Hawkins, Inc. Reports Second Quarter Fiscal 2024 Results
Hawkins, Inc. announces strong second-quarter results with sales of $236.5 million, a 17% increase in Water Treatment group sales, and record quarterly gross profit of $53.9 million. Diluted EPS for the quarter is $1.10, a 28% increase from the previous year. The company also reduced its debt to $60.0 million and added six Water Treatment locations through acquisitions.
Positive
Second quarter sales of $236.5 million, a 17% increase in Water Treatment group sales, and record quarterly gross profit of $53.9 million showcase strong financial performance.
Diluted EPS for the quarter is $1.10, a 28% increase from the same period last year, demonstrating significant earnings growth.
The company reduced its debt to $60.0 million and achieved a leverage ratio of 0.45x adjusted EBITDA, indicating improved financial stability.
Acquisitions of Water Solutions Unlimited, Inc. and The Miami Products & Chemical Company added six Water Treatment locations, expanding the company's presence.
The Industrial group experienced a decline in sales, but operating income increased by 2%.
The Health and Nutrition group saw a slowdown in the year-over-year sales decline during the second quarter.
11/01/2023 - 04:10 PM
ROSEVILLE, Minn., Nov. 01, 2023 (GLOBE NEWSWIRE) -- Hawkins, Inc. (Nasdaq: HWKN) today announced results for the three and six months ended October 1, 2023, its second quarter of fiscal 2024.
Second Quarter Fiscal Year 2024 Highlights:
Second quarter sales of $236.5 million , with Water Treatment group sales growth of 17% over the same quarter in the prior year. Record quarterly gross profit of $53.9 million , a 16% increase over the prior year, contributing to record quarterly operating income of $33.0 million , a 25% year-over-year increase. Record second quarter diluted earnings per share ("EPS") of $1.10 , 28% higher than the same period last year. Record quarterly earnings before interest, taxes, depreciation and amortization ("EBITDA"), a non-GAAP measure, of $41.5 million , a 22% increase over the same period of the prior year. Record quarterly operating cash flow of $57.8 million , a portion of which was used to pay down $28.6 million on our revolving line of credit, reducing our debt to $60.0 million and bringing our leverage ratio to 0.45x adjusted EBITDA. Year-to-date diluted EPS of $2.22 grew 24% over the prior year. After quarter-end, added six Water Treatment locations through acquisitions of Water Solutions Unlimited, Inc. and The Miami Products & Chemical Company. Executive Commentary – Patrick H. Hawkins, Chief Executive Officer and President:
“We are pleased with our strong year-over-year performance in the second quarter, with our bottom line growing 29% , following our strong first-quarter growth of 19% . Our Water Treatment group once again led the way with revenue growth of 17% and operating income growth of nearly 70% . We continue to see profit growth within this segment, as we execute on our strategy to grow both the legacy business and the businesses we have acquired over the last few years. Although our Industrial group sales declined year-over-year, operating income was up 2% . In addition, the year-over-year second quarter sales decline in our Health and Nutrition group slowed to about half of what it was in the first quarter, showing signs of improvement."
Mr. Hawkins continued, "The strong first-half results, combined with disciplined inventory management, allowed us to pay down $52 million on our debt in the first six months of the year. Our strong financial position has allowed us to continue our strategy of Water Treatment growth as we added six additional locations through two acquisitions after quarter-end. We expect continued growth in our Water Treatment segment for the remainder of the year, remain cautiously optimistic about our Industrial segment, and expect the Health and Nutrition distribution business to improve on a year-over-year basis beginning in calendar 2024. With the diversity of our businesses and the overall strength of our Company, we believe we will continue to generate strong operating cash flow and will continue to manage our balance sheet during the remainder of the fiscal year."
Second Quarter Financial Highlights:
NET INCOME
For the second quarter of fiscal 2024, the Company reported net income of $23.2 million , or $1.10 per diluted share, compared to net income for the second quarter of fiscal 2023 of $18.0 million , or $0.86 per diluted share.
REVENUE
Sales were $236.5 million for the second quarter of fiscal 2024, a decrease of $4.7 million , or 2% , from sales of $241.2 million in the same period a year ago. Decreased sales in our Industrial and Health and Nutrition segments more than offset increased sales in our Water Treatment segment. Industrial segment sales decreased $15.4 million , or 14% , to $98.5 million for the current quarter, from $113.9 million in the same period a year ago. The sale of our consumer bleach packaging business at the end of fiscal 2023 resulted in $4.0 million lower sales in the current quarter. In addition, Industrial segment sales declined due to overall lower volumes. Water Treatment segment sales increased $14.4 million or 17% , to $100.9 million for the current quarter, from $86.5 million in the same period a year ago. Water Treatment sales increased as a result of increased selling prices on many of our products as well as increased sales volumes of certain of our products. Health and Nutrition segment sales decreased $3.7 million , or 9% , to $37.1 million for the current quarter, from $40.8 million in the same period a year ago. Health and Nutrition segment sales decreased primarily due to lower demand from our customers, which we believe was driven by excess inventory at some of our customers as well as lower consumer demand for health and immunity products. The sales decline experienced in the second quarter of fiscal 2023 was about half the decline experienced in the first quarter of fiscal 2023.
GROSS PROFIT
Gross profit increased $7.5 million , or 16% , to $53.9 million , or 23% of sales, for the current quarter, from $46.4 million , or 19% of sales, in the same period a year ago. During the current quarter, the LIFO reserve decreased, and gross profit increased, by $3.2 million due primarily to decreasing raw material prices. In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $5.3 million due primarily to rising raw material prices. Gross profit for the Industrial segment increased $0.1 million , or 1% , to $17.8 million , or 18% of sales, for the current quarter, from $17.7 million , or 16% of sales, in the same period a year ago. Industrial segment gross profit increased slightly due to improved unit margins on certain products. Gross profit for the Water Treatment segment increased $8.8 million , or 43% , to $29.3 million , or 29% of sales, for the current quarter, from $20.5 million , or 24% of sales, in the same period a year ago. Water Treatment segment gross profit increased as a result of improved per-unit margins on many of our products as well as increased sales. Gross profit for our Health and Nutrition segment decreased $1.5 million , or 18% , to $6.7 million , or 18% of sales, for the current quarter, from $8.2 million , or 20% of sales, in the same period a year ago. Health and Nutrition segment gross profit decreased as a result of lower sales and lower per-unit margins on certain products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $1.1 million , or 6% , to $20.9 million , or 9% of sales, for the current quarter, from $19.8 million , or 8% of sales, in the same period a year ago. Expenses increased largely due to increased variable pay as well as added costs from acquired businesses.
ADJUSTED EBITDA
Adjusted EBITDA, a non-GAAP financial measure, is an important performance indicator and a key compliance measure under the terms of our credit agreement. An explanation of the computation of adjusted EBITDA is presented below. Adjusted EBITDA for the three months ended October 1, 2023 was $41.5 million , an increase of $7.5 million , or 22% , from $34.0 million in the same period a year ago.
INCOME TAXES
Our effective income tax rate was 27% for both the current quarter and the same period a year ago. The effective tax rate is impacted by projected levels of annual taxable income, permanent items, and state taxes. Our effective tax rate for the full year is currently expected to be approximately 26-27% .
BALANCE SHEET
During the second quarter, our working capital demands decreased in large part due to favorable cash collections on accounts receivable and disciplined management of our inventory levels. This improvement, along with higher net income, allowed us to reduce our debt by $28.6 million in the quarter and $52 million year to date. We now have total outstanding debt of $60 million , which is 0.45x our trailing twelve-month adjusted EBITDA, down from 0.96x at the end of fiscal 2023.
About Hawkins, Inc.
Hawkins, Inc. was founded in 1938 and is a leading specialty chemical and ingredients company that formulates, distributes, blends, and manufactures products for its Industrial, Water Treatment, and Health & Nutrition customers. Headquartered in Roseville, Minnesota, the Company has 58 facilities in 26 states and creates value for its customers through superb customer service and support, quality products and personalized applications. Hawkins, Inc. generated $935 million of revenue in fiscal 2023 and has approximately 950 employees. For more information, including registering to receive email alerts, please visit www.hawkinsinc.com/investors.
Reconciliation of Non-GAAP Financial Measures
We report our consolidated financial results in accordance with U.S. generally accepted accounting principles (GAAP). To assist investors in understanding our financial performance between periods, we have provided certain financial measures not computed according to GAAP, including adjusted EBITDA. This non-GAAP financial measure is not meant to be considered in isolation or as a substitute for comparable GAAP measures. The method we use to produce non-GAAP results is not computed according to GAAP and may differ from the methods used by other companies.
Management uses this non-GAAP financial measure internally to understand, manage and evaluate our business and to make operating decisions. Management believes that this non-GAAP financial measure reflects an additional way of viewing aspects of our operations that, when viewed with our GAAP results, provides a more complete understanding of the factors and trends affecting our financial condition and results of operations.
We define adjusted EBITDA as GAAP net income adjusted for the impact of the following: net interest expense resulting from our net borrowing position; income tax expense; non-cash expenses including amortization of intangibles, depreciation and charges for the employee stock purchase plan and restricted stock grants; and non-recurring items of income or expense, if applicable.
Adjusted EBITDA Three Months Ended Six months ended (In thousands) October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022 Net Income (GAAP) $ 23,216 $ 18,000 $ 46,646 $ 37,695 Interest expense, net 717 1,383 1,865 2,312 Income tax expense 8,769 6,707 17,015 13,184 Amortization of intangibles 1,724 1,749 3,394 3,506 Depreciation expense 5,675 5,064 11,112 9,865 Non-cash compensation expense 1,260 1,085 2,219 1,680 Non-recurring acquisition expenses 122 — 122 — Adjusted EBITDA $ 41,483 $ 33,988 $ 82,373 $ 68,242
HAWKINS, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except share and per-share data) Three Months Ended Six Months Ended October 01, 2023 October 02, 2022 October 01, 2023 October 02, 2022 Sales $ 236,526 $ 241,192 $ 487,646 $ 487,735 Cost of sales (182,640 ) (194,818 ) (381,769 ) (394,612 ) Gross profit 53,886 46,374 105,877 93,123 Selling, general and administrative expenses (20,895 ) (19,838 ) (40,399 ) (38,723 ) Operating income 32,991 26,536 65,478 54,400 Interest expense, net (717 ) (1,383 ) (1,865 ) (2,312 ) Other (expense) income (289 ) (446 ) 48 (1,209 ) Income before income taxes 31,985 24,707 63,661 50,879 Income tax expense (8,769 ) (6,707 ) (17,015 ) (13,184 ) Net income $ 23,216 $ 18,000 $ 46,646 $ 37,695 Weighted average number of shares outstanding - basic 20,903,690 20,814,686 20,905,707 20,861,754 Weighted average number of shares outstanding - diluted 21,026,428 20,956,897 21,034,153 21,004,454 Basic earnings per share $ 1.11 $ 0.86 $ 2.23 $ 1.81 Diluted earnings per share $ 1.10 $ 0.86 $ 2.22 $ 1.79 Cash dividends declared per common share $ 0.16 $ 0.14 $ 0.31 $ 0.28
HAWKINS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share data) October 1, 2023 April 2, 2023 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 10,974 $ 7,566 Trade accounts receivables, net 124,813 129,252 Inventories 68,500 88,777 Prepaid expenses and other current assets 2,966 6,449 Total current assets 207,253 232,044 PROPERTY, PLANT, AND EQUIPMENT: 361,362 344,753 Less accumulated depreciation 168,504 158,950 Net property, plant, and equipment 192,858 185,803 OTHER ASSETS: Right-of-use assets 11,323 10,199 Goodwill 77,401 77,401 Intangible assets, net of accumulated amortization 71,491 73,060 Deferred compensation plan asset 8,917 7,367 Other 6,054 4,661 Total other assets 175,186 172,688 Total assets $ 575,297 $ 590,535 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable — trade $ 61,192 $ 53,705 Accrued payroll and employee benefits 12,416 17,279 Income tax payable 4,319 3,329 Current portion of long-term debt 9,913 9,913 Other current liabilities 6,622 6,645 Total current liabilities 94,462 90,871 LONG-TERM DEBT, LESS CURRENT PORTION 49,775 101,731 LONG-TERM LEASE LIABILITY 9,522 8,687 PENSION WITHDRAWAL LIABILITY 3,726 3,912 DEFERRED INCOME TAXES 24,190 23,800 DEFERRED COMPENSATION LIABILITY 10,317 9,343 OTHER LONG-TERM LIABILITIES 649 2,175 Total liabilities 192,641 240,519 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY: Common stock; authorized: 60,000,000 shares of $0.01 par value; 20,787,626 and 20,850,454 shares issued and outstanding as of October 1, 2023 and April 2, 2023, respectively 208 209 Additional paid-in capital 35,918 44,443 Retained earnings 342,535 302,424 Accumulated other comprehensive income 3,995 2,940 Total shareholders’ equity 382,656 350,016 Total liabilities and shareholders’ equity $ 575,297 $ 590,535
HAWKINS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Six Months Ended October 1, 2023 October 2, 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 46,646 $ 37,695 Reconciliation to cash flows: Depreciation and amortization 14,506 13,371 Operating leases 1,115 945 (Gain) loss on deferred compensation assets (48 ) 1,208 Stock compensation expense 2,219 1,680 Other (34 ) 187 Changes in operating accounts providing (using) cash: Trade receivables 4,909 (8,481 ) Inventories 20,752 (18,077 ) Accounts payable 6,421 (4,609 ) Accrued liabilities (7,149 ) (8,600 ) Lease liabilities (1,127 ) (972 ) Income taxes 990 2,031 Other 3,430 2,425 Net cash provided by operating activities 92,630 18,803 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant, and equipment (16,922 ) (20,668 ) Acquisitions (3,355 ) — Other 335 296 Net cash used in investing activities (19,942 ) (20,372 ) CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends declared and paid (6,535 ) (5,900 ) New shares issued 1,147 1,004 Payroll taxes paid in exchange for shares withheld (2,140 ) (1,550 ) Shares repurchased (9,752 ) (6,557 ) Payments on revolving loan (52,000 ) (30,000 ) Proceeds from revolving loan borrowings — 45,000 Net cash (used in) provided by financing activities (69,280 ) 1,997 NET INCREASE IN CASH AND CASH EQUIVALENTS 3,408 428 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,566 3,496 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,974 $ 3,924 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for income taxes $ 16,025 $ 11,148 Cash paid for interest $ 2,002 $ 1,879 Noncash investing activities - capital expenditures in accounts payable $ 2,970 $ 2,535
HAWKINS, INC. REPORTABLE SEGMENTS (UNAUDITED) (In thousands) Industrial Water Treatment Health and Nutrition Total Three months ended October 1, 2023: Sales $ 98,535 $ 100,925 $ 37,066 $ 236,526 Gross profit 17,844 29,308 6,734 53,886 Selling, general, and administrative expenses 6,806 10,145 3,944 20,895 Operating income 11,038 19,163 2,790 32,991 Three months ended October 2, 2022: Sales $ 113,939 $ 86,488 $ 40,765 $ 241,192 Gross profit 17,713 20,504 8,157 46,374 Selling, general, and administrative expenses 6,891 9,082 3,865 19,838 Operating income 10,822 11,422 4,292 26,536 Six months ended October 1, 2023: Sales $ 219,408 $ 194,576 $ 73,662 $ 487,646 Gross profit 37,150 55,716 13,011 105,877 Selling, general and administrative expenses 13,381 19,271 7,747 40,399 Operating income 23,769 36,445 5,264 65,478 Six months ended October 2, 2022: Sales $ 238,649 $ 164,978 $ 84,108 $ 487,735 Gross profit 37,722 39,457 15,944 93,123 Selling, general and administrative expenses 13,276 17,783 7,664 38,723 Operating income 24,446 21,674 8,280 54,400
Annual Report on Form 10-K for the fiscal year ended April 2, 2023
Contacts: Jeffrey P. Oldenkamp Executive Vice President and Chief Financial Officer 612/331-6910 ir@HawkinsInc.com
What were Hawkins, Inc.'s second quarter sales?
Hawkins, Inc. reported second quarter sales of $236.5 million.
What was the growth rate of Water Treatment group sales in the second quarter?
Water Treatment group sales grew by 17% in the second quarter.
What was the record quarterly gross profit for Hawkins, Inc.?
Hawkins, Inc. achieved a record quarterly gross profit of $53.9 million.
What was the diluted EPS for the second quarter?
The diluted EPS for the second quarter was $1.10.
How much debt did Hawkins, Inc. reduce?
Hawkins, Inc. reduced its debt to $60.0 million.
How many Water Treatment locations did Hawkins, Inc. acquire?
Hawkins, Inc. added six Water Treatment locations through acquisitions.
What was the operating income growth for the Water Treatment group?
The operating income for the Water Treatment group grew by nearly 70%.
Did the Industrial group experience growth in operating income?
Although the Industrial group had a decline in sales, operating income increased by 2%.
