Northern, WI 7/10/12 (StreetBeat) -- Zep Inc. (NYSE:ZEP), a leading producer and marketer of a wide range of cleaning and maintenance solutions, today reported record financial results for the third fiscal quarter ended May 31, 2012. Results in the third fiscal quarter reflected strong sales in retail and distribution channels resulting from new and expanded customer relationships.
The Company reported that this year’s third quarter results included 5% organic sales growth over the prior year period (including the impact of changes in foreign currency rates, organic sales growth was 4%). Sales growth was due to increases in home improvement retail, automotive aftermarket, vehicle wash, industrial MRO, janitorial/sanitation and food processing. In addition, acquisitions provided incremental revenue gains compared to the same period last year.
“These record results point to the strength of our product and channel diversification strategy, and to the consistent focus our team has demonstrated in executing against this strategy over the past two years,” said John K. Morgan, Chairman, President and Chief Executive Officer of Zep Inc. “I would like to thank our associates for their continued hard work and dedication, and I’d also like to welcome the new associates from Mykal Industries in the United Kingdom, who became a part of the Zep Inc. team just a few weeks ago.”
The following is a summary of the third fiscal quarter’s results:
• Record revenue of $176.6 million for the third fiscal quarter represented an increase of $8.7 million, or 5.2%, (5.0% organic), compared to revenue of $167.9 million reported in the same period a year ago. Revenue for the quarter reflected benefits from pricing, higher total sales volumes and acquisitions, offset in part by the negative effect of foreign exchange rates.
• Record net income reported for the third fiscal quarter was $8.6 million, an increase of 38% compared with reported net income in the third quarter of fiscal 2011.
• Diluted earnings per share (EPS) reported in the third fiscal quarter were a record $0.39, a 39% increase over diluted EPS of $0.28 reported for last year’s third quarter. Last year’s third quarter diluted EPS included $0.02 per diluted share related to acquisition and integration costs, as well as $0.02 per diluted share related to incremental legal expenses.
• EBITDA (earnings before interest, taxes, depreciation and amortization expenses) for the third fiscal quarter totaled a record $18.7 million, or 10.6% of sales, an increase of 23% compared to $15.2 million in EBITDA reported for the third quarter of fiscal 2011.
• Free cash flow generated during the third fiscal quarter (defined as net cash provided by operating activities less purchases of property, plant, and equipment plus proceeds from sale of property, plant, and equipment) was $8.0 million, compared with $12.6 million of cash generated in the same period last year. Free cash flow in the current quarter reflects higher net income that was offset in part by higher capital expenditures and working capital. These increases were associated with planned technology investments, including the development and implementation of the new ERP system and increased working capital necessary to support incremental sales.
Gross profit of $81.7 million for the quarter was $3.4 million higher than the same period last year. Gross profit as a percentage of sales for the quarter was 46.3%, a decline of 40 basis points compared with the same period last year, due to an increase in the percentage of sales made to customers through distribution and retail channels, or business mix that was partially offset by increased manufacturing productivity. Compared to the immediately preceding second fiscal quarter, gross profit as a percentage of sales improved 150 basis points due to an improved relationship between selling prices and raw material costs, as well as increased manufacturing productivity.
“These results give us continued confidence that our performance in the second half of the fiscal year will improve relative to the second half of last fiscal year,” added Mark R. Bachmann, Executive Vice President and Chief Financial Officer of Zep Inc. “We are pleased with the improved organic sales growth and double digit EBITDA margins in the quarter, which is a testament to the progress we continue to make on our strategic initiatives.”
On June 1, 2012, the Company acquired the shares of Mykal Industries Limited (“Mykal”). Mykal, based in the United Kingdom, is a leading manufacturer of a broad range of cleaning and degreasing products for the European retail, do-it-yourself (“DIY”) and professional distribution markets. Zep has had a presence in Europe since 1992, and with this latest acquisition, the Company is expanding its reach to a broad range of industrial and retail customers in the United Kingdom.
A more detailed discussion of the Company’s long-term objectives and financial goals may be found in our Forms 10-K and 10-Q filed with the Securities and Exchange Commission (“SEC”). The Forms 10-K and 10-Q are available via the Company’s website at www.zepinc.com.
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