Lawson Products Inc. is a distributor of expendable maintenance repair & replacement products. It also distributes production components to the O.E.M. marketplace. These products may be divided into 3 broad categories: Fasteners Fittings & Related Parts such as screws nuts & other fasteners; Industrial Supplies such as hoses lubricants adhesives & other chemicals as well as files drills & other shop supplies; & Automotive & Equipment Maintenance Parts such as primary wiring connectors & other electrical supplies exhaust & other automotive parts. Lawson Products Inc. has a market cap of $97.8 million; its shares were traded at around $11.48 with a P/E ratio of 8.5 and P/S ratio of 0.2. The dividend yield of Lawson Products Inc. stocks is 1.1%. Lawson Products Inc. had an annual average earning growth of 0.2% over the past 10 years.
Highlight of Business Operations:The sales decline was reflected in both the MRO and the OEM segments. MRO net sales decreased $22.6 million or 21.4% in the first quarter of 2009, to $82.8 million from $105.4 million in the prior year period. OEM net sales decreased $3.9 million or 19.1% in the first quarter of 2009, to $16.6 million from $20.5 million in the prior year period.
Gross profit decreased $19.9 million in the first quarter of 2009, to $54.2 million from $74.1 million in the prior year period. The gross profit margin for the first quarter of 2009 was 54.5%, 4.4 percentage points lower than the 58.9% achieved in the first quarter of 2008. MRO gross profit decreased $18.1 million in the first quarter of 2009, to $51.6 million from $69.7 million in the prior year period. MRO gross profit as a percent of net sales decreased to 62.3% for the first quarter of 2009 from 66.1% in the first quarter of 2008. OEM gross profit decreased $1.8 million in the first quarter of 2009, to $2.6 million from $4.4 million in the prior year period. Gross profit as a percent of net sales decreased to 15.7% for the first quarter of 2009 from 21.5% in the first quarter of 2008. The decreases recorded in both segments were primarily due to an increasingly competitive pricing environment, a change in the sales mix to lower margin products and an increase in inventory reserves.
SG&A expenses were $56.6 million or 57.0% of net sales and $64.8million or 51.5% of net sales for the quarters ended March 31, 2009 and 2008, respectively. The $8.2 million reduction in the first quarter of 2009 primarily reflects lower compensation expenses including sales commission. SG&A as a percent of net sales increased 5.5 percentage points in the first quarter of 2009 compared to the first quarter of 2008 as fixed costs were not reduced in proportion to the overall decrease in net sales.
During the first quarter of 2009 the Company committed to implementing certain cost reduction measures in response to current economic conditions. These cost reduction measures include a reduction in force of approximately 11%, or approximately 150 employees, across the organization and the closure of its Dallas, Texas and Charlotte, North Carolina distribution centers. The reduction in force and closure of the distribution centers are expected to be substantially complete by the end of the second quarter. As a result of these measures, the Company incurred a charge of $6.4 million in the first quarter of 2009. Of this amount, $6.0 million related to payments of terminated employees and $0.4 million related to a non-cash charge for disposal of property, plant and equipment. These cost reduction measures are expected to result in future annualized cost savings of between $10.0 million and $12.0 million.
For the three months ended March 31, 2009, the Company recorded $2.4 million of income tax benefit, based on a pre-tax loss from continuing operations of $8.3 million, resulting in an effective tax rate of 28.8%. For the three months ended March 31, 2008, income tax expense of $3.3 million was recorded based on pre-tax income of $7.8 million, resulting in an effective tax rate of 42.2%. The primary reason for the change in the tax rates is the effect of non-deductible expenses, including the decrease in the cash surrender value of executive life insurance, which increase the rate of tax expenses resulting from income while reducing the rate of tax benefits from losses. Additionally, earnings in jurisdictions with higher tax rates decreased the net income tax benefit in relation to the overall pre-tax loss.
Capital expenditures were $1.2 million for the first three months of both 2009 and 2008. Net cash provided by financing activities in the first three months of 2009 was $3.5 million compared to $2.8 million in the first three months of 2008, primarily reflecting increased net borrowings on the Companys revolving line of credit.
Read the The complete ReportLAWS is in the portfolios of Arnold Van Den Berg of Century Management.