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Hawkins, Inc. Reports Second Quarter Fiscal 2022 Results

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MINNEAPOLIS, Oct. 27, 2021 (GLOBE NEWSWIRE) -- Hawkins, Inc. (Nasdaq: HWKN) today announced results for the three and six months ended September 26, 2021, its second quarter of fiscal 2022. Highlights include:

  • Record quarterly sales of $183.3 million, a 24% year-over-year increase, with increases in all three segments.

  • Record second quarter gross profit of $37.3 million, a 14% increase over the prior year, contributing to record second quarter operating income of $19.6 million, a 18% year-over-year increase.

  • Record second quarter diluted earnings per share (EPS) of $0.67, which was $0.10, or 18%, higher than the same period last year.

  • Record quarterly operating cash flow of $25.3 million, compared to $18.6 million a year ago, allowing continued repayment of debt, with its leverage ratio under 1.0x at quarter end.

  • Record second quarter earnings before interest, taxes, depreciation and amortization (EBITDA), a non-GAAP measure, of $26.6 million, a 14% increase over the prior year.

  • Completed the acquisition of Southeast Water Systems in Alabama in September, as previously announced.

  • Year-to-date operating income, net income and diluted EPS each increased 28% over the prior year.

Executive Commentary – Patrick H. Hawkins, Chief Executive Officer and President:

"We are pleased with our continued strong operating results in fiscal 2022, with record quarterly sales of $183 million contributing to an 18% increase in operating income over the prior year. Significant revenue growth in both our Industrial and Water Treatment segments was driven by increased sales volumes of many of our products and increased selling prices due to rising raw material costs. As a result of rising raw material costs, in the quarter we recorded a LIFO charge of $3 million, and nearly $5 million in the first six months of fiscal 2022, negatively impacting our gross profit. Even with this significant negative impact of LIFO, we were still able to grow our gross profit by 20% in both our Water Treatment and Industrial segments."

Mr. Hawkins continued, "Demand for products in our Health and Nutrition group remained steady in the second quarter, due to continued consumer focus on health and immunity products. In addition, like many industries, we have experienced supply chain challenges in each of our business segments and expect those supply chain challenges to continue. However, thanks to the efforts of our outstanding employees, the relationships we have with our vendors and the investments we have made in storage and infrastructure, we have been able to overcome these challenges and continue to serve our customers."

Second Quarter Financial Highlights:

Sales were $183.3 million for the second quarter of fiscal 2022, an increase of 24%, from sales of $147.8 million for the same period a year ago. Industrial segment sales increased $22.0 million, or 36%, to $83.2 million for the current quarter, from $61.2 million for the same period a year ago. The increase in Industrial sales was driven by increased sales of both our bulk products as well as our manufactured, blended and repackaged products, in particular certain of our agricultural and food ingredient products. Water Treatment segment sales increased $12.6 million, or 25%, to $62.1 million for the current quarter, from $49.5 million for the same period a year ago. Water Treatment sales increased as a result of increased demand for many of our products, as well as $4.9 million in added sales from the acquisitions of ADC and C&L Aqua in fiscal 2021. Sales for our Health and Nutrition segment increased $0.9 million, or 2%, to $38.0 million for the current quarter, from $37.1 million for the same period a year ago. The increase in Health and Nutrition sales was driven by increased sales of our specialty distributed products largely as a result of continued increased demand for ingredients used in health and immunity products.

Gross profit increased $4.5 million, or 14%, to $37.3 million, or 20% of sales, for the current quarter, from $32.8 million, or 22% of sales, for the same period a year ago. During the current quarter, the LIFO reserve increased, and gross profit decreased, by $3.0 million, primarily due to rising raw material prices. In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $0.2 million. Gross profit for the Industrial segment increased $2.2 million, or 20%, to $12.6 million, or 15% of sales, for the current quarter, from $10.4 million, or 17% of sales, for the same period a year ago. Total Industrial segment gross profit increased as a result of the increase in sales, partially offset by the negative $2.5 million year-over-year impact of the increase in the LIFO reserve. Gross profit for the Water Treatment segment increased $3.0 million or 21% to $17.5 million, or 28% of sales, for the current quarter, from $14.5 million, or 29% of sales, for the same period a year ago. Gross profit in our Water Treatment segment increased as a result of increased sales, including the added sales in the acquired businesses of ADC and C&L Aqua. Gross profit for our Health and Nutrition segment decreased $0.6 million, or 8%, to $7.2 million, or 19% of sales, for the current quarter, from $7.8 million, or 21% of sales, for the same period a year ago. The gross profit decline in our Health and Nutrition segment was a result of product mix changes as well as inventory adjustments of $1.0 million due to increased reserves for excess product on hand, in accordance with our reserve policies.

Company-wide selling, general and administrative expenses increased $1.5 million to $17.7 million, or 10% of sales, for the current quarter, compared to $16.2 million, or 11% of sales, for the same period a year ago. Expenses increased in part due to the added costs from the acquired businesses of ADC and C&L Aqua, including $0.3 million of expense for amortization of intangibles, as well as increased variable pay expense.

Our effective income tax rate was 27% for the current quarter, compared to 26% 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%.

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 three months ended September 26, 2021 was $26.6 million, an increase of $3.2 million, or 14%, from EBITDA of $23.4 million for the same period a year ago. The increase was primarily due to improved gross profit.

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, and with 45 facilities in 23 states, the Company creates value for its customers through superb customer service and support, quality products and personalized applications. Hawkins, Inc. generated $597 million of revenue in fiscal 2021 and has approximately 750 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)

September 26, 2021

September 27, 2020

September 26, 2021

September 27, 2020

Net Income (GAAP)

$

14,133

$

12,190

$

30,761

$

23,978

Interest expense, net

329

339

678

719

Income tax expense

5,330

4,374

10,703

8,621

Amortization of intangibles

1,551

1,447

3,132

2,715

Depreciation expense

4,403

4,134

8,757

8,350

Non-cash compensation expense

862

686

1,661

1,386

Non-recurring acquisition expenses

9

265

11

265

Adjusted EBITDA

$

26,617

$

23,435

$

55,703

$

46,034

HAWKINS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share and per-share data)

Three Months Ended

Six Months Ended

September 26, 2021

September 27, 2020

September 26, 2021

September 27, 2020

Sales

$

183,277

$

147,801

$

364,518

$

290,973

Cost of sales

(145,990

)

(115,004

)

(288,257

)

(227,200

)

Gross profit

37,287

32,797

76,261

63,773

Selling, general and administrative expenses

(17,679

)

(16,221

)

(34,535

)

(31,259

)

Operating income

19,608

16,576

41,726

32,514

Interest expense, net

(329

)

(339

)

(678

)

(719

)

Other income

184

327

416

804

Income before income taxes

19,463

16,564

41,464

32,599

Income tax expense

(5,330

)

(4,374

)

(10,703

)

(8,621

)

Net income

$

14,133

$

12,190

$

30,761

$

23,978

Weighted average number of shares outstanding - basic

20,986,542

21,055,782

21,010,422

21,053,022

Weighted average number of shares outstanding - diluted

21,140,087

21,245,762

21,168,809

21,268,562

Basic earnings per share

$

0.67

$

0.58

$

1.46

$

1.14

Diluted earnings per share

$

0.67

$

0.57

$

1.45

$

1.13

Cash dividends declared per common share

$

0.13000

$

0.11625

$

0.25250

$

0.23250

HAWKINS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share data)

September 26,
2021

March 28,
2021

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

6,802

$

2,998

Trade accounts receivables, net

90,057

90,603

Inventories

70,338

63,864

Income taxes receivable

175

Prepaid expenses and other current assets

2,478

5,367

Total current assets

169,675

163,007

PROPERTY, PLANT, AND EQUIPMENT:

307,021

300,404

Less accumulated depreciation

163,910

155,792

Net property, plant, and equipment

143,111

144,612

OTHER ASSETS:

Right-of-use assets

11,045

11,630

Goodwill

72,417

70,720

Intangible assets, net of accumulated amortization

73,666

76,368

Other

7,890

6,213

Total other assets

165,018

164,931

Total assets

$

477,804

$

472,550

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable — trade

$

43,004

$

37,313

Accrued payroll and employee benefits

12,417

18,048

Income tax payable

877

Current portion of long-term debt

9,907

9,907

Short-term lease liability

1,625

1,587

Container deposits

1,528

1,452

Other current liabilities

2,191

2,155

Total current liabilities

71,549

70,462

LONG-TERM DEBT, LESS CURRENT PORTION

73,891

88,845

LONG-TERM LEASE LIABILITY

9,553

10,231

PENSION WITHDRAWAL LIABILITY

4,455

4,631

DEFERRED INCOME TAXES

24,445

24,445

DEFERRED COMPENSATION LIABILITY

8,289

7,322

OTHER LONG-TERM LIABILITIES

1,309

1,368

Total liabilities

193,491

207,304

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS’ EQUITY:

Common stock; authorized: 60,000,000 shares of $0.01 par value; 20,888,923 and 20,969,746 shares issued and outstanding as of September 26, 2021 and March 28, 2021, respectively

209

210

Additional paid-in capital

44,801

51,138

Retained earnings

239,303

213,898

Total shareholders’ equity

284,313

265,246

Total liabilities and shareholders’ equity

$

477,804

$

472,550

HAWKINS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)

Six Months Ended

September 26,
2021

September 27,
2020

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

30,761

$

23,978

Reconciliation to cash flows:

Depreciation and amortization

11,889

11,065

Operating leases

948

963

Gain on deferred compensation assets

(416

)

(804

)

Stock compensation expense

1,661

1,386

Other

54

135

Changes in operating accounts providing (using) cash:

Trade receivables

596

(5,811

)

Inventories

(6,458

)

(8,004

)

Accounts payable

5,116

(1,421

)

Accrued liabilities

(5,392

)

(2,320

)

Lease liabilities

(991

)

(963

)

Income taxes

1,053

792

Other

1,261

1,142

Net cash provided by operating activities

40,082

20,138

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property, plant, and equipment

(6,904

)

(8,120

)

Acquisitions

(1,200

)

(25,000

)

Other

181

105

Net cash used in investing activities

(7,923

)

(33,015

)

CASH FLOWS FROM FINANCING ACTIVITIES:

Cash dividends declared and paid

(5,356

)

(4,959

)

New shares issued

889

773

Shares surrendered for payroll taxes

(1,467

)

(54

)

Shares repurchased

(7,421

)

Net (payments on) proceeds from revolving loan

(15,000

)

16,000

Net cash (used in) provided by financing activities

(28,355

)

11,760

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

3,804

(1,117

)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

2,998

4,277

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

6,802

$

3,160

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid for income taxes

$

9,650

$

7,845

Cash paid for interest

$

563

$

610

Noncash investing activities - capital expenditures in accounts payable

$

1,076

$

191

HAWKINS, INC.
REPORTABLE SEGMENTS (UNAUDITED)
(In thousands)

Industrial

Water
Treatment

Health and Nutrition

Total

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

Three months ended September 27, 2020:

Sales

$

61,171

$

49,540

$

37,090

$

147,801

Gross profit

10,436

14,522

7,839

32,797

Selling, general, and administrative expenses

6,429

5,573

4,219

16,221

Operating income

4,007

8,949

3,620

16,576

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

Six months ended September 27, 2020:

Sales

$

132,673

$

89,254

$

69,046

$

290,973

Gross profit

22,893

25,861

15,019

63,773

Selling, general and administrative expenses

12,496

10,866

7,897

31,259

Operating income

10,397

14,995

7,122

32,514

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, the impact and severity of the COVID-19 outbreak, changes in the labor markets, our available cash for investments, our business capital needs, changes in competition and price pressure, changes in demand and customer requirements or processes for our products, 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, our ability to locate suitable real estate for new branch additions, 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 March 28, 2021, 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
ir@HawkinsInc.com


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