Nine Month Sales – $200.6 Million
Third Quarter Sales – $64.9 Million
Nine Month Net Income – $9.0 Million
Third Quarter Net Income – $2.2 Million
BOCA RATON, Fla., Dec. 20, 2011 (GLOBE NEWSWIRE) -- Q.E.P. CO., INC. (OTC:QEPC.PK) (the "Company") today announced its financial results for the first nine months and the third quarter of its fiscal year ending on February 29, 2012.
The Company reported record net sales of $200.6 million for the nine months ended November 30, 2011, an increase of $18.4 million or 10.1% from the $182.2 million reported in the same period of fiscal 2011. As a percentage of net sales, gross profit was 30.7% in the first nine months of fiscal 2012 compared to 30.6% in the first nine months of fiscal 2011.
Net sales for the third quarter of fiscal 2012 totaled $64.9 million, an increase of $3.9 million or 6.4% from the $61.0 million reported in the same period of fiscal 2011. As a percentage of net sales, gross profit was 29.2% in the third quarter of fiscal 2012 compared to 31.3% in the comparable period of fiscal 2011.
Lewis Gould, Chairman of the Company's Board of Directors, commented: "We are very pleased with our nine month results, both in net sales and earnings, which reached record levels. This quarter, however, was disappointing to our Company as the headwinds of cost increases reduced our margins and we saw substantially increased pricing pressure within our major distribution channels." Mr. Gould continued, "While we expect continued pricing pressure from customers, we have taken very positive steps to confront these issues by aggressively looking to moderate the impact of cost increases throughout our worldwide supply chain, expand our distribution channels and look carefully for synergistic acquisitions that are complementary to our existing business. At the same time, I am pleased to report that the Company's debt is at an historical low as we continue to pay down debt from our strong cash flow."
The increase in net sales reflects the growth of the Company's US-based flooring products, as well as our European and Australian operations, principally from the continued expansion of product lines. The Company's international operations also benefited from the effects of the strengthening of local currencies against the US dollar, although the relative strength of those currencies during the third quarter moderated.
The Company's gross margin during fiscal year 2012 as compared to the prior fiscal year benefited from an overall improvement in product mix, increased production volumes in the Company's manufacturing operations and the improved purchasing power of our international operations associated with the strengthening of local currencies against the US dollar. During the third quarter of fiscal 2012, however, margin improvements realized earlier in the fiscal year moderated primarily as a result of commodity and other cost increases, including the effects of the weakening of local currency exchange rates against the US dollar.
Operating expenses for the nine months ended November 30, 2011 includes $1.3 million of non-cash restructuring charges associated with our Argentine operations. Similarly, prior year third quarter operating expenses include $0.8 million of primarily non-cash restructuring charges associated with other Latin American operations. The Company also realized tax benefits totaling $1.0 million in the current fiscal year and $0.5 million in the last fiscal year related to these restructurings.
Operating expenses before the restructuring charges for the first nine months and third quarter of fiscal 2012 were $46.1 million and $15.4 million, respectively, or 23.0% and 23.7% of net sales in those periods, compared to $43.5 million and $13.7 million, respectively, or 23.9% and 22.5% of net sales in the comparable fiscal 2011 periods. While operating expenses have increased with the growth in the Company's sales and with changes in currency exchange rates, the fiscal year-to-date decrease in those expenses as a percentage of net sales principally reflects increased leveraging of fixed costs; during the fiscal third quarter these benefits were offset principally by increased employee costs and by increased freight costs in certain of the Company's markets.
The provision for income taxes as a percentage of income before taxes for the first nine months and third quarter of fiscal 2012 was 32.6% and 35.8%, respectively, compared to 33.1% and 30.3%, respectively, for the comparable periods in fiscal 2011. The reduced effective tax rates during the current fiscal year-to-date period and in both the quarter and year-to-date periods of fiscal 2011 as compared to the third quarter of fiscal 2012 principally reflects the tax benefits associated with restructuring the Company's Argentine and other Latin American operations.
Net income for the first nine months and third quarter of fiscal 2012 was $9.0 million and $2.2 million, respectively, or $2.66 and $0.64, respectively, per diluted share. For the comparable periods of fiscal 2011, net income was $6.9 million and $3.0 million, respectively, or $2.02 and $0.87, respectively, per diluted share.
Excluding the effects of restructuring charges, earnings before interest, taxes, depreciation and amortization (EBITDA) for the first nine months and third quarter of fiscal 2012 was $17.4 million and $4.2 million, respectively, as compared to $14.1 million and $6.1 million, respectively, for the comparable periods of fiscal 2011.
Cash provided by operations during the first nine months of fiscal 2012 was $9.6 million as compared to $7.2 million in the first nine months of fiscal 2011, principally reflecting improved operating results. Cash from operations during fiscal 2012 was used primarily to reduce aggregate borrowings by $6.9 million, to purchase the business of Porta-Nails, Inc. and additional treasury shares, and for investments in new IT systems and improved manufacturing productivity. By comparison, cash provided by operations during the first nine months of fiscal 2011 was used to fund capital expenditures principally related to expanding the Company's manufacturing capabilities, a reduction in aggregate debt and the purchase of treasury stock.
Working capital at the end of the Company's fiscal 2012 third quarter was $34.8 million, an increase of $7.2 million from $27.6 million at the end of the 2011 fiscal year. Aggregate debt at the end of the Company's fiscal 2012 third quarter was reduced to $14.4 million or 32.8% of equity from $21.7 million or 61.5% of equity at the end of the 2011 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 21, 2011. If you would like to join the conference call, approximately 10 minutes prior to the start time please dial 1-877-941-1427 toll free from the US and ask for Q.E.P. Co., Inc. Internationally, please dial 1-480-629-9664. A replay of the conference call will be available until midnight December 28th by calling 1-877-870-5176 toll free from the US and entering pin number 4491380; internationally, please call 1-858-384-5517 using the same pin number.
Q.E.P. Co., Inc., founded in 1979, is a leading worldwide manufacturer, marketer and distributor of 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. Under brand names including QEP®, ROBERTS®, Capitol®, Harris®Wood, Vitrex®, PRCI®, BRUTUS® and Elastiment®, the Company markets over 3,000 flooring and flooring related products. In addition to a complete hardwood flooring line, Q.E.P. products are used primarily for surface preparation and installation of wood, laminate, ceramic tile, carpet and vinyl flooring. The Company sells its products to home improvement retail centers and specialty distribution outlets in 50 states and throughout the world.
This press release contains forward-looking statements, including statements regarding product, commodity, employee and other cost increases, pricing pressures, margins, cost initiatives, expansion of distribution channels, benefits and synergies related to acquisitions, expansion of product lines, net sales growth, net earnings performance, currency exchange rates and its impact on purchasing power, improvements in product mix, increased leveraging of costs, improved manufacturing productivity and capital availability. These statements are not guarantees of future performance and are subject to future events, risk and uncertainties, many of which are beyond our control or are currently unknown to us. Actual results could differ materially from our expectations. Forward–looking statements speak only as of the date they are made, and we do not undertake to update these statements other than as required by law.
-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 Ended November 30, |
For the Nine Months Ended November 30, |
|||
| 2011 | 2010 | 2011 | 2010 | |
| Net sales | $ 64,939 | $ 61,035 | $ 200,569 | $ 182,211 |
| Cost of goods sold | 45,993 | 41,922 | 139,032 | 126,516 |
| Gross profit | 18,946 | 19,113 | 61,537 | 55,695 |
| Operating expenses: | ||||
| Shipping | 6,516 | 5,871 | 19,760 | 18,811 |
| General and administrative | 4,829 | 4,025 | 14,512 | 13,363 |
| Selling and marketing | 4,071 | 3,856 | 12,216 | 11,478 |
| Restructuring charges | -- | 837 | 1,273 | 837 |
| Other income, net | (55) | (49) | (366) | (143) |
| Total operating expenses | 15,361 | 14,540 | 47,395 | 44,346 |
| Operating income | 3,585 | 4,573 | 14,142 | 11,349 |
| Interest expense, net | (212) | (326) | (740) | (1,053) |
| Income before provision for income taxes | 3,373 | 4,247 | 13,402 | 10,296 |
| Provision for income taxes | 1,206 | 1,288 | 4,374 | 3,405 |
| Net income | $ 2,167 | $ 2,959 | $ 9,028 | $ 6,891 |
| Net income per share: | ||||
| Basic | $ 0.64 | $ 0.89 | $ 2.71 | $ 2.07 |
| Diluted | $ 0.64 | $ 0.87 | $ 2.66 | $ 2.02 |
| Weighted average number of common shares outstanding: | ||||
| Basic | 3,353 | 3,304 | 3,323 | 3,321 |
| Diluted | 3,395 | 3,394 | 3,397 | 3,414 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||
| CONSOLIDATED BALANCE SHEETS | ||
| (In thousands, except par values) | ||
|
November 30, 2011 (Unaudited) |
February 28, 2011 |
|
| ASSETS | ||
| CURRENT ASSETS | ||
| Cash | $ 904 | $ 447 |
| Accounts receivable, less allowance for doubtful accounts of $642 and $619 as of November 30, 2011 and February 28, 2011, respectively | 34,905 | 31,350 |
| Inventories | 30,239 | 34,447 |
| Prepaid expenses and other current assets | 1,830 | 2,638 |
| Deferred income taxes | 1,432 | 1,430 |
| Total current assets | 69,310 | 70,312 |
| Property and equipment, net | 12,188 | 12,991 |
| Deferred income taxes, net | 1,083 | 1,084 |
| Intangibles, net | 2,586 | 2,499 |
| Other assets | 438 | 1,012 |
| Total Assets | $ 85,605 | $ 87,898 |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||
| CURRENT LIABILITIES | ||
| Trade accounts payable | $ 15,568 | $ 16,887 |
| Accrued liabilities | 10,987 | 13,448 |
| Lines of credit | 6,358 | 9,568 |
| Current maturities of notes payable | 1,575 | 2,801 |
| Total current liabilities | 34,488 | 42,704 |
| Notes payable | 6,479 | 9,294 |
| Other long term liabilities | 658 | 657 |
| Total Liabilities | 41,625 | 52,655 |
| SHAREHOLDERS' EQUITY | ||
| Preferred stock, 2,500 shares authorized, $1.00 par value; 337 shares issued and outstanding at November 30, 2011 and February 28, 2011 | 337 | 337 |
| Common stock, 20,000 shares authorized, $.001 par value; 3,789 and 3,696 shares issued, and 3,352 and 3,293 shares outstanding at November 30, 2011 and February 28, 2011, respectively | 4 | 4 |
| Additional paid-in capital | 10,651 | 10,406 |
| Retained earnings | 36,724 | 27,703 |
| Treasury stock, 436 and 403 shares held at cost at November 30, 2011 and February 28, 2011, respectively | (3,876) | (3,219) |
| Accumulated other comprehensive income | 140 | 12 |
| Total Shareholders' Equity | 43,980 | 35,243 |
| Total Liabilities and Shareholders' Equity | $ 85,605 | $ 87,898 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (In thousands) | ||
| (Unaudited) | ||
|
For the Nine Months Ended November 30, |
||
| 2011 | 2010 | |
| Operating activities: | ||
| Net income | $ 9,028 | $ 6,891 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||
| Depreciation and amortization | 1,952 | 1,955 |
| Restructuring charges | 1,273 | 789 |
| Other non-cash adjustments | 55 | 166 |
| Changes in working capital, net of acquisition; | ||
| Accounts receivable | (4,189) | (2,538) |
| Inventories | 3,828 | 2,514 |
| Prepaid expenses and other assets | 1,242 | 774 |
| Trade accounts payable and accrued liabilities | (3,608) | (3,396) |
| Net cash provided by operating activities | 9,581 | 7,155 |
| Investing activities: | ||
| Acquisition | (959) | -- |
| Capital expenditures | (858) | (1,942) |
| Cash used in investing activities | (1,817) | (1,942) |
| Financing activities: | ||
| Net repayments under lines of credit | (3,087) | (1,565) |
| Repayments of notes payable | (3,802) | (1,921) |
| Purchase of treasury stock | (652) | (1,297) |
| Stock options exercised (repurchased), net | 245 | (13) |
| Dividends paid | (7) | (7) |
| Net cash used in financing activities | (7,303) | (4,803) |
| Effect of exchange rate changes on cash | (4) | (1) |
| Net increase in cash | 457 | 409 |
| Cash at beginning of period | 447 | 856 |
| Cash at end of period | $ 904 | $ 1,265 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||||
| RECONCILIATION OF NET INCOME TO EBITDA BEFORE RESTRUCTURING CHARGES | ||||
| (In thousands) | ||||
| (Unaudited) | ||||
|
For the Three Months Ended November 30, |
For the Nine Months Ended November 30, |
|||
| 2011 | 2010 | 2011 | 2010 | |
| Net income | $ 2,167 | $ 2,959 | $ 9,028 | $ 6,891 |
| Add back: | ||||
| Restructuring charges | -- | 837 | 1,273 | 837 |
| Interest | 212 | 326 | 740 | 1,053 |
| Provision for income taxes | 1,206 | 1,288 | 4,374 | 3,405 |
| Depreciation and amortization | 663 | 704 | 1,952 | 1,955 |
| EBITDA before restructuring charges | $ 4,248 | $ 6,114 | $ 17,367 | $ 14,141 |