Hawkins, Inc. — Form 10-K Summary
Business context and reporting period. Hawkins distributes, blends and manufactures chemicals and specialty ingredients through Industrial, Water Treatment, and Health and Nutrition segments. This filing reports fiscal 2021, the 52-week year ended March 28, 2021, with fiscal 2020 as the primary comparable period. The requested “2020 Q4” corresponds to the fourth quarter of fiscal 2021 in the quarterly table; it ended March 28, 2021.
Financial performance
| Metric | Fiscal 2021 | Fiscal 2020 |
|---|---|---|
| Sales | $596.9 million | $540.2 million |
| Gross profit / margin | $123.8 million / 20.7% | $100.9 million / 18.7% |
| Operating income / margin | $55.9 million / 9.4% | $41.7 million / 7.7% |
| Net income | $41.0 million | $28.4 million |
| Diluted earnings per share | $1.93 | $1.33 |
| Operating cash flow | $43.8 million | $58.9 million |
| Capital expenditures | $20.8 million | $24.5 million |
| Cash and cash equivalents at year-end | $3.0 million | $4.3 million |
| Revolver borrowings at year-end | $99.0 million | $60.0 million |
Fiscal 2021 gross margin improved as product mix shifted toward higher-margin manufactured, blended and repackaged products. SG&A rose $8.6 million to $67.9 million, mainly from higher variable compensation, acquired-business costs and deferred compensation expense. Net interest expense declined to $1.5 million from $2.5 million; the effective tax rate was approximately 27%.
Current assets were $163.0 million and current liabilities $70.5 million at year-end. Cash from operations declined as receivables and inventory increased. Investing used $71.4 million, including $51.0 million for acquisitions and the Rosemount facility; financing provided $26.4 million, including net revolver borrowing. The company paid $10.0 million in dividends and repurchased $4.1 million of shares. Its $150 million secured revolver matures November 30, 2023; the reported effective borrowing rate was 1.1%. The company reported compliance with its financial covenants and expected to remain compliant for the next 12 months.
Fourth-quarter results
Fiscal 2021 fourth-quarter sales were $163.0 million, gross profit $31.8 million, operating income $12.9 million and net income $9.1 million. Compared with fiscal 2020’s fourth quarter, sales increased from $132.4 million and net income from $4.8 million. Diluted EPS was $0.43 versus $0.22. The filing does not provide a clear fourth-quarter cash flow figure.
Material changes and segment trends
- Industrial: Sales decreased 1% to $273.4 million, while gross profit increased to $43.3 million. Higher sales of food ingredients, agricultural products and bleach were offset by lower ethanol-related sales; product mix supported improved gross profit.
- Water Treatment: Sales increased 6% to $170.0 million and gross profit rose to $46.8 million. Acquisitions and stronger sales of manufactured and blended products contributed; COVID-related pool-market weakness weighed on the first quarter.
- Health and Nutrition: Sales rose 46% to $153.5 million and gross profit increased to $33.6 million, principally reflecting stronger demand for health and immunity products and favorable product mix.
- Hawkins acquired ADC for $25 million and C&L Aqua for $16 million, both water-treatment distributors, and purchased an adjacent Rosemount manufacturing property for $10 million. The acquired distributors had approximately $25 million in combined revenue in the 12 months before acquisition.
- The company completed a two-for-one stock split on March 1, 2021; presented share and per-share data were retrospectively adjusted.
Outlook, risks and unusual items
Management provided no specific financial guidance. It said COVID-19’s effects were mixed: food, bottled bleach, and health and nutrition demand benefited results, while ethanol, pools and resorts faced weaker demand. Management expected mixed effects to continue until conditions normalize. Fiscal 2022 will have 53 weeks.
- Key exposures include commodity price and raw-material availability fluctuations, with limited ability or delay in passing cost increases through to customers; the company does not hedge commodity chemical purchases.
- Other material risks include economic and end-market cyclicality, seasonality and weather, transportation disruptions, chemical handling and environmental liabilities, product liability or recalls, regulatory compliance, cybersecurity, and retaining skilled employees.
- Leases for important terminal and manufacturing sites present renewal and potential relocation risks. The company stated it intends to extend leases and believes it can do so, but cannot assure renewal.
- The company reported no material pending litigation beyond routine matters. It had a $5.8 million multiemployer pension withdrawal liability, with annual payments of $467,000 through 2034. No asset retirement obligation was recorded for certain leased sites because a reasonable fair-value estimate was not available.
- Goodwill impairment tests did not indicate impairment in fiscal 2021. The C&L Aqua purchase-price allocation remained preliminary. The independent auditor issued unqualified opinions and reported no critical audit matters; internal controls were deemed effective, with acquired C&L Aqua operations excluded from the controls assessment because of the short time since acquisition.
Important facts for investors to verify
- Whether acquired-business contributions, integration costs and the preliminary C&L Aqua allocation affect future segment results or reported goodwill and intangible assets.
- How elevated receivables and inventory convert to cash, given operating cash flow fell to $43.8 million while year-end revolver borrowings rose to $99.0 million.
- Whether Health and Nutrition demand for health and immunity products persists as pandemic-related conditions change, and whether weaker end markets recover.
- Commodity input costs, supply availability and pass-through timing, as well as progress on capacity investments and the company’s ability to maintain gross margins.
- Compliance with revolver covenants and refinancing or repayment plans before the November 2023 maturity; also verify lease-renewal developments and environmental or product-liability contingencies.