Hawkins, Inc. — Fiscal 2015 Form 10-K
Reporting period: Fiscal year ended March 29, 2015 (52 weeks). The filing also presents unaudited fourth-quarter results. Hawkins distributes, blends, and manufactures chemicals through its Industrial and Water Treatment segments.
Financial results and liquidity
| Metric | Fiscal 2015 | Fiscal 2014 |
|---|---|---|
| Sales | $364.0 million | $348.3 million |
| Gross profit / margin | $65.8 million / 18.1% | $61.6 million / 17.7% |
| Operating income / margin | $30.4 million / 8.4% | $28.1 million / 8.1% |
| Net income | $19.2 million | $18.1 million |
| Diluted earnings per share | $1.81 | $1.71 |
| Operating cash flow | $20.7 million | $34.6 million |
| Capital expenditures | $14.6 million | $12.3 million |
| Cash and cash equivalents | $18.6 million | $33.5 million |
| Current and long-term investments | $31.7 million | $29.7 million |
| Total assets | $248.5 million | $237.2 million |
| Total liabilities | $54.5 million | $54.8 million |
The company reported no borrowings in the balance sheet information provided. Its pension withdrawal liability was $6.6 million at year-end; payments are scheduled through 2034. Current assets were $114.3 million and current liabilities were $36.3 million.
Material changes and segment performance
- Sales increased 4.5%, with gross profit up $4.2 million and diluted EPS rising from $1.71 to $1.81. Operating income increased 8.3%.
- Industrial: Sales rose 1.7% to $249.1 million; operating income increased to $13.8 million from $12.3 million. Higher volumes were partly offset by lower raw-material selling prices and competitive pricing pressure.
- Water Treatment: Sales rose 11.2% to $115.0 million; operating income increased to $16.6 million from $15.8 million. Acquired Florida and Oklahoma locations contributed $7.9 million of the segment’s sales increase.
- Cash from operations fell to $20.7 million, primarily as inventory rose $10.0 million. The company said the prior year’s ending inventory was unusually low after weather-related rail and barge delays.
- Hawkins acquired substantially all Dumont assets for approximately $10.1 million in cash, adding seven Florida locations. It repurchased 59,602 shares for approximately $2.2 million and declared dividends of $0.76 per share, up from $0.72.
Fiscal 2015 fourth-quarter sales were $93.3 million, gross profit $15.5 million, operating income $6.0 million, and net income $3.9 million ($0.37 diluted EPS). Fourth-quarter sales and net income were higher than in fiscal 2014’s fourth quarter, while operating income was slightly lower ($6.0 million versus $6.2 million).
Outlook, risks, and unusual items
- Management projected fiscal 2016 capital spending of approximately $33 million, including growth and infrastructure projects, and expected cash balances and operating cash flows to meet fiscal 2016 needs. The filing provides no specific revenue or earnings guidance.
- Management expects to continue expanding Water Treatment branches and adding route-sales and support personnel; these investments add near-term costs. Fiscal 2016 is a 53-week year.
- Key risks include volatile chemical input costs and supply availability, competitive pricing and margin pressure, economic and industry cyclicality, weather-driven seasonality, transportation disruptions, and environmental, safety, and product-liability exposures.
- Hawkins does not hedge commodity chemical purchases and may be unable to pass cost increases to customers promptly. Inventory accounting under LIFO affected reported gross profit: it reduced fiscal 2015 gross profit by $0.4 million, compared with a $1.9 million increase in fiscal 2014.
- Fiscal 2013 included a $7.2 million pension withdrawal charge and a $3.2 million chemical-supplier settlement charge; neither was recorded in fiscal 2015. The pension withdrawal obligation remains payable over time.
- Two terminal land leases expire in 2018; Hawkins was negotiating extensions. Failure to renew certain facility leases could disrupt operations and create relocation costs. No material pending legal proceedings were reported.
Important facts for investors to verify
- Whether Dumont’s acquired Florida operations and newer Water Treatment branches deliver expected growth and profitability.
- Whether planned fiscal 2016 capital spending, inventory requirements, and working-capital seasonality constrain cash generation or liquidity.
- How commodity prices, supply availability, and competitive pricing affect gross profit dollars and margins.
- Progress on extending the leases expiring in 2018 and the remaining pension withdrawal payment schedule.
- The auditor and management reported effective internal controls, but the Dumont business, representing 4.3% of assets and 1.6% of fiscal 2015 revenue, was excluded from the year-end internal-control assessment.