MINNEAPOLIS, July 28, 2020 (GLOBE NEWSWIRE) — Hawkins, Inc. (Nasdaq: HWKN) today announced results for its fiscal 2021 first quarter ended June 28, 2020. Highlights include:
“We were very pleased with our continued profitability growth, including a 20% increase in net income this quarter,” said Patrick H. Hawkins, Chief Executive Officer and President. “As we expected, our business segment operating results were mixed in the first quarter due to the varying impacts of COVID-19, with our Industrial and Health and Nutrition segments benefiting from increased demand for bottled bleach, bleach for bottling, and health and nutrition products, while our Water Treatment segment was weaker as a result of softness in end markets serving municipal and fitness pools and the ethanol industry. We expect continued mixed results across our business segments due to the COVID 19 pandemic, but do expect earnings growth this fiscal year.”
Mr. Hawkins continued, “In addition to a strong quarter, we are pleased to announce that we closed on the acquisition of American Development Corporation of Tennessee, Inc., a company we have followed for years as they have grown their business. ADC is a great cultural fit with Hawkins and will expand our Water Treatment footprint in Tennessee and the surrounding states to support further growth.” Mike Wetherington, ADC President and Chief Executive Officer, said, “Hawkins has always been a great competitor and I have admired the way they treat their employees, customers, and suppliers, so it was a natural fit when I was looking for the right company to sell to and grow ADC in the future.” Mr. Hawkins continued, “Mike will continue to be involved with the business going forward and we could not be more pleased to now have ADC part of Hawkins and look forward to continued growth together.”
First Quarter Financial Highlights:
Sales were $143.2 million for the current quarter, a decrease of 3%, from sales of $147.3 million for the same period a year ago. Industrial segment sales decreased $3.8 million, or 5%, to $71.5 million for the current quarter, as compared to $75.3 million for the same period of the prior year. The decrease in sales dollars from the prior year was driven primarily by a temporary increase in sales in the first quarter last year attributable to heavy rains and flooding along the Mississippi River, which increased demand from certain customers in that quarter. Sales also decreased in the current quarter as a result of weak economic conditions in the ethanol industry, which decreased sales of products into that industry. The decrease was somewhat offset by increased sales of certain of our manufactured, blended and re- packaged products, largely our bleach products as a result of increased demand due to COVID-19, as well as increased sales of certain pharmaceutical, food and agricultural products. Water Treatment segment sales decreased $3.6 million, or 8%, to $39.7 million for the current quarter, as compared to $43.3 million for the same period of the prior year. The decrease in sales dollars was driven by decreased volumes sold in the current quarter due, in part, to customers filling up their tanks in March as a result of supply concerns resulting from COVID-19, which decreased their needs in the current quarter, as well as reduced sales to certain end-markets as a result of COVID-19. Sales for our Health and Nutrition segment increased $3.2 million, or 11%, to $32.0 million for the current quarter, as compared to $28.8 million for the same period of the prior year. The increase in sales was driven by increased sales of both our manufactured and specialty distributed products, partially as a result of increased demand resulting from COVID-19.
Gross profit increased $2.2 million to $31.0 million, or 22% of sales, for the current quarter, from $28.8 million, or 20% of sales, for the same period of the prior year. Despite lower sales dollars, gross profit for the Industrial segment increased $1.6 million to $12.5 million, or 17% of sales, for the current quarter, as compared to $10.9 million, or 15% of sales, for the same period of the prior year. Industrial segment gross profit increased due to a favorable product mix shift to more sales of our manufactured, blended and re-packaged products. Gross profit for the Water Treatment segment decreased $0.8 million to $11.3 million, or 29% of sales, for the current quarter, from $12.1 million, or 28% of sales, for the same period of the prior year. Gross profit in our Water Treatment segment decreased as a result of decreased sales. Overall, LIFO had a minimal impact on the quarter when compared to the prior year. Gross profit for the Health and Nutrition segment increased $1.4 million to $7.2 million, or 23% of sales, for the current quarter, from $5.8 million, or 20% of sales, for the same period of the prior year. The increase in gross profit was a result of higher sales compared to prior year.
Company-wide selling, general and administrative expenses increased $0.2 million to $15.0 million, or 11% of sales, for the current quarter, from $14.8 million, or 10% of sales, for the same period of the prior year. The increase includes a year-over-year increase in compensation expense of $0.4 million related to our non-qualified deferred compensation plan, which is offset in other income.
Our effective income tax rate was 26.5% for the current quarter, compared to 26.3% in the same period of the prior year. The effective tax rate is impacted by projected levels of annual taxable income, permanent items, and state taxes.
Earnings before interest, taxes, depreciation and amortization (“EBITDA”), a non-GAAP financial measure, is an important performance indicator and a key compliance measure under the terms of our credit agreement. An explanation of the computation of EBITDA is presented below. EBITDA for the first quarter of fiscal 2021 was $22.6 million, an increase of $2.7 million, or 13%, from EBITDA of $19.9
million for the same period of the prior year. The increase was due primarily to improved gross profit.
Net debt at the end of the quarter was $61.5 million, with a leverage ratio below 1.0x. With the acquisition of ADC, our pro forma leverage ratio is approximately 1.3x.
About Hawkins, Inc.
Hawkins, Inc. distributes, blends and manufactures chemicals and other specialty ingredients for its customers in a wide variety of industries. Headquartered in Roseville, Minnesota, and with 43 facilities in 20 states, the Company creates value for its customers through superb customer service and support, quality products and personalized applications.
Reconciliation of Non-GAAP Financial Measures
We report our consolidated financial results in accordance with U.S. generally accepted accounting principles (GAAP). To assist investors in understanding our financial performance between periods, we have provided certain financial measures not computed according to GAAP, including adjusted EBITDA. This non-GAAP financial measure is not meant to be considered in isolation or as a substitute for comparable GAAP measures. The method we use to produce non-GAAP results is not computed according to GAAP and may differ from the methods used by other companies.
Management uses this non-GAAP financial measure internally to understand, manage and evaluate our business and to make operating decisions. Management believes that this non-GAAP financial measure reflects an additional way of viewing aspects of our operations that, when viewed with our GAAP results, provides a more complete understanding of the factors and trends affecting our financial condition and results of operations.
We define adjusted EBITDA as GAAP net income adjusted for the impact of the following: net interest expense resulting from our net borrowing position; income tax expense; non-cash expenses including amortization of intangibles, depreciation, goodwill impairment, and charges for the employee stock purchase plan and restricted stock grants; and non-recurring items of income or expense, if applicable.