Hawkins, Inc. — FY2014 Form 10-K
Reporting period: Fiscal year ended March 30, 2014 (52 weeks). This is an annual filing, not a standalone fourth-quarter report. Hawkins distributes, blends, and manufactures chemicals through its Industrial and Water Treatment segments.
Financial performance and position
| Metric | FY2014 | FY2013 |
|---|---|---|
| Sales | $348.3 million | $350.4 million |
| Gross profit / margin | $61.6 million / 17.7% | $56.9 million / 16.2% |
| Operating income / margin | $28.1 million / 8.1% | $25.3 million / 7.2% |
| Net income | $18.1 million | $17.1 million |
| Diluted EPS | $1.71 | $1.62 |
| Cash from operations | $34.6 million | $35.5 million |
| Capital expenditures | $12.3 million | $26.7 million |
| Cash and investments available for sale at year-end | $63.2 million | $50.0 million |
At year-end, total assets were $237.2 million and shareholders’ equity was $182.4 million. The balance sheet reports no conventional borrowings; it includes a $6.9 million current and long-term pension withdrawal liability. Current liabilities were $35.8 million and current assets were $114.6 million.
Industrial sales fell 1.5% to $244.9 million, while Water Treatment sales rose 1.5% to $103.4 million. Segment operating income was $12.3 million for Industrial and $15.8 million for Water Treatment.
In the fourth quarter, sales were $85.2 million versus $87.6 million a year earlier; gross profit was $14.2 million versus $14.3 million, and net income was $4.3 million versus $4.2 million.
Material changes and notable items
- Sales declined 0.6%, but gross profit increased $4.7 million and diluted EPS increased from $1.62 to $1.71. FY2013 results included a $7.2 million pension withdrawal charge and a $3.2 million supplier litigation settlement charge, both recorded in Industrial cost of sales.
- FY2014 gross profit benefited by $1.9 million from a lower LIFO reserve, primarily due to reduced year-end inventory. Management expects the reserve to increase in FY2015, which would reduce reported gross profit.
- Industrial results faced competitive pricing pressure, a higher mix of lower-margin bulk products, and $1.7 million of incremental costs from the Rosemount manufacturing facility. The new corporate headquarters added approximately $1.0 million of SG&A costs.
- Hawkins acquired Advance Chemical Solutions (ACS) for $2.4 million in cash and recorded $0.4 million of contingent consideration; up to $0.5 million in additional payments may be due based on performance. ACS is included in Water Treatment from the acquisition date.
Liquidity, outlook, and risks
Management said cash balances and operating cash flow should be sufficient for FY2015 requirements and expected approximately $20 million of FY2015 capital spending. The company increased its semiannual dividend to $0.36 per share; FY2014 dividends declared were $0.72 per share. Cash from operations remained strong, although working-capital needs vary with the timing of bulk chemical purchases.
Key risks include commodity chemical price and supply volatility, competitive pricing and margin pressure, economic and customer-industry cyclicality, seasonal and weather-sensitive Water Treatment and agricultural demand, transportation disruptions, and environmental, health, safety, and hazardous-material regulation. The company does not hedge commodity purchases. Flooding of the Mississippi River has previously disrupted terminal operations. It also depends on leases for several key terminal and manufacturing sites, with relevant expirations in 2018 and 2023; management intends to renew them but cannot assure renewal.
The company reported no material pending litigation and no off-balance-sheet arrangements. Auditors gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Whether improved FY2014 margins persist after adjusting for FY2013’s $10.4 million of unusual charges and the FY2014 LIFO benefit.
- How raw-material prices, competitive conditions, product mix, and the expected FY2015 LIFO reserve increase affect gross profit.
- Whether planned capital spending, branch expansion, and the ACS acquisition deliver expected returns without weakening liquidity.
- The cash-payment schedule and total remaining exposure for the pension withdrawal liability, and any future contingent ACS payments.
- Progress on renewing key facility leases and managing flood, transportation, and environmental risks.