CHICAGO — Lawson Products, Inc. announced results for the first quarter ended March 31, 2017.
"In the first quarter of 2017, we experienced a continuation of the sales and operating improvement that started in late 2016. First quarter average daily sales increased 7.0% year-over-year and also increased sequentially over the preceding quarter. These higher sales led to significantly improved adjusted operating results compared to a year ago," said Michael DeCata, president and chief executive officer.
"Combined with the improving MRO marketplace, we are now beginning to see the results of the hard work our team has done over the past few years to grow our sales force, improve sales rep productivity, integrate acquisitions and to become more efficient through our extended Lean Six-Sigma process. We are taking deliberate actions to improve sales rep productivity which will foster continued growth. With a stronger industrial economy and the previously announced closure of the Fairfield distribution center in the first quarter, it is clear that our continuing operations are well positioned to further leverage our operating costs.
"Our strong financial position provides us the flexibility to continue to invest in both sales rep development and acquisitions. We continue to provide our sales team with the training and tools they need to be successful. I believe that we are now starting to realize growth from these ongoing initiatives," concluded Mr. DeCata.
First Quarter Highlights
- Sales increased 7.0% to $74.6 million, compared to $69.7 million a year ago
- Sales rep productivity, measured as sales per rep per day, improved by 2.6% over a year ago and 5.7% over the immediately preceding quarter
- GAAP operating income was $0.7 million compared to $1.2 million in the first quarter of 2016. However, adjusted for stock-based compensation and severance costs primarily related to the Fairfield closure, adjusted operating income improved $1.0 million over a year ago (see reconciliation in Table 1)
- The quarter ended with $8.0 million of available cash and $34.0 million of availability on our revolving credit facility
First Quarter Results
Net sales were $74.6 million for the first quarter of 2017 compared to $69.7 million in the first quarter of 2016. The first quarter of 2017 and 2016 both had 64 selling days. Average daily sales were $1.166 million compared to $1.089 million in the previous year quarter and $1.122 million in the fourth quarter of 2016. Sales were positively impacted by an increase in the number of sales representatives from a year ago, the successful integration of acquisitions completed in 2016, deliberate actions that have improved sales rep productivity and the overall improvement in the MRO marketplace. All sectors of the Company experienced growth including regional, strategic, Kent Automotive and Government accounts. Excluding 2016 acquisitions, first quarter sales grew 5.0%.
Gross profit as a percentage of sales was 60.1% in the first quarter of 2017, compared to 60.9% in the first quarter of 2016 and in line with 60.2% realized in the fourth quarter of 2016. The decline in the gross profit percentage from a year ago was primarily driven by higher sales to strategic customers that typically have lower margins, the impact of the 2016 acquisitions and non-recurring labor and freight costs associated with the Fairfield closure.
Selling expenses increased to $24.8 million in the first quarter of 2017 from $22.8 million in the prior year quarter and were 33.2% as a percent of sales compared to 32.6% in 2016. The $2.0 million increase was primarily due to commissions associated with higher sales, expenses associated with adding and training more sales representatives over the past year and higher health insurance costs.
General and administrative expenses increased to $19.4 million in the first quarter of 2017 from $18.5 million in the prior year quarter. Excluding stock-based compensation and severance, general and administrative expenses decreased $0.6 million compared to the prior year quarter (see reconciliation in Table 2) primarily reflecting a decrease in depreciation expense and continued cost control efforts.
Operating income in the first quarter of 2017 was $0.7 million compared to $1.2 million a year ago. Excluding stock-based compensation and severance primarily related to the Fairfield distribution center, adjusted non-GAAP operating income was $1.1 million in the first quarter of 2017 compared to $0.2 million a year ago (see reconciliation in Table 1). The increase from a year ago was primarily driven by leveraging the fixed cost structure on increased sales.
Net income for the first quarter of 2017 was $0.9 million, or $0.09 per diluted share, as compared to net income of $1.0 million, or $0.11 per diluted share, for the same period a year ago.
At March 31, 2017, the Company had $8.0 million in available cash and cash equivalents, $1.8 million of borrowings under its line of credit and an additional borrowing capacity of $34.0 million.
"We are encouraged by our performance of the past two quarters and continue to be optimistic for the remainder of 2017. We have the financial flexibility and infrastructure in place to continue our growth initiatives that have driven our improved results," concluded Mr. DeCata.