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
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 |
CONTACT: Q.E.P. Co., Inc.
Richard A. Brooke
Senior Vice President and
Chief Financial Officer
561-994-5550
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