Hawkins, Inc. — Q3 FY2022 Form 10-Q
Reporting period: Third quarter and first nine months of fiscal 2022, ended December 26, 2021. Comparisons are to the periods ended December 27, 2020. Fiscal 2022 is a 53-week year, with the extra week in the fourth quarter. Amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Sales | $187.1 | $142.9 | $551.6 | $433.9 |
| Gross profit / margin | $33.9 / 18.1% | $28.2 / 19.8% | $110.2 / 20.0% | $92.0 / 21.2% |
| Operating income / margin | $14.3 / 7.6% | $10.5 / 7.4% | $56.0 / 10.2% | $43.0 / 9.9% |
| Net income | $10.2 | $7.9 | $41.0 | $31.9 |
| Diluted EPS | $0.48 | $0.37 | $1.94 | $1.50 |
| Operating cash flow | Not separately stated for the quarter | $38.7 | $26.6 |
- Q3 sales increased 31%; nine-month sales increased 27%. Management attributed Industrial growth to higher volumes, selling prices and agricultural-product demand; Water Treatment growth reflected product demand and acquired businesses. Health and Nutrition sales declined 7% in Q3 but rose 5% for the nine-month period.
- Q3 gross profit rose 20%, but gross margin fell 1.7 percentage points. Nine-month gross profit rose 20%, while gross margin decreased 1.2 points. Higher raw-material costs increased the LIFO reserve and reduced gross profit by $2.9 million in Q3 and $7.6 million year to date.
- Nine-month operating cash flow improved year over year, while investing cash outflow was $18.0 million, including $15.7 million of capital expenditures and $2.6 million of acquisitions. Financing activities used $0.2 million; net revolving-loan borrowings were $17.0 million, dividends paid were $8.1 million, and share repurchases were $8.5 million.
Financial position and liquidity
- At December 26, cash was $23.4 million, versus $3.0 million at fiscal year-end. Current assets were $209.5 million and current liabilities $75.5 million.
- Total debt, net of issuance costs, was $115.8 million, including $9.9 million current debt; it was $98.8 million at March 28, 2021. The $150 million revolving facility matures November 30, 2023; the effective borrowing rate was 0.9%. Hawkins reported compliance with all debt covenants.
- Management stated that cash, facility availability and operating cash flow should be sufficient for ongoing operating requirements for the foreseeable future. The filing does not state the unused facility availability as a clear amount.
Material developments, outlook and risks
- During the period, Hawkins acquired Water and Waste Specialties and Southeast Water Systems; their results are included in Water Treatment. The three businesses acquired in the current fiscal year had approximately $17 million in aggregate annual revenue based on the twelve months preceding their acquisition dates.
- After quarter-end, on December 30, Hawkins acquired NAPCO Chemical for $18.5 million, subject to a working-capital adjustment. Purchase accounting was not complete; results will be included in Water Treatment from the acquisition date.
- Management expected a full-year effective tax rate of approximately 26%–27%. The filing provides no specific sales or earnings guidance.
- Commodity chemical prices are volatile, and the company does not hedge raw-material purchases. Hawkins seeks to pass cost changes to customers but said it cannot assure that future increases can be passed through; certain Water Treatment contracts limited pass-through during the quarter. A 25-basis-point interest-rate change could affect annual interest expense by approximately $0.2 million.
- Management reported no significant COVID-related impact on output at the time of filing. The filing reported no material change to previously disclosed risk factors and no material pending legal proceedings beyond routine litigation.
Important facts for investors to verify
- Whether price increases and volume growth can sustain sales and offset rising chemical input costs and LIFO inventory impacts.
- Water Treatment margin trends, contract pass-through terms, and the contribution and integration costs of recent acquisitions, including NAPCO.
- Working-capital needs—particularly receivables and inventory—and actual availability under the revolving credit facility after the NAPCO acquisition.
- Progress toward the company’s full-year expectations, including the expected tax rate and the effect of the extra fiscal week.
- Capital allocation: the company repurchased $8.5 million of stock year to date, with 311,005 shares remaining authorized for repurchase at quarter-end.