27-APR-18 – Acme United Corp. (ACU:BUY) The company reported solid first quarter results with revenue ahead of our estimates while EPS missing our projections. The company gained market share across product lines and ecommerce continue to grow rapidly. We maintain our BUY rating and lower our target price to $25.25 per share.

Q1:18 Highlights

  • Q1:18 revenues were $31.7 million, up 14.3% from Q1:17, on account strong performance across all geographies including US (+13% YOY), Canada (+8% YOY) and Europe (+10% YOY). The results were driven by strong sales of first aid and safety products in the US and market share gains in office and DMT products in Europe.
  • Online sales were very strong in 1Q18 and registered growth of over 100% YOY. Online sales have increased in excess of 100% annually for the past three years.
  • Gross Margins for Q1:18 were 38.2%, which was flat compared to 38.1% in Q1:17.
  • Adjusted earnings per share in Q1:18 was $0.21 vs. $0.18 in Q1:17, an increase of 17% YOY.
  • The management guided for sales of ~$140 million, net income of $5.7 million and earnings per share of $1.53 for FY:18.
  • We lower our earnings estimates for FY:18 to $1.53 factoring in the latest management commentary. We maintain our BUY rating and lower our target price to $25.25, with an implied capital appreciation potential of ~18%.

RISKS

  • ACU’s results can be negatively impacted by weak economic activity; rising commodity input costs; timing of customer orders; foreign exchange fluctuations; and competitor pricing
  • There are significant competitors in the firm’s operating segments, including J&J and Fiskars, and barriers to entry are relatively low

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