Hawkins, Inc. Reports Second Quarter Fiscal 2023 Results
MINNEAPOLIS, Nov. 02, 2022 (GLOBE NEWSWIRE) — Hawkins, Inc. (Nasdaq: HWKN) today announced results for the three and six months ended October 2, 2022, its second quarter of fiscal 2023.
Second Quarter Fiscal Year 2023 Highlights:
- Record second quarter performance for the following metrics – sales, gross profit, operating income, net income, diluted earnings per share (EPS), adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), and operating cash flow.
- Sales of $241.2 million, a 32% year-over-year increase, with all three reporting segments growing over the same quarter in the prior year.
- Gross profit of $46.4 million, a 24% increase over the prior year, contributing to operating income of $26.5 million, a 35% year-over-year increase.
- EPS of $0.86, 28% higher than the same period last year.
- Adjusted EBITDA, a non-GAAP measure, of $34.0 million, a 28% increase over the same period of the prior year.
- Operating cash flow of $28.2 million, allowing us to pay down $18.5 million on our revolving line of credit bringing our leverage ratio to 1.26x EBITDA.
- Year-to-date EPS of $1.79, a 23% year-over-year increase.
- Supported future Water Treatment growth by opening a new greenfield site in Delaware in October.
Executive Commentary – Patrick H. Hawkins, Chief Executive Officer and President:
“Our second-quarter results produced another quarter of records. We generated 32% sales growth, which is our fourth quarter in a row of more than 30% sales growth and brings Hawkins trailing twelve-month revenue to nearly $900 million. Our performance was spread across the majority of our end markets with food, pharmaceutical, and water treatment leading the way. Although our top line was strong, gross profits were again negatively impacted by continued rising material costs as we recorded a charge of $5.3 million for LIFO expense in the quarter, and a year-to-date LIFO charge of $9 million. Even with the incremental LIFO expense we still recorded record gross profit of $93 million for the first half of the year.”
Mr. Hawkins continued, “Hawkins has now experienced 18 consecutive quarters of year-over-year operating income growth. This is no small feat when considering all the challenges we have faced over that time. Our success is always attributed to the hard work by our employees, suppliers, and our customers – Thank You. Looking to the third quarter, one of our large suppliers recently had an unplanned shut down which has put additional cost pressures on us, as we secure product from other sources to allocate to our customers. In addition, we are starting to see softness in the Health and Nutrition segment, and we expect significant LIFO expenses to continue in the third quarter. These items will impact the third quarter negatively and we expect it to cause EPS to be relatively flat when compared to the prior year. We expect supply to return to normal by the fourth quarter. At Hawkins, we focus on the long-term and expect top-line growth to continue in all segments as we grow both organically and through acquisitions in future years.”
Second Quarter Financial Highlights:
NET INCOME
For the second quarter of fiscal 2023, the Company reported net income of $18.0 million, or $0.86 per diluted share, compared to net income for the second quarter of fiscal 2022 of $14.1 million, or $0.67 per diluted share.
REVENUE
Sales were $241.2 million for the second quarter of fiscal 2023, an increase of $57.9 million, or 32%, from sales of $183.3 million in the same period a year ago, driven primarily by price increases. Industrial segment sales increased $30.7 million, or 37%, to $113.9 million for the current quarter, from $83.2 million in the same period a year ago. The increase in Industrial segment sales was driven by increased selling prices on many of our products driven by higher costs on many of our raw materials as well as a product mix shift. Water Treatment segment sales increased $24.4 million, or 39%, to $86.5 million for the current quarter, from $62.1 million in the same period a year ago. Water Treatment sales increased as a result of increased selling prices on many of our products driven by higher costs on many of our raw materials, the added sales from acquisitions and increased demand for our products. Health and Nutrition segment sales increased $2.8 million, or 7%, to $40.8 million for the current quarter, from $38.0 million in the same period a year ago. Health and Nutrition segment sales increased due to increased sales of our manufactured products.
GROSS PROFIT
Gross profit increased $9.1 million, or 24%, to $46.4 million, or 19% of sales, for the current quarter, from $37.3 million, or 20% of sales, in the same period a year ago. During the current quarter, the LIFO reserve increased, and gross profit decreased, by $5.3 million due primarily to rising raw material prices. In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $3.0 million. Gross profit for the Industrial segment increased $5.1 million, or 40%, to $17.7 million, or 16% of sales, for the current quarter, from $12.6 million, or 15% of sales, in the same period a year ago. Industrial segment gross profit increased as a result of increased sales and a product mix shift, partially offset by the unfavorable year-over-year impact of the increased LIFO reserve. Gross profit for the Water Treatment segment increased $3.0 million, or 17%, to $20.5 million, or 24% of sales, for the current quarter, from $17.5 million, or 28% of sales, in the same period a year ago. Water Treatment segment gross profit increased as a result of increased sales, partially offset by the unfavorable year-over-year impact of the increased LIFO reserve. Gross profit for our Health and Nutrition segment increased $1.0 million, or 14%, to $8.2 million, or 20% of sales, for the current quarter, from $7.2 million, or 19% of sales, in the same period a year ago. Health and Nutrition segment gross profit increased as a result of increased sales as well as decreased inventory adjustments in the current quarter as compared to the same quarter a year ago.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $2.1 million to $19.8 million, or 8% of sales, for the current quarter, compared to $17.7 million, or 10% of sales, in the same period a year ago. Expenses increased due to the added costs from the the acquired businesses in our Water Treatment segment, as well as increased variable expenses.
ADJUSTED EBITDA
Adjusted earnings before interest, taxes, depreciation and amortization (“adjusted 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 adjusted EBITDA is presented below. Adjusted EBITDA for the three months ended October 2, 2022 was $34.0 million, an increase of $7.4 million, or 28%, from $26.6 million in the same period a year ago. The increase was primarily due to improved gross profit.
INCOME TAXES
Our effective income tax rate was 27% for the current quarter, compared to 27% in the same period a year ago. The effective tax rate is impacted by projected levels of annual taxable income, permanent items, and state taxes. Our effective tax rate for the full year is currently expected to be approximately 26-27%.
BALANCE SHEET
During the second quarter we had a modest reduction in our working capital. Working capital is still up from year end largely as a result of our usual build up of raw material inventory and raw material prices increases in the first half of fiscal 2023. Accounts receivable also came down slightly in the second quarter, but is up from year end due to our revenue growth in the first two quarters. During the second quarter we reduced our debt by $18.5M. We now have total debt of $141 million, which is 1.26x of our trailing twelve month adjusted EBITDA, consistent with the prior year-end.
About Hawkins, Inc.
Hawkins, Inc. was founded in 1938 and is a leading specialty chemical and ingredients company that formulates, distributes, blends, and manufactures products for its Industrial, Water Treatment, and Health & Nutrition customers. Headquartered in Roseville, Minnesota, the Company has 51 facilities in 25 states and creates value for its customers through superb customer service and support, quality products and personalized applications. Hawkins, Inc. generated $775 million of revenue in fiscal 2022 and has approximately 800 employees. For more information, including registering to receive email alerts, please visit www.hawkinsinc.com/investors.
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 and charges for the employee stock purchase plan and restricted stock grants; and non-recurring items of income or expense, if applicable.
| Adjusted EBITDA | Three Months Ended | Six months ended | |||||||||||||
| (In thousands) | October 2, 2022 | September 26, 2021 | October 2, 2022 | September 26, 2021 | |||||||||||
| Net Income (GAAP) | $ | 18,000 | $ | 14,133 | $ | 37,695 | $ | 30,761 | |||||||
| Interest expense, net | 1,383 | 329 | 2,312 | 678 | |||||||||||
| Income tax expense | 6,707 | 5,330 | 13,184 | 10,703 | |||||||||||
| Amortization of intangibles | 1,749 | 1,551 | 3,506 | 3,132 | |||||||||||
| Depreciation expense | 5,064 | 4,403 | 9,865 | 8,757 | |||||||||||
| Non-cash compensation expense | 1,085 | 862 | 1,680 | 1,661 | |||||||||||
| Non-recurring acquisition expenses | — | 9 | — | 11 | |||||||||||
| Adjusted EBITDA | $ | 33,988 | $ | 26,617 | $ | 68,242 | $ | 55,703 | |||||||
HAWKINS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share and per-share data)
| Three Months Ended | Six Months Ended | |||||||||||||||
| October 02, 2022 | September 26, 2021 | October 02, 2022 | September 26, 2021 | |||||||||||||
| Sales | $ | 241,192 | $ | 183,277 | $ | 487,735 | $ | 364,518 | ||||||||
| Cost of sales | (194,818 | ) | (145,990 | ) | (394,612 | ) | (288,257 | ) | ||||||||
| Gross profit | 46,374 | 37,287 | 93,123 | 76,261 | ||||||||||||
| Selling, general and administrative expenses | (19,838 | ) | (17,679 | ) | (38,723 | ) | (34,535 | ) | ||||||||
| Operating income | 26,536 | 19,608 | 54,400 | 41,726 | ||||||||||||
| Interest expense, net | (1,383 | ) | (329 | ) | (2,312 | ) | (678 | ) | ||||||||
| Other (expense) income | (446 | ) | 184 | (1,209 | ) | 416 | ||||||||||
| Income before income taxes | 24,707 | 19,463 | 50,879 | 41,464 | ||||||||||||
| Income tax expense | (6,707 | ) | (5,330 | ) | (13,184 | ) | (10,703 | ) | ||||||||
| Net income | $ | 18,000 | $ | 14,133 | $ | 37,695 | $ | 30,761 | ||||||||
| Weighted average number of shares outstanding – basic | 20,814,686 | 20,986,542 | 20,861,754 | 21,010,422 | ||||||||||||
| Weighted average number of shares outstanding – diluted | 20,956,897 | 21,140,087 | 21,004,454 | 21,168,809 | ||||||||||||
| Basic earnings per share | $ | 0.86 | $ | 0.67 | $ | 1.81 | $ | 1.46 | ||||||||
| Diluted earnings per share | $ | 0.86 | $ | 0.67 | $ | 1.79 | $ | 1.45 | ||||||||
| Cash dividends declared per common share | $ | 0.1400 | $ | 0.1300 | $ | 0.2800 | $ | 0.2525 | ||||||||
HAWKINS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share data)
|
October 2, 2022 |
April 3, 2022 |
|||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 3,924 | $ | 3,496 | ||||
| Trade accounts receivables, net | 131,392 | 122,826 | ||||||
| Inventories | 113,062 | 94,985 | ||||||
| Prepaid expenses and other current assets | 3,197 | 6,431 | ||||||
| Total current assets | 251,575 | 227,738 | ||||||
| PROPERTY, PLANT, AND EQUIPMENT: | 321,453 | 304,055 | ||||||
| Less accumulated depreciation | 150,442 | 142,209 | ||||||
| Net property, plant, and equipment | 171,011 | 161,846 | ||||||
| OTHER ASSETS: | ||||||||
| Right-of-use assets | 10,019 | 10,606 | ||||||
| Goodwill | 77,401 | 77,401 | ||||||
| Intangible assets, net of accumulated amortization | 76,687 | 80,193 | ||||||
| Deferred compensation plan asset | 6,752 | 6,783 | ||||||
| Other | 5,838 | 2,761 | ||||||
| Total other assets | 176,697 | 177,744 | ||||||
| Total assets | $ | 599,283 | $ | 567,328 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable — trade | $ | 60,887 | $ | 66,693 | ||||
| Accrued payroll and employee benefits | 12,059 | 19,034 | ||||||
| Income tax payable | 2,069 | 39 | ||||||
| Current portion of long-term debt | 9,913 | 9,913 | ||||||
| Short-term lease liability | 1,433 | 1,657 | ||||||
| Other current liabilities | 4,490 | 4,130 | ||||||
| Total current liabilities | 90,851 | 101,466 | ||||||
| LONG-TERM DEBT, LESS CURRENT PORTION | 130,688 | 115,644 | ||||||
| LONG-TERM LEASE LIABILITY | 8,758 | 9,143 | ||||||
| PENSION WITHDRAWAL LIABILITY | 4,095 | 4,276 | ||||||
| DEFERRED INCOME TAXES | 24,325 | 23,422 | ||||||
| DEFERRED COMPENSATION LIABILITY | 7,899 | 8,402 | ||||||
| OTHER LONG-TERM LIABILITIES | 1,253 | 2,374 | ||||||
| Total liabilities | 267,869 | 264,727 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||
| Common stock; authorized: 60,000,000 shares of $0.01 par value; 20,817,625 and 20,889,777 shares issued and outstanding as of October 2, 2022 and April 3, 2022, respectively | 208 | 209 | ||||||
| Additional paid-in capital | 41,294 | 46,717 | ||||||
| Retained earnings | 286,179 | 254,384 | ||||||
| Accumulated other comprehensive income | 3,733 | 1,291 | ||||||
| Total shareholders’ equity | 331,414 | 302,601 | ||||||
| Total liabilities and shareholders’ equity | $ | 599,283 | $ | 567,328 | ||||
HAWKINS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
| Six Months Ended | ||||||||
|
October 2, 2022 |
September 26, 2021 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | 37,695 | $ | 30,761 | ||||
| Reconciliation to cash flows: | ||||||||
| Depreciation and amortization | 13,371 | 11,889 | ||||||
| Operating leases | 945 | 948 | ||||||
| Loss (Gain) on deferred compensation assets | 1,208 | (416 | ) | |||||
| Stock compensation expense | 1,680 | 1,661 | ||||||
| Other | 187 | 54 | ||||||
| Changes in operating accounts providing (using) cash: | ||||||||
| Trade receivables | (8,481 | ) | 596 | |||||
| Inventories | (18,077 | ) | (6,458 | ) | ||||
| Accounts payable | (4,609 | ) | 5,116 | |||||
| Accrued liabilities | (8,600 | ) | (5,392 | ) | ||||
| Lease liabilities | (972 | ) | (991 | ) | ||||
| Income taxes | 2,031 | 1,053 | ||||||
| Other | 2,425 | 1,261 | ||||||
| Net cash provided by operating activities | 18,803 | 40,082 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property, plant, and equipment | (20,668 | ) | (6,904 | ) | ||||
| Acquisitions | — | (1,200 | ) | |||||
| Other | 296 | 181 | ||||||
| Net cash used in investing activities | (20,372 | ) | (7,923 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Cash dividends declared and paid | (5,900 | ) | (5,356 | ) | ||||
| New shares issued | 1,004 | 889 | ||||||
| Payroll taxes paid in exchange for shares withheld | (1,550 | ) | (1,467 | ) | ||||
| Shares repurchased | (6,557 | ) | (7,421 | ) | ||||
| Payments on revolving loan | (30,000 | ) | (15,000 | ) | ||||
| Proceeds from revolving loan borrowings | 45,000 | — | ||||||
| Net cash provided by (used in) financing activities | 1,997 | (28,355 | ) | |||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 428 | 3,804 | ||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 3,496 | 2,998 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 3,924 | $ | 6,802 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid for income taxes | $ | 11,148 | $ | 9,650 | ||||
| Cash paid for interest | $ | 1,879 | $ | 563 | ||||
| Noncash investing activities – capital expenditures in accounts payable | $ | 2,535 | $ | 1,076 | ||||
HAWKINS, INC.
REPORTABLE SEGMENTS (UNAUDITED)
(In thousands)
| Industrial |
Water Treatment |
Health and Nutrition |
Total | |||||||||
| Three months ended October 2, 2022: | ||||||||||||
| Sales | $ | 113,939 | $ | 86,488 | $ | 40,765 | $ | 241,192 | ||||
| Gross profit | 17,713 | 20,504 | 8,157 | 46,374 | ||||||||
| Selling, general, and administrative expenses | 6,891 | 9,082 | 3,865 | 19,838 | ||||||||
| Operating income | 10,822 | 11,422 | 4,292 | 26,536 | ||||||||
| Three months ended September 26, 2021: | ||||||||||||
| Sales | $ | 83,168 | $ | 62,111 | $ | 37,998 | $ | 183,277 | ||||
| Gross profit | 12,564 | 17,518 | 7,205 | 37,287 | ||||||||
| Selling, general, and administrative expenses | 6,456 | 7,405 | 3,818 | 17,679 | ||||||||
| Operating income | 6,108 | 10,113 | 3,387 | 19,608 | ||||||||
| Six months ended October 2, 2022: | ||||||||||||
| Sales | $ | 238,649 | $ | 164,978 | $ | 84,108 | $ | 487,735 | ||||
| Gross profit | 37,722 | 39,457 | 15,944 | 93,123 | ||||||||
| Selling, general and administrative expenses | 13,276 | 17,783 | 7,664 | 38,723 | ||||||||
| Operating income | 24,446 | 21,674 | 8,280 | 54,400 | ||||||||
| Six months ended September 26, 2021: | ||||||||||||
| Sales | $ | 169,018 | $ | 118,349 | $ | 77,151 | $ | 364,518 | ||||
| Gross profit | 26,818 | 33,752 | 15,691 | 76,261 | ||||||||
| Selling, general and administrative expenses | 12,697 | 14,467 | 7,371 | 34,535 | ||||||||
| Operating income | 14,121 | 19,285 | 8,320 | 41,726 | ||||||||
Forward-Looking Statements. Various remarks in this press release constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include those relating to consumer demand for products containing our ingredients and the impacts of those demands, expectations for results in our business segments and the timing of our filings with the Securities and Exchange Commission. These statements are not historical facts, but rather are based on our current expectations, estimates and projections, and our beliefs and assumptions. Forward-looking statements may be identified by terms, including “anticipate,” “believe,” “can,” “could,” “expect,” “intend,” “may,” “predict,” “should,” or “will” or the negative of these terms or other comparable terms. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and are difficult to predict. Actual results may vary materially from those contained in forward looking statements based on a number of factors, including, but not limited to, changes in regulations, availability of technological improvements, the impact and severity of the COVID-19 outbreak, changes in the labor markets, our available cash for investments, changes in competition and price pressures, changes in demand and customer requirements or processes for our products, availability of product and disruptions to supplies, interruptions in production resulting from hazards, transportation limitations or other extraordinary events outside our control that may negatively impact our business or the supply chains in which we participate, changes in imported products and tariff levels, the availability of products and the prices at which they are available, the acceptance of new products by our customers and the timing of any such acceptance, and changes in product supplies. Additional information concerning potential factors that could affect future financial results is included in our Annual Report on Form 10-K for the fiscal year ended April 3, 2022, as updated from time to time in amendments and subsequent reports filed with the SEC. Investors should take such risks into account when making investment decisions. Shareholders and other readers are cautioned not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date hereof. We do not undertake any obligation to update any forward-looking statements.
Contacts:
Jeffrey P. Oldenkamp
Executive Vice President and Chief Financial Officer
612/331-6910
[email protected]
