Q4 2007 Acme United Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good day, everyone. And welcome to the Acme United fourth quarter 2007 earnings conference call. As a reminder, this call is being recorded.

At this time, I'd like to turn this conference over to your host, Mr. Walter Johnsen, Chairman and Chief Financial Officer. Please go ahead, sir.

WALTER JOHNSEN, CHAIRMAN OF THE BOARD, CEO, ACME UNITED: Good morning. Welcome to the fourth 2007 and year end conference call for Acme United Corporation. I'm Walter C. Johnson, Chairman an CEO. With me is Paul Driscoll, our Chief Financial Officer, who will first read a Safe Harbor Statement. Paul.

PAUL DRISCOLL, CFO, ACME UNITED: Forward-looking statements in this conference call including without limitation statements related to the Company's plans, strategies, objectives, expectations, intentions and adequacy of resources are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risk and uncertainties including, without limitation, the following: One, the Company's plans, strategies, objectives, expectations, and intentions are subject to change at any time at the discretion of the Company. Two, the Company's plans and results of operation will be affected by the Company's ability to manage its growth. And three, other risks and uncertainties indicated from time-to-time in the Company's filings with the Securities and Exchange Commission. Now I'll turn the call back to Walter.

WALTER JOHNSEN: Thank you, Paul. Acme United had a strong performance during the fourth quarter of 2007 and a record sales and earnings year. For the fourth quarter, sales were $14.9 million, an increase of 23% over last year. Our net income of $546,000 in the fourth quarter of 2007, represented a 38% increase over the comparable period last year. Full year sales in 2007 increased 11%, to a record $63.2 million. Our earnings exceeded $4 million after tax for the first time.

Our fourth quarter performance was particularly gratifying, given the slowdown in consumer spending and a general malaise in the office products industry. Our sales growth was due to increases in our cutting category, market shares in both North America and Europe, expansion of our distribution in the sewing and industrial tools market and strong performance of the iPoint pencil sharpeners. The fastest growing segment was our business in Europe, which increased 23% during the quarter and 21% for the year. This was due to strong market share growth with independent dealers, new distribution agreements with office buying groups, and additional sales at the major office superstores. Our manicure business also performed well with strong growth at one of the largest pharmacy chains in Western Europe.

Our gross margins were under pressure during the fourth quarter and declined from 41% to 39%. Part of this was product mix, but we also felt the impact of the weakened buying power of the U.S. currency, higher material costs and the reduction in China of the export tax credit. Our new increased prices went into effect on January 1st, 2008, and are expected to help recover increased costs. However, the pressures on our costs are continuing, and we expect to manage them carefully in 2008. The losses in Europe declined during the quarter from $550,000 to $345,000 due to strong sales growth, improved margins and comparable costs. We have a number of excellent new business prospects in Europe and the momentum in revenues to continue to drive toward profitability. We expect to see continued improvement there in 2008.

We have built up our sales model for 2008, and continue to see internal growth of about $9 million. This consists of new iPoint pencil sharpener sales and expected strong back-to-school reception of the Microban anti-microbial product line and increased European and Asian sales. An upside in the potential of revenues for the year is the market reception of the SpeedPak utility knife, which has just begun shipping. At this stage, we feel comfortable giving guidance of $70 million to $72 million in revenues in 2008, with margins about comparable to 2007. This would provide net income of about $4.5 million, which would be about $1.23 per share. Having said that, our markets are soft and we continue to expect additional cost pressures. I hope, however, that we can surprise you later as the year develops. I will now turn the call to Paul Driscoll.

PAUL DRISCOLL: Acme's net sales for the fourth quarter were $14.9 million, compared to $12.1 million in 2006, an increase of 23%. Net sales for the year 2007 were $63.2 million, compared to $56.9 million in 2006, an increase of 11% or 10% at constant currency. Net sales in the U.S. segment increased by 23% in the quarter and 10% for the year, mainly due to new product sales including the iPoint electric pencil sharpener and market share gains. We also expanded our product line including rotary paper trimmers with a major office superstore. Net sales for Canada increased by 19% or 2% in local currency in the quarter, and 11% or 5% in local currency for the year. The increased sales in Canada were mainly due to higher sales of the iPoint electric pencil sharpener and further penetration into the Canadian retail segment. Net sales for Europe increased by 23% or 10% in local currency in the quarter, and 21% or 11% in local currency for the year. The sales increase in Europe was mainly due to higher sales in manicure items to a major European retailer and expansion in the office trade channel.

Gross margins were 39% in the fourth quarter of 2007, versus 41% in the comparable period last year. For the year ended December 31, 2007, gross margins were 42%, compared to 43% in 2006. The gross margin …