Quarterly Sales – $79.7 Million
Quarterly Net Income – $1.1 Million
BOCA RATON, Fla., June 24, 2014 (GLOBE NEWSWIRE) -- Q.E.P. CO., INC. (OTC:QEPC.PK) (the "Company") today reported its consolidated results of operations for the first quarter of its fiscal year ending February 28, 2015.
The Company reported net sales of $79.7 million for the three months ended May 31, 2014, a decrease of $3.7 million from the $83.4 million reported in the same period of fiscal 2014. As a percentage of net sales, gross profit was 27.7% in the first three months of fiscal 2015 compared to 28.4% in the first three months of fiscal 2014.
Lewis Gould, Chairman of the Company's Board of Directors, commented: "We believe that while we transition through some significant changes in our businesses, the Company is making substantial progress toward its strategic objectives. The Company completed the purchase of Faus and is in the process of integrating its operations with the Company's pre-existing U.S. operations, a consolidation that is continuing and painful. We are also modernizing our manufacturing plant in Clinton, Massachusetts, for increased efficiency while we are continually adding new products. We have expanded our credit facilities, which is reflected on our balance sheet. All of this is occurring while we develop new initiatives for the coming year." Mr. Gould concluded, "I am confident that the results of our sales and consolidation activities will result in better shareholder value over the coming year while we continue this transition."
The change in net sales for the current fiscal quarter as compared to the first quarter of fiscal year 2014 principally reflects the beneficial impact of the fiscal 2014 acquisitions of Faus and Plasplugs and growth in our European operations offset by a decline from a significant North American customer's discontinued purchases of certain products during the second quarter of fiscal 2014 and, to a lesser degree, the planned exit from certain low profit products and the net negative translation impact from changes in currency exchange rates.
The Company's gross margin was 27.7% for the first quarter of fiscal 2015 as compared to 28.4% for the first quarter of the prior fiscal year. The change in gross margin reflects both the incremental contribution and generally more favorable product mix of acquisitions and the increased purchasing power from overall changes in currency exchange rates offset by discontinued purchases of certain products by a significant customer and an increase in the costs of certain raw materials.
Operating expenses for the first three months of fiscal 2015 were $20.1 million, compared to $20.2 million for the same period in fiscal 2014, or 25.3% and 24.3% of net sales, respectively. Operating expenses declined modestly within North America and were positively affected internationally by overall movements in currency exchange rates offset by increases in certain European operating expenses principally associated with the integration of acquisitions.
Non-operating income for the first three months of fiscal 2014 represents the gain related to the sale and leaseback of a Company facility in Canada, net of selling costs and the present value of future lease payments.
The provision for income taxes as a percentage of income before taxes for the first three months of fiscal 2015 and 2014 was 33.7% and 22.2%, respectively. The effective tax rate in fiscal 2014 reflected the impact of the sale of our Canadian property.
Net income for the first three months of fiscal 2015 and 2014 was $1.1 million and $5.1 million, respectively, or $0.33 and $1.56, respectively, per diluted share.
Earnings before interest, taxes, depreciation and amortization (EBITDA) before non-operating income for the first quarter of fiscal 2015 decreased to $3.3 million as compared to $4.6 million for the fiscal 2014 first quarter:
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For the Three Months Ended May 31, |
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| 2014 | 2013 | ||
| Net income | $ 1,088 | $ 5,142 | |
| Add back (deduct): | Interest | 300 | 254 |
| Provision for income taxes | 554 | 1,466 | |
| Depreciation and amortization | 1,319 | 1,082 | |
| Non-operating income | -- | (3,379) | |
| EBITDA before non-operating income | $ 3,261 | $ 4,565 | |
Cash used in operations was $0.2 million for the first quarter of fiscal 2015 whereas operations provided $1.2 million of cash flow during the first quarter of fiscal 2014 and reflected additional investments in working capital in both periods. Funding for the Company's acquisition activities as well as for capital expenditures and its ongoing treasury stock program was provided by borrowings and the proceeds from the sale of a Canadian property.
During the first quarter of the current fiscal year the Company borrowed $9.0 million under a new term loan facility in connection with its Faus acquisition and used the proceeds to reduce the balance outstanding under the Company's lines of credits. In addition, during the first quarter of the current fiscal year, the Company amended its principal loan agreements to provide further new term loan facilities in the amount of $10.9 million, increase its borrowing limit, reduce interest rates and extend the maturity date of the loan agreements to June 2017.
Working capital at the end of the Company's fiscal 2015 first quarter was $38.8 million, an increase of $10.0 million from $28.8 million at the end of the 2014 fiscal year, principally due to cash held from the Company's new term loan facilities. Accordingly, aggregate debt at the end of the Company's fiscal 2015 first quarter rose to $52.4 million from $41.4 million at the end of the 2014 fiscal year. Total debt to equity stood at 0.77 as of May 31, 2014.
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 Thursday, June 26, 2014. If you would like to join the conference call, dial 1-888-461-2024 toll free from the US or 1-719-325-2429 internationally approximately 10 minutes prior to the start time and ask for the Q.E.P. Co., Inc. First Quarter Conference Call / Conference ID 1615576. A replay of the conference call will be available until midnight July 3rd by calling 1-877-870-5176 toll free from the US and entering pin number 1615576; 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 manufacturer, marketer and distributor, QEP delivers a comprehensive line of hardwood and laminate 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 the industrial trades. Under brand names including QEP®, ROBERTS®, Capitol®, Harris®Wood, Fausfloor®, Vitrex®, Homelux®, TileRite®, PRCI®, Nupla®, HISCO®, Plasplugs, Ludell®, Porta-Nails®, Tomecanic®, Bénètiere® and Elastiment®, the Company markets over 7,000 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 future market position and profitability, potential acquisition opportunities and benefits, capital availability and shareholder value. 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) | ||
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For the Three Months Ended May 31, |
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| 2014 | 2013 | |
| Net sales | $ 79,707 | $ 83,399 |
| Cost of goods sold | 57,628 | 59,676 |
| Gross profit | 22,079 | 23,723 |
| Operating expenses: | ||
| Shipping | 7,516 | 7,941 |
| General and administrative | 6,588 | 6,426 |
| Selling and marketing | 6,155 | 6,038 |
| Other income, net | (122) | (165) |
| Total operating expenses | 20,137 | 20,240 |
| Operating income | 1,942 | 3,483 |
| Non-operating income | -- | 3,379 |
| Interest expense, net | (300) | (254) |
| Income before provision for income taxes | 1,642 | 6,608 |
| Provision for income taxes | 554 | 1,466 |
| Net income | $ 1,088 | $ 5,142 |
| Net income per share: | ||
| Basic | $ 0.33 | $ 1.57 |
| Diluted | $ 0.33 | $ 1.56 |
| Weighted average number of common shares outstanding: | ||
| Basic | 3,258 | 3,276 |
| Diluted | 3,280 | 3,300 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||
| (In thousands) | ||
| (Unaudited) | ||
|
For the Three Months Ended May 31, |
||
| 2014 | 2013 | |
| Net income | $ 1,088 | $ 5,142 |
| Unrealized currency translation adjustments | 286 | (351) |
| Comprehensive income | $ 1,374 | $ 4,791 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||
| CONSOLIDATED BALANCE SHEETS | ||
| (In thousands) | ||
|
May 31, 2014 (Unaudited) |
February 28, 2014 |
|
| ASSETS | ||
| Cash | $ 12,759 | $ 2,621 |
| Accounts receivable, less allowance for doubtful accounts of $394 and $382 as of May 31, 2014 and February 28, 2014, respectively | 47,785 | 45,726 |
| Inventories | 41,960 | 42,906 |
| Prepaid expenses and other current assets | 3,820 | 3,338 |
| Deferred income taxes | 744 | 744 |
| Current assets | 107,068 | 95,335 |
| Property and equipment, net | 23,599 | 24,353 |
| Deferred income taxes | 3,933 | 3,926 |
| Intangibles, net | 21,437 | 21,697 |
| Other assets | 529 | 470 |
| Total Assets | $ 156,566 | $ 145,781 |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||
| Trade accounts payable | $ 19,008 | $ 21,989 |
| Accrued liabilities | 16,311 | 14,613 |
| Lines of credit | 28,567 | 28,173 |
| Current maturities of notes payable | 4,387 | 1,746 |
| Current liabilities | 68,273 | 66,521 |
| Notes payable | 19,444 | 11,487 |
| Other long term liabilities | 838 | 931 |
| Total Liabilities | 88,555 | 78,939 |
| Preferred stock, 2,500 shares authorized, $1.00 par value; 337 shares issued and outstanding at May 31, 2014 and February 28, 2014 | 337 | 337 |
| Common stock, 20,000 shares authorized, $.001 par value; 3,801 shares issued; 3,250 and 3,262 shares outstanding at May 31, 2014 and February 28, 2014, respectively | 4 | 4 |
| Additional paid-in capital | 10,634 | 10,620 |
| Retained earnings | 63,215 | 62,130 |
| Treasury stock, 550 and 539 shares held at cost at May 31, 2014 and February 28, 2014, respectively | (5,917) | (5,701) |
| Accumulated other comprehensive income | (262) | (548) |
| Shareholders' Equity | 68,011 | 66,842 |
| Total Liabilities and Shareholders' Equity | $ 156,566 | $ 145,781 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (In thousands) | ||
| (Unaudited) | ||
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For the Three Months Ended May 31, |
||
| 2014 | 2013 | |
| Operating activities: | ||
| Net income | $ 1,088 | $ 5,142 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||
| Depreciation and amortization | 1,319 | 1,082 |
| Non-operating income | -- | (3,379) |
| Other non-cash adjustments | 26 | 55 |
| Changes in assets and liabilities, net of acquisitions: | ||
| Accounts receivable | (1,923) | (5,323) |
| Inventories | 1,283 | 613 |
| Prepaid expenses and other assets | (383) | (462) |
| Trade accounts payable and accrued liabilities | (1,611) | 3,518 |
| Net cash provided (used) by operating activities | (201) | 1,246 |
| Investing activities: | ||
| Acquisitions | (254) | (23,495) |
| Proceeds from sale of property | 52 | 4,630 |
| Capital expenditures | (163) | (188) |
| Net cash used in investing activities | (365) | (19,053) |
| Financing activities: | ||
| Net borrowings (repayments) under lines of credit | (8,724) | 20,321 |
| Borrowings of notes payable | 19,880 | -- |
| Repayments of notes payable | (331) | (1,415) |
| Purchase of treasury stock | (119) | (57) |
| Dividends and other | (3) | 14 |
| Net cash used in financing activities | 10,703 | 18,863 |
| Effect of exchange rate changes on cash | 1 | (5) |
| Net increase in cash | 10,138 | 1,051 |
| Cash at beginning of period | 2,621 | 737 |
| Cash at end of period | $ 12,759 | $ 1,788 |