ZEP INC (ZEP, Financial) filed Quarterly Report for the period ended 2009-11-30.
Zep Inc. is a leading producer, marketer, and service provider of a wide range of cleaning and maintenance solutions for commercial, industrial, institutional, and consumer end-markets. Zep's product portfolio includes anti-bacterial and industrial hand care products, cleaners, degreasers, deodorizers, disinfectants, floor finishes, sanitizers, and pest and weed control products. The company markets these products and services under well recognized and established brand names, such as Zep, Zep Commercial, Enforcer, and Selig Zep is headquartered in Atlanta, Georgia. Zep Inc has a market cap of $392.5 million; its shares were traded at around $18.16 with a P/E ratio of 33.7 and P/S ratio of 0.8. The dividend yield of Zep Inc stocks is 0.9%.
We use available cash and cash flow provided by operating activities primarily to fund operations and capital expenditures. Net cash provided by the Companys operating activities totaled $7.1 million during the first three months of fiscal year 2010 compared with $11.0 million used to fund operating activities in the prior year period. The $18.1 million improved cash flow generation was driven in part by substantial improvement in year-over-year operating results. At the end of the current fiscal years first quarter, the Company was in an income tax payable position due to the above mentioned generation of operating profit, whereas last year the Company recorded income tax receivables until a year-to-date profit was attained during our third quarter. Also, certain uses of cash normally occurring in the first quarter, including but not limited to the payment of incentive program obligations, were shifted to the second quarter of fiscal year 2010. The Company estimates that between $6 million and $7 million of our year-over-year operating cash flow improvement resulted from this timing shift involving the payment of certain liabilities.
Management believes that investing in assets and programs that will over time increase the return on our invested capital is a key factor in creating stockholder value. We invested $1.1 million and $2.0 million in the first three months of fiscal year 2010 and 2009, respectively, primarily for building improvements, machinery, equipment, and information technology. We expect to make capital expenditures of approximately $11.0 million to $13.0 million in fiscal year 2010.
On October 19, 2007, we executed a receivables facility and a Revolving Credit Facility in anticipation of the spin-off from Acuity Brands, and the significant terms of each of those facilities are discussed below. We drew $62.5 million from that Revolving Credit Facility on October 31, 2007, and the proceeds from this borrowing were immediately distributed to Acuity Brands. Additionally, we assumed a $7.2 million industrial revenue bond due in 2018 and approximately $0.3 million of other debt following the spin-off. On October 14, 2009, we entered into a three-year Loan and Security Agreement that allows for borrowings up to $40 million secured by our trade accounts receivable. This new, $40.0 million receivables facility replaces the receivables facility established in anticipation of the spin-off. Further detail regarding each of these debt instruments as well as supporting letters of credit, including amounts outstanding under each as of November 30, 2009, is provided within Note 4 of Notes to Consolidated Financial Statements.
Net sales totaled $126.8 million during the first quarter of fiscal year 2010 compared with $129.2 million in the first quarter of fiscal year 2009, representing a decrease of $2.4 million or 1.9%. During the first quarter, the Company realized higher year-to-date selling prices of approximately $1.0 million, primarily from domestic operations. The Company experienced significant year-over-year volume growth in sales to customers accessed through the retail channel. Also, foreign currency translation on international sales favorably impacted total net sales by $2.4 million. Total volume-related declines adversely impacted first quarter net sales by $6.9 million as declining sales volumes to industrial and institutional customers more than offset these aforementioned gains. While demand for Zeps products in certain of its industrial and institutional end markets, including schools, government, and food, is stabilizing, the Company continues to face challenges within other end markets, including transportation and industrial operations. During the quarter, the Company renegotiated the terms of the Companys contract with its licensee in France. Separately, the Company executed a release agreement with its licensee in France that addressed historical business transactions. The Company received a one-time, $1.1 million payment pursuant to this release agreement, all of which was recognized in our first quarter net sales.
Gross profit increased $2.1 million, or 3% to $69.9 million in the first quarter of fiscal year 2010 compared with $67.8 million in the prior year period. Gross profit margin was 55.1% in the first quarter of fiscal year 2010, representing a 265 basis point improvement from the prior year period and a 180 basis point improvement from the fourth quarter of fiscal year 2009. Raw material costs in this fiscal years first quarter were $3.5 million lower than those experienced in the prior year period, due to both reduced commodity costs and on-going success of sourcing initiatives. Inventories were increased during the quarter in response to certain of our retail customers promotional sales activities and an increase in demand for sanitizer products as a result of concern surrounding the H1N1 flu virus. The resulting improved manufacturing absorption favorably impacted same quarter comparative gross margins by approximately 80 basis points. Partially offsetting the benefit of lower raw material costs and improved manufacturing absorption was the impact of higher sales through the retail channel, which adversely affected gross margin by approximately 115 basis points compared with the prior year first quarter.
Read the The complete ReportZEP is in the portfolios of John Keeley of Keeley Fund Management.
Zep Inc. is a leading producer, marketer, and service provider of a wide range of cleaning and maintenance solutions for commercial, industrial, institutional, and consumer end-markets. Zep's product portfolio includes anti-bacterial and industrial hand care products, cleaners, degreasers, deodorizers, disinfectants, floor finishes, sanitizers, and pest and weed control products. The company markets these products and services under well recognized and established brand names, such as Zep, Zep Commercial, Enforcer, and Selig Zep is headquartered in Atlanta, Georgia. Zep Inc has a market cap of $392.5 million; its shares were traded at around $18.16 with a P/E ratio of 33.7 and P/S ratio of 0.8. The dividend yield of Zep Inc stocks is 0.9%.
Highlight of Business Operations:
Our principal sources of liquidity are operating cash flows generated primarily from operating activities and various sources of borrowings. Our ability to generate sufficient cash flow from operations and to access certain capital markets, including lending from financial institutions, is necessary for us to fund our operations, to pay dividends, to meet obligations as they become due, and to maintain compliance with covenants contained within our financing agreements. Our ongoing liquidity will depend on a number of factors, including available cash resources, cash flow from operations, compliance with covenants contained in certain of our financing agreements, and the ability to access capital markets. As of November 30, 2009, we had additional borrowing capacity under our Revolving Credit Facility of $69.8 million. We entered into four interest rate swap arrangements during the fourth quarter of fiscal year 2008 effectively swapping the variable interest rate associated with $20 million of borrowings made under our Revolving Credit Facility for fixed rates ranging from 3.2% to 3.5%. On October 14, 2009, we entered into a three-year Loan and Security Agreement that allows for borrowings up to $40 million secured by our trade accounts receivable. While we maintained a similar, one-year securitization arrangement during a portion of fiscal years 2008 and 2009, we did not utilize that instrument during its term. As of November 30, 2009, we had no debt outstanding under the Receivables Facility. We reduced our debt, net of cash, position by approximately $6.0 million during the first quarter of fiscal year 2010 to $18.0 million. We were in compliance with all debt covenants as of November 30, 2009. Based on our current cash on hand, current financing arrangements, and current projections of cash flow from operations, management believes that we will be able to meet the liquidity needs of our current business over the next 12 months. Further detail regarding our debt instruments is provided in the Capitalization section that follows as well as in Note 4 of Notes to Consolidated Financial Statements.We use available cash and cash flow provided by operating activities primarily to fund operations and capital expenditures. Net cash provided by the Companys operating activities totaled $7.1 million during the first three months of fiscal year 2010 compared with $11.0 million used to fund operating activities in the prior year period. The $18.1 million improved cash flow generation was driven in part by substantial improvement in year-over-year operating results. At the end of the current fiscal years first quarter, the Company was in an income tax payable position due to the above mentioned generation of operating profit, whereas last year the Company recorded income tax receivables until a year-to-date profit was attained during our third quarter. Also, certain uses of cash normally occurring in the first quarter, including but not limited to the payment of incentive program obligations, were shifted to the second quarter of fiscal year 2010. The Company estimates that between $6 million and $7 million of our year-over-year operating cash flow improvement resulted from this timing shift involving the payment of certain liabilities.
Management believes that investing in assets and programs that will over time increase the return on our invested capital is a key factor in creating stockholder value. We invested $1.1 million and $2.0 million in the first three months of fiscal year 2010 and 2009, respectively, primarily for building improvements, machinery, equipment, and information technology. We expect to make capital expenditures of approximately $11.0 million to $13.0 million in fiscal year 2010.
On October 19, 2007, we executed a receivables facility and a Revolving Credit Facility in anticipation of the spin-off from Acuity Brands, and the significant terms of each of those facilities are discussed below. We drew $62.5 million from that Revolving Credit Facility on October 31, 2007, and the proceeds from this borrowing were immediately distributed to Acuity Brands. Additionally, we assumed a $7.2 million industrial revenue bond due in 2018 and approximately $0.3 million of other debt following the spin-off. On October 14, 2009, we entered into a three-year Loan and Security Agreement that allows for borrowings up to $40 million secured by our trade accounts receivable. This new, $40.0 million receivables facility replaces the receivables facility established in anticipation of the spin-off. Further detail regarding each of these debt instruments as well as supporting letters of credit, including amounts outstanding under each as of November 30, 2009, is provided within Note 4 of Notes to Consolidated Financial Statements.
Net sales totaled $126.8 million during the first quarter of fiscal year 2010 compared with $129.2 million in the first quarter of fiscal year 2009, representing a decrease of $2.4 million or 1.9%. During the first quarter, the Company realized higher year-to-date selling prices of approximately $1.0 million, primarily from domestic operations. The Company experienced significant year-over-year volume growth in sales to customers accessed through the retail channel. Also, foreign currency translation on international sales favorably impacted total net sales by $2.4 million. Total volume-related declines adversely impacted first quarter net sales by $6.9 million as declining sales volumes to industrial and institutional customers more than offset these aforementioned gains. While demand for Zeps products in certain of its industrial and institutional end markets, including schools, government, and food, is stabilizing, the Company continues to face challenges within other end markets, including transportation and industrial operations. During the quarter, the Company renegotiated the terms of the Companys contract with its licensee in France. Separately, the Company executed a release agreement with its licensee in France that addressed historical business transactions. The Company received a one-time, $1.1 million payment pursuant to this release agreement, all of which was recognized in our first quarter net sales.
Gross profit increased $2.1 million, or 3% to $69.9 million in the first quarter of fiscal year 2010 compared with $67.8 million in the prior year period. Gross profit margin was 55.1% in the first quarter of fiscal year 2010, representing a 265 basis point improvement from the prior year period and a 180 basis point improvement from the fourth quarter of fiscal year 2009. Raw material costs in this fiscal years first quarter were $3.5 million lower than those experienced in the prior year period, due to both reduced commodity costs and on-going success of sourcing initiatives. Inventories were increased during the quarter in response to certain of our retail customers promotional sales activities and an increase in demand for sanitizer products as a result of concern surrounding the H1N1 flu virus. The resulting improved manufacturing absorption favorably impacted same quarter comparative gross margins by approximately 80 basis points. Partially offsetting the benefit of lower raw material costs and improved manufacturing absorption was the impact of higher sales through the retail channel, which adversely affected gross margin by approximately 115 basis points compared with the prior year first quarter.
Read the The complete ReportZEP is in the portfolios of John Keeley of Keeley Fund Management.
