses related to stock-based compensation and severance, general and administrative expenses decreased $4.0 million, a portion of which represent productivity improvements that will benefit the Company on a long-term basis.
Reported operating income in the second quarter of 2020 was $0.6 million compared to operating income of $1.6 million in the prior year quarter. Adjusted non-GAAP operating income was $4.8 million in the second quarter of 2020 compared to $7.9 million in the prior year quarter. (See reconciliation in Table 1) For the quarter, adjusted EBITDA was $6.3 million compared to $9.4 million for the prior year quarter. (See reconciliation in Table 1)
Reported net income for the second quarter of 2020 was $0.6 million, or $0.07 per diluted share compared to net income of $1.3 million, or $0.14 per diluted share, for the same period a year ago. Adjusted net income was $3.5 million or $0.37 per diluted share compared to $0.62 a year ago. (See reconciliation in Table 2)
At June 30, 2020, the Company had $10.0 million of unrestricted cash and cash equivalents and an additional $97.3 million of borrowing capacity, net of outstanding letters of credit, under its committed credit facility. Management has strategically prioritized maintaining its strong cash and financial position and remains prepared to act upon opportunities for accretive acquisitions.Tagged with financial results, lawson products