MRO Magazine

Lawson Products Reports Third Quarter 2015 Results


October 22, 2015
By Business Wire News

CHICAGO

Lawson Products, Inc. (NASDAQ:LAWS) (“Lawson” or the “Company”), a distributor of products and services to the MRO marketplace, today announced results for the third quarter ended September 30, 2015. The Company generated $2.8 million of operating income on net sales of $70.2 million driving diluted EPS to $0.27 from $0.05 a year ago.

“We delivered another quarter of solid operating results,” said Michael DeCata, president and chief executive officer. “Like the rest of the MRO industry and the broader manufacturing sector of the U.S. economy, our sales continue to be affected by challenges in the macro-economic environment, ongoing weakness in the oil and gas sector, and the negative impact of exchange rates. However, we were able to significantly increase our operating income from a year ago driven in large part by our improving gross margins along with our continued expense management and Lean/Six Sigma efforts.”

“With infrastructure already in place to support growth, we continue to focus on growing our sales base through expanding our sales representative count which now totals 925, increasing productivity among existing sales representatives and acquiring companies with similar value propositions,” said Mr. DeCata. “On September 30th, we completed a tuck-in acquisition of a small family-owned auto body parts distributor to complement our Kent Automotive business adding a few sales representatives in the process and increasing our presence in Western Canada. This acquisition is a small, but important first step as we continue to explore additional acquisition opportunities that fit our business model and grow our total sales representative count.”

Financial Highlights

  • Gross margin was 61.7% for the quarter compared to 60.1% a year ago.
  • GAAP operating income was $2.8 million for the quarter on net sales of $70.2 million, up $2.1 million from $0.7 million a year ago on net sales of $74.1 million.
  • Non-GAAP adjusted operating income improved $1.0 million to $3.2 million in the third quarter of 2015 compared to $2.2 million in the third quarter of 2014 (See reconciliation in Table 1).
  • Net income improved to $2.4 million or $0.27 per diluted share compared to $0.5 million or $0.05 per diluted share a year ago.
  • Cash flow from operations was $3.9 million for the third quarter. Lawson ended the quarter with no debt outstanding and $7.8 million of available cash on hand.

Third Quarter Results

Net sales for the third quarter of 2015 decreased 5.2% to $70.2 million from $74.1 million in the third quarter of 2014. Approximately 70% of this decline was driven by a $1.5 million decrease in sales to our direct oil and gas customers and a $1.2 million impact from the decline in the Canadian dollar. We continued to realize growth in the Kent Automotive Division as well as many strategic accounts. Overall, average daily sales based on 64 selling days in each period, decreased to $1.098 million in the third quarter of 2015 compared to $1.158 million in the prior year quarter. On a sequential basis, sales were relatively flat from the second quarter of 2015.

Gross profit improved to 61.7% for the period compared to 60.1% in the third quarter of 2014 primarily due to more effective purchasing that led to higher product margins along with improved distribution efficiencies that positively impacted service levels to our customers.

Selling expenses decreased slightly as a percent of sales to 31.7% or $22.2 million in the third quarter of 2015 from 31.8% or $23.6 million in the prior year quarter. The $1.4 million decline was driven by lower commissions on lower sales and decreased performance-based compensation, partially offset by higher fixed compensation of newly hired sales representatives. General and administrative expenses decreased to $18.3 million in the third quarter of 2015 from $20.3 million in the prior year quarter primarily caused by a decline in compensation expense including a $2.5 million decrease in stock-based compensation of which a portion varies with our stock price. This reduction partially offset an increase in severance expense in 2015 and a favorable legal settlement of $0.7 million received in the third quarter of 2014. Excluding these non-recurring items, general and administrative expenses declined $0.8 million or 4.4% as we continue to manage our overall cost structure.

GAAP operating income improved to $2.8 million from $0.7 million a year ago. Excluding certain non-operational and non-recurring items, adjusted non-GAAP operating income was $3.2 million in the third quarter of 2015 compared to $2.2 million a year ago (See reconciliation in Table 1). On a year-to-date basis, adjusted non-GAAP operating income improved by $4.1 million over a year ago.

Net income for the third quarter of 2015 was $2.4 million, or $0.27 per diluted share compared to $0.5 million, or $0.05 per diluted share, for the same period a year ago.

“In summary, despite a challenging sales environment, we had another very successful quarter. We will continue to manage the Company with these current trends in mind. Our strategy of growing through sales representative additions, improving sales representative productivity and making selective acquisitions remains unchanged. I am confident that we are well positioned, both operationally and financially, to be successful over the next several years,” concluded Mr. DeCata.

Conference Call

Lawson Products, Inc. will conduct a conference call with investors to discuss third quarter 2015 results at 9:00 a.m. EDT on October 22, 2015. The conference call is available by direct dial at 1-888-349-0106 in the U.S. or 1-412-902-0131 from outside of the U.S. A replay of the conference call will be available approximately two hours after the completion of the call through November 23, 2015. Callers can access the replay by dialing 1-877-344-7529 in the U.S. or 1-412-317-0088 outside the U.S. The PIN access number for the replay is 10053973#. A streaming audio of the call and an archived replay will also be available through the events calendar on the Investor Relations page of Lawson’s website through November 23, 2015.

About Lawson Products, Inc.

Founded in 1952, Lawson Products (NASDAQ: LAWS) is an industrial distributor of approximately 300,000 maintenance and repair products. Lawson Products serves the industrial, commercial, institutional and government maintenance, repair and operations (MRO) market. The Company ships products to customers in all 50 states, Puerto Rico, Canada, Mexico and the Caribbean from five strategically located distribution centers in North America. Under its Kent Automotive brand, the Company supplies products to collision and mechanical repair shops as well as automotive OEMs. For additional information, please visit www.lawsonproducts.com.

This Release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. The terms “may,” “should,” “could,” “anticipate,” “believe,” “continues,” “estimate,” “expect,” “intend,” “objective,” “plan,” “potential,” “project” and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These statements are based on management’s current expectations, intentions or beliefs and are subject to a number of factors, assumptions and uncertainties that could cause or contribute to such differences or that might otherwise impact the business and include the risk factors set forth in Item 1A of the December 31, 2014, Form 10-K filed on February 19, 2015. The Company undertakes no obligation to update any such factor or to publicly announce the results of any revisions to any forward-looking statements whether as a result of new information, future events or otherwise.

-TABLES FOLLOW-

   
Lawson Products, Inc.
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)
 
Three Months EndedNine Months Ended
September 30,September 30,
2015  20142015  2014
 
Net sales $ 70,243 $ 74,128 $ 210,873 $ 215,412
Cost of goods sold 26,901   29,595   80,840   85,798  
Gross profit 43,342   44,533   130,033   129,614  
 
Operating expenses:
Selling expenses 22,240 23,577 68,590 67,807
General & administrative expenses 18,292   20,278   56,337   61,555  
Total SG&A 40,532 43,855 124,927 129,362
Impairment loss       3,046  
Operating expenses 40,532   43,855   124,927   132,408  
 
Operating income (loss) 2,810 678 5,106 (2,794 )
 
Interest expense (131 ) (182 ) (409 ) (637 )
Other income (expenses), net (1 ) 138   (210 ) 71  
 
Income (loss) from continuing operations before income taxes 2,678 634 4,487 (3,360 )
Income tax expense (benefit) 248   174   502   (296 )
 
Income (loss) from continuing operations 2,430 460 3,985 (3,064 )
Income and gain from discontinued operations, net of income taxes       1,367  
Net income (loss) $ 2,430   $ 460   $ 3,985   $ (1,697 )
 
Basic income (loss) per share of common stock:
Continuing operations $ 0.28 $ 0.05 $ 0.46 $ (0.35 )
Discontinued operations       0.15  
Net income (loss) per share $ 0.28   $ 0.05   $ 0.46   $ (0.20 )
 
Diluted income (loss) per share of common stock:
Continuing operations $ 0.27 $ 0.05 $ 0.45 $ (0.35 )
Discontinued operations       0.15  
Net income (loss) per share $ 0.27   $ 0.05   $ 0.45   $ (0.20 )
   
Lawson Products, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share data)
 
September 30,December 31,
20152014
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 7,780 $ 4,207
Restricted cash 800 800
Accounts receivable, less allowance for doubtful accounts 31,439 31,546
Inventories 42,691 44,517
Miscellaneous receivables and prepaid expenses 5,013   5,433  
Total current assets 87,723 86,503
 
Property, plant and equipment, net 36,996 41,588
Cash value of life insurance 10,228 9,188
Deferred income taxes 51 51
Other assets 752   510  
Total assets $ 135,750   $ 137,840  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 9,905 $ 7,867
Accrued expenses and other liabilities 25,059   30,861  
Total current liabilities 34,964 38,728
 
Security bonus plan 15,084 15,857
Financing lease obligation 8,765 9,414
Deferred compensation 4,684 5,102
Deferred rent liability 4,027 4,361
Other liabilities 2,624   2,523  
Total liabilities 70,148   75,985  
 
Stockholders’ equity:
Preferred stock, $1 par value:
Authorized – 500,000 shares, issued and outstanding — None
Common stock, $1 par value:
Authorized – 35,000,000 shares
Issued – 8,763,524 and 8,720,350 shares, respectively
Outstanding – 8,748,092 and 8,706,467 shares, respectively
8,764 8,720
Capital in excess of par value 9,586 8,701
Retained earnings 47,260 43,275
Treasury stock – 15,432 and 13,883 shares, respectively (272 ) (267 )
Accumulated other comprehensive income 264   1,426  
Total stockholders’ equity 65,602   61,855  
Total liabilities and stockholders’ equity $ 135,750   $ 137,840  
 
LAWSON PRODUCTS, INC.
REGULATION G GAAP RECONCILIATIONS
 

The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, the Company’s management believes that certain non-GAAP financial measures may provide users of this financial information additional meaningful comparisons between current results and results in prior operating periods. Management believes that these non-GAAP financial measures can provide additional meaningful reflection of underlying trends of the business because they provide a comparison of historical information that excludes certain non-operational, non-recurring or intermittently recurring items that impact the overall comparability. See Table 1 and 2 below for supplemental financial data and corresponding reconciliations to GAAP financial measures for the three and nine months ended September 30, 2015 and September 30, 2014. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP.

 
TABLE 1 – RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP OPERATING INCOME (LOSS)
(Dollar amounts in thousands)
(Unaudited)
   
Three Months Ended Nine Months Ended
September 30, September 30,
2015   2014 2015   2014
 
Operating income (loss), as reported per GAAP $ 2,810 $ 678 $ 5,106 $ (2,794 )
 
Stock-based compensation (1) (30 ) 2,423 400 3,956
Severance expense 372 (328 ) 993 690
Loss (gain) on disposal of assets (2 ) 97 (1 ) 97
Legal settlement (2) (688 ) (688 )
North American sales meeting expense (3) 1,889
Impairment loss (4)       3,046  
Adjusted non-GAAP operating income $ 3,150   $ 2,182   $ 8,387   $ 4,307  
(1)   Expense for stock-based compensation, of which a portion varies with the Company’s stock price
(2) Legal settlement relates to proceeds received from a settlement of alleged breaches of the Company’s restrictive covenant agreements
(3) Excludes the effect on sales and gross margin
(4) Non-cash impairment charge related to the Reno, Nevada distribution center
 
TABLE 2 – RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP NET SALES
(Dollar amounts in thousands)
(Unaudited)
   
Three Months Ended Nine Months Ended
September 30, September 30,
2015   2014 2015   2014
 
Net Sales, as reported per GAAP $ 70,243 $ 74,128 $ 210,873 $ 215,412
 
Impact of Canadian exchange rate 1,187 2,884
Decrease in direct sales to oil and gas customers (1) 1,498     3,840  
Adjusted non-GAAP net sales $ 72,928   $ 74,128   $ 217,597   $ 215,412
 
Percentage (decrease) increase in non-GAAP net sales (1.6 )% 1.0 %
(1) Represents decrease in sales to direct oil and gas customers as defined by Standard Industry Classification (“SIC”) codes
 
LAWSON PRODUCTS, INC.
TABLE 3 – QUARTERLY RESULTS (UNAUDITED)
 
(Dollars in thousands)
Three Months Ended
Sep. 30, 2015   Jun. 30, 2015   Mar. 31, 2015   Dec. 31, 2014   Sep. 30, 2014
 
Number of business days 64 64 63 61 64
 
Average daily net sales $ 1,098 $ 1,105 $ 1,110 $ 1,152 $ 1,158
Sequential quarter increase (decrease) (0.6 )% (0.5 )% (3.6 )% (0.5 )% 2.8 %
 
Average active sales rep. count (1) 917 912 911 908 882
Period-end active sales rep. count 925 920 917 916 894
 
Sales per rep. per day $ 1.197 $ 1.212 $ 1.218 $ 1.269 $ 1.313
Sequential quarter decrease (1.2 )% (0.5 )% (4.0 )% (3.4 )% (0.5 )%
 
Net sales $ 70,243 $ 70,726 $ 69,904 $ 70,281 $ 74,128
Gross profit 43,342 43,808 42,883 42,935 44,533
 
Gross profit percentage 61.7 % 61.9 % 61.3 % 61.1 % 60.1 %
 

Operating expenses

Selling, general & administrative expenses $ 40,532 $ 40,565 $ 43,830 $ 44,764 $ 43,855
Other expenses, net (2)       340    
40,532   40,565   43,830   45,104   43,855  
 
Operating income (loss) $ 2,810   $ 3,243   $ (947 ) $ (2,169 ) $ 678  
(1)   Average active sales representative count represents the average of the month-end sales representative counts.
 
(2) The three months ended December 31, 2014 includes $0.3 million related to estimated future remediation of an environmental matter at the Decatur, Alabama facility.

Investor Relations:
Lawson Products, Inc.
Ronald J. Knutson
Executive Vice President, Chief Financial Officer
773-304-5665