Hawkins, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2016, the three months ended June 28, 2015; comparisons are with the three months ended June 29, 2014. The filing is unaudited. Fiscal 2016 is a 53-week year, with the extra week in the fourth quarter.
Financial performance and liquidity
| Metric | Q1 FY2016 | Prior-year quarter | Change |
|---|---|---|---|
| Sales | $101.5 million | $98.0 million | +3.5% |
| Gross profit / margin | $20.7 million / 20.4% | $18.5 million / 18.9% | +11.9% |
| Operating income / margin | $10.8 million / 10.7% | $9.6 million / 9.8% | +12.7% |
| Net income | $6.8 million | $6.0 million | +12.8% |
| Diluted EPS | $0.64 | $0.57 | +$0.07 |
| Operating cash flow | $7.9 million | $1.4 million | +$6.5 million |
Gross margin improved as product mix and higher-margin sales strengthened, particularly in Industrial; SG&A rose to $9.9 million from $8.9 million. The effective tax rate was 37.5% in both periods. Capital expenditures were $5.2 million, versus $3.3 million.
At June 28, 2015, cash and cash equivalents were $18.1 million and investments were $30.1 million, totaling $48.1 million, down $2.3 million from March 29. Current assets were $113.4 million and current liabilities $30.4 million. The filing reports no borrowings or debt balance; it does report a $6.5 million pension withdrawal liability. Cash decreased by $0.6 million during the quarter. Dividends paid were $4.0 million and share repurchases were $0.6 million.
Business changes and segment results
- Industrial sales were essentially flat at $67.6 million. Lower volume at certain accounts was offset by product mix with higher per-unit selling prices; operating income increased to $5.5 million from $4.3 million.
- Water Treatment sales rose 11.2% to $33.9 million. The Florida locations acquired with Dumont in fiscal 2015 contributed $4.2 million in sales. Higher gross profit was offset by higher SG&A, leaving segment operating income approximately flat at $5.3 million.
- Consolidated sales of bulk commodity products were approximately 19% of sales, compared with 21% a year earlier. The company said lower sales of certain bulk commodities and equipment projects partially offset growth.
Outlook, risks, and unusual items
- No specific earnings or revenue guidance was provided. Management expects cash balances and operating cash flows to fund requirements, including potential acquisitions or strategic relationships, for the foreseeable future.
- Management noted seasonal working-capital demands: chemical inventory typically builds from April through November, while water-treatment receivables are generally higher from April through September. The improvement in operating cash flow was attributed primarily to the timing of inventory purchases.
- Commodity chemical prices are cyclical. Hawkins does not hedge purchases and seeks to pass material-cost changes to customers, but says there is no assurance it can do so while remaining competitive. Fixed-income investments also carry interest-rate risk; management intends to hold them to maturity.
- The LIFO reserve had a nominal impact on current-quarter gross profit; it reduced prior-year-quarter gross profit by $0.5 million. The Dumont acquisition was funded with $10.1 million of cash in fiscal 2015.
- No material pending legal proceedings were reported apart from routine matters, and the company reported no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether improved Industrial margins and the Water Treatment contribution from the Florida acquisition persist, especially as acquired-location sales are integrated.
- How commodity input costs, competitive pricing, and the ability to pass through cost increases affect future margins.
- Inventory purchasing, seasonal receivables, and capital spending, which can materially affect quarterly operating cash flow and liquidity.
- The filing’s reported liquidity and absence of a debt balance, alongside the pension withdrawal liability and continuing dividends and repurchases.