NINE MONTH SALES – $232.3 MILLION
THIRD QUARTER SALES – $72.4 MILLION
NINE MONTH NET INCOME – $8.6 MILLION
THIRD QUARTER NET INCOME – $1.6 MILLION
BOCA RATON, Fla., Dec. 17, 2013 (GLOBE NEWSWIRE) -- Q.E.P. CO., INC. (OTC:QEPC) (the "Company") today reported its consolidated results of operations for the first nine months and third quarter of its fiscal year ending February 28, 2014.
The Company reported record net sales of $232.3 million for the nine months ended November 30, 2013, an increase of $18.3 million or 8.5%, from the $214.0 million reported for the same period of fiscal 2013. As a percentage of net sales, gross profit was 28.6% in the first nine months of fiscal 2014 compared to 29.0% in the first nine months of fiscal 2013.
Net sales for the third quarter of fiscal 2014 totaled $72.4 million, down marginally from the $73.1 million reported for the third quarter of fiscal 2013. Gross profit as a percent of net sales in the third quarter of fiscal 2014 was 29.0%, compared to 29.2% for the third quarter of fiscal 2013.
Lewis Gould, the Company's chairman, commented: "Although our sales continue to reflect solid increases and a trend towards a record year, our transition continues as we invest heavily in M&A and marketing activities to expand our markets." Mr. Gould continued, "The time and effort associated with these activities is lengthy and expensive but something we consider an investment in our future growth. In the meantime, our balance sheet remains strong, book value never looked better and our assets are at an all time high. Although there are no guarantees that we will be ultimately successful, we have a clear path to growth as we seek out opportunities and continue the process of integrating our new companies."
The increase in net sales for the nine months ended November 30, 2013 reflects the impact of including the full nine month sales from the fiscal 2013 US acquisitions of Nupla Corporation, Imperial Industries, Inc. and our US injection molding operations, as well as the fiscal 2014 acquisitions of the Homelux and Plasplugs businesses in Europe. These increases were partially offset by the impact of a significant North American customer's discontinued purchases of certain products during the second quarter of fiscal 2014 and of pricing concessions granted to that customer in late fiscal 2013.
Net sales for the third quarter of fiscal 2014 declined versus the same period in fiscal 2013 as the benefits of incremental sales from acquisitions were offset by the decline in North America and, to a lesser degree, from the disruption caused by the previously announced fire at our main Australian facility.
The Company's gross profit for the nine months ended November 30, 2013 and the third quarter of fiscal 2014 was $66.4 million and $21.0 million, respectively, or 28.6% and 29.0%, respectively, as a percentage of net sales, as compared to gross profit of $62.0 million or 29.0% and $21.4 million or 29.2%, respectively, during the comparable fiscal 2013 periods. The change in gross profit reflects both the incremental contribution and more favorable product mix of acquisitions, offset by discontinued purchases of certain products and price concessions with a significant customer, cost increases on certain raw materials and overall changes in currency exchange rates. In addition, during the third quarter of fiscal 2014, certain allowances granted to a significant customer were reduced as a result of discontinued product sales; the year-to-date benefit of the amended agreement was recorded during the current fiscal year's third quarter.
Operating expenses before restructuring charges for the first nine months and third quarter of fiscal 2014 were $57.4 million and $18.3 million, respectively, or 24.7% and 25.2% of net sales in those periods. By comparison, operating expenses for the first nine months and third quarter of fiscal 2013 were $51.7 million and $18.2 million, respectively, or 24.2% and 24.8% of net sales. Shipping costs as a percent of net sales decreased year over year for the nine months and three months of fiscal 2014 compared to 2013 as a result of the impact of acquisitions. Increases in general and administrative expenses and in selling and marketing expenses during fiscal 2014 as compared to the prior fiscal year principally are attributable to acquisitions as well as a fiscal 2014 investment in direct marketing programs. Restructuring charges included in operating expenses for fiscal year 2014 relate to costs associated with consolidating the Company's UK administrative operations.
The increase in other income during the first nine months of fiscal 2014 compared to the first nine months of fiscal 2013 primarily is due to fluctuations in royalty earnings.
Non-operating income for the nine months ended November 30, 2013 includes the net gain realized on the sale and leaseback of a facility in Canada partially offset by modest expenses related to the fire in Australia. The non-operating income in fiscal 2013 represents the estimated excess of the fair value of assets acquired over the purchase price associated with an acquisition.
The Company's effective tax rate for the first nine months and third quarter of fiscal 2014 was 26.0% and 31.0%, respectively, as compared to 34.2% and 29.3% for the same periods in the prior year. The fluctuation in the Company's effective tax rate reflects changes in the proportion of the Company's earnings sourced in jurisdictions with different statutory tax rates. In addition, the effective rate in fiscal 2014 reflects the favorable rate impact of the sale of our Canadian facility during the first quarter of the current fiscal year while the effective rate in fiscal 2013 results from non-operating income that is not included in taxable income.
Net income for the first nine months and third quarter of fiscal 2014 was $8.6 million and $1.6 million, respectively, or $2.59 and $0.50, respectively, per diluted share. For the comparable periods of fiscal 2013, net income was $6.9 million and $2.7 million, respectively, or $2.07 and $0.80 per diluted share.
The Company is pleased to report that the operations conducted out of its Melbourne, Australia, based administrative and warehousing facilities that were destroyed by fire in September 2013 have been substantially restored in a new facility. The impact of the fire going forward is expected to be modest and the net loss associated with the fire has been negligible.
Earnings before interest, taxes, depreciation, amortization, non-operating income and restructuring charges (EBITDAR) for the first nine months and third quarter of fiscal 2014 was $12.2 million and $3.8 million, respectively, as compared to $12.4 million and $4.0 million, respectively, for the comparable periods of fiscal 2013.
| For the Three Months | For the Nine Months | |||
| Ended November 30, | Ended November 30, | |||
| 2013 | 2012 | 2013 | 2012 | |
| Net income | $ 1,648 | $ 2,678 | $ 8,555 | $ 6,925 |
| Restructuring charges | 60 | -- | 60 | -- |
| Non-operating income | 19 | (786) | (3,360) | (786) |
| Interest expense, net | 234 | 188 | 722 | 546 |
| Provision for income taxes | 740 | 1,112 | 3,000 | 3,605 |
| Depreciation and amortization | 1,070 | 798 | 3,189 | 2,125 |
| EBITDAR | $ 3,771 | $ 3,990 | $ 12,166 | $ 12,415 |
Cash provided by operations during the first nine months of 2014 was $3.7 million compared to $6.2 million for the same period in the prior year principally reflecting additional investments in working capital. During fiscal 2014, investments in acquisitions totaling $23.8 million combined with capital expenditures and the Company's continuing treasury stock program were funded through a combination of borrowings, proceeds from the sale of the Canadian property and cash from operations. During fiscal 2013, Company investments in acquisitions of $8.9 million, capital expenditures and treasury stock purchases were funded by cash flow from operations and borrowings.
Working capital at the end of the Company's fiscal 2014 third quarter was $27.5 million compared to $38.0 million at the end of the 2013 fiscal year. Aggregate debt at November 30, 2013 was $33.7 million or 56.6% of equity compared to $15.3 million or 29.6% of equity at the end of the 2013 fiscal year.
The Company will be hosting a conference call to discuss these results and to answer your questions at 10:00 a.m. Eastern Time on Wednesday, December 18, 2013. If you would like to join the conference call, dial 1-877-941-2068 toll free from the US or 1-480-629-9712 internationally approximately 10 minutes prior to the start time and ask for the Q.E.P. Co., Inc. Third Quarter Conference Call / Conference ID 4656447. A replay of the conference call will be available until midnight December 25, 2013 by calling 1-877-870-5176 toll free from the US and entering pin number 4656447; internationally, please call 1-858-384-5517 using the same pin number.
Q.E.P. Co., Inc., founded in 1979, is a world class, worldwide provider of innovative, quality and value-driven flooring and industrial solutions. As a leading worldwide manufacturer, marketer and distributor, QEP delivers a comprehensive line of hardwood flooring, flooring installation tools, adhesives and flooring related products targeted for the professional installer as well as the do-it-yourselfer. In addition the Company provides industrial tools with cutting edge technology to all of the industrial trades. Under brand names including QEP®, ROBERTS®, Capitol®, Harris Wood®, Vitrex®, Homelux®, PRCI®, Nupla®, HISCO®, Plasplugs®, Ludell™, Porta-Nails® and Elastiment®, the Company markets over 5,000 products. The Company sells its products to home improvement retail centers, specialty distribution outlets, municipalities and industrial solution providers in 50 states and throughout the world.
This press release contains forward-looking statements, including statements regarding sales and sales growth, pricing pressures, future market position and profitability, potential acquisition opportunities and benefits, integration of acquisitions, cost and product mix changes, success of marketing endeavors, capital availability, currency fluctuations and the impacts of an Australian fire. These statements are not guarantees of future performance and actual results could differ materially from our current expectations.
-Financial Information Follows-
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||||
| CONSOLIDATED STATEMENTS OF EARNINGS | ||||
| (In thousands except per share data) | ||||
| (Unaudited) | ||||
| For the Three Months | For the Nine Months | |||
| Ended November 30, | Ended November 30, | |||
| 2013 | 2012 | 2013 | 2012 | |
| Net sales | $ 72,449 | $ 73,097 | $ 232,266 | $ 213,974 |
| Cost of goods sold | 51,468 | 51,741 | 165,888 | 152,001 |
| Gross profit | 20,981 | 21,356 | 66,378 | 61,973 |
| Operating expenses: | ||||
| Shipping | 6,727 | 7,525 | 21,691 | 21,609 |
| General and administrative | 6,179 | 6,029 | 19,111 | 16,577 |
| Selling and marketing | 5,530 | 4,700 | 17,074 | 13,751 |
| Other income, net | (96) | (90) | (415) | (254) |
| Total operating expenses | 18,340 | 18,164 | 57,461 | 51,683 |
| Operating income | 2,641 | 3,192 | 8,917 | 10,290 |
| Non-operating income (expense), net | (19) | 786 | 3,360 | 786 |
| Interest expense, net | (234) | (188) | (722) | (546) |
| Income before provision for income taxes | 2,388 | 3,790 | 11,555 | 10,530 |
| Provision for income taxes | 740 | 1,112 | 3,000 | 3,605 |
| Net income | $ 1,648 | $ 2,678 | $ 8,555 | $ 6,925 |
| Net income per share: | ||||
| Basic | $ 0.50 | $ 0.81 | $ 2.61 | $ 2.09 |
| Diluted | $ 0.50 | $ 0.80 | $ 2.59 | $ 2.07 |
| Weighted average number of common shares outstanding: | ||||
| Basic | 3,274 | 3,309 | 3,274 | 3,316 |
| Diluted | 3,294 | 3,337 | 3,298 | 3,347 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||
| (In thousands) | ||||
| (Unaudited) | ||||
| For the Three Months | For the Nine Months | |||
| Ended November 30, | Ended November 30, | |||
| 2013 | 2012 | 2013 | 2012 | |
| Net income | $ 1,648 | $ 2,678 | $ 8,555 | $ 6,925 |
| Unrealized currency translation adjustments, net of tax | 286 | 137 | (489) | (167) |
| Comprehensive income | $ 1,934 | $ 2,815 | $ 8,066 | $ 6,758 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||
| CONSOLIDATED BALANCE SHEETS | ||
| (In thousands except per share values) | ||
| November 30, 2013 | February 28, 2013 | |
| (Unaudited) | ||
| ASSETS | ||
| Cash | $ 1,911 | $ 737 |
| Accounts receivable, less allowance for doubtful accounts of $410 and $298 as of November 30, 2013 and February 28, 2013, respectively | 45,411 | 39,581 |
| Inventories | 39,760 | 37,299 |
| Prepaid expenses and other current assets | 3,782 | 2,586 |
| Deferred income taxes | 1,238 | 1,238 |
| Current assets | 92,102 | 81,441 |
| Property and equipment, net | 13,317 | 14,018 |
| Deferred income taxes, net | 1,098 | 1,152 |
| Intangibles, net | 21,803 | 4,119 |
| Other assets | 370 | 386 |
| Total Assets | $ 128,690 | $ 101,116 |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||
| Trade accounts payable | $ 18,740 | $ 19,650 |
| Accrued liabilities | 15,713 | 13,641 |
| Lines of credit | 29,154 | 8,872 |
| Current maturities of notes payable | 1,008 | 1,246 |
| Current liabilities | 64,615 | 43,409 |
| Notes payable | 3,530 | 5,222 |
| Other long term liabilities | 1,035 | 647 |
| Total Liabilities | 69,180 | 49,278 |
| Preferred stock, 2,500 shares authorized, $1.00 par value; 337 shares issued and outstanding at November 30, 2013 and February 28, 2013 | 337 | 337 |
| Common stock, 20,000 shares authorized, $.001 par value; 3,801 and 3,799 shares issued; 3,264 and 3,282 shares outstanding at November 30, and February 28, 2013, respectively | 4 | 4 |
| Additional paid-in capital | 10,608 | 10,639 |
| Retained earnings | 54,597 | 46,049 |
| Treasury stock, 537 and 517 shares held at cost at November 30, 2013 and February 28, 2013, respectively | (5,661) | (5,305) |
| Accumulated other comprehensive income | (375) | 114 |
| Shareholders' Equity | 59,510 | 51,838 |
| Total Liabilities and Shareholders' Equity | $ 128,690 | $ 101,116 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (In thousands) | ||
| (Unaudited) | ||
| For the Nine Months Ended | ||
| November 30, | ||
| 2013 | 2012 | |
| Operating activities: | ||
| Net income | $ 8,555 | $ 6,925 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||
| Depreciation and amortization | 3,189 | 2,125 |
| Gain on sale of property | (3,379) | -- |
| Bargain purchase of acquisition | -- | (786) |
| Other non-cash adjustments | 301 | 85 |
| Changes in assets and liabilities, net of acquisition: | ||
| Accounts receivable | (2,968) | (3,950) |
| Inventories | (870) | (2,128) |
| Prepaid expenses and other assets | (1,214) | 260 |
| Trade accounts payable and accrued liabilities | 76 | 3,651 |
| Net cash provided by operating activities | 3,690 | 6,182 |
| Investing activities: | ||
| Acquisitions | (23,814) | (8,935) |
| Proceeds from sale of property | 4,630 | -- |
| Capital expenditures | (782) | (739) |
| Net cash used in investing activities | (19,966) | (9,674) |
| Financing activities: | ||
| Net borrowings under lines of credit | 19,728 | 4,884 |
| Repayments of notes payable | (1,921) | (726) |
| Purchase of treasury stock | (315) | (641) |
| Stock options repurchased net of options exercised | (31) | (15) |
| Dividends | (7) | (7) |
| Net cash provided by financing activities | 17,454 | 3,495 |
| Effect of exchange rate changes on cash | (4) | (19) |
| Net increase (decrease) in cash | 1,174 | (16) |
| Cash at beginning of period | 737 | 976 |
| Cash at end of period | $ 1,911 | $ 960 |
Q.E.P. Co., Inc. Richard A. Brooke Senior Vice President and Chief Financial Officer 561-405-4600
