CHICAGO, Aug 09, 2012 -- Lawson Products, Inc., a distributor of products and services to the MRO marketplace, today announced results for the second quarter ended June 30, 2012.
Thomas Neri, president and chief executive officer commented, "Over the past 18 months, we have undertaken a series of strategic initiatives to drive the future growth and profitability of our business including the recently announced restructuring to reduce our cost structure and improve our operating efficiency. During the quarter, we recorded approximately $40 million of non-recurring charges which significantly impacted our results. These actions are anticipated to produce annualized savings of approximately $20 million beginning in the third quarter of this year."
"We have returned to pre-ERP implementation customer service levels despite challenging top-line growth. As we continue to improve upon our operations, we expect to begin realizing benefits from our strategic restructuring initiatives in the second half of 2012."
Second Quarter Results
Net sales for the second quarter of 2012 were $74.3 million versus $84.2 million in the second quarter of 2011. The decrease was mainly driven by a decline of $3.8 million in government sales primarily due to military bases that support troop deployment, lower freight revenues, increased attrition among smaller customers and a decline in sales representatives from a year ago. This decrease was partially offset by an increase in sales to strategic accounts. Average daily sales declined 2.1% sequentially from the first quarter of 2012 and 11.6% year-over-year.
As part of the restructuring, the Company recorded additional inventory reserves of $3.9 million. Excluding these reserves, gross profit for the second quarter of 2012 was $40.7 million versus $48.3 million a year ago. The gross margin percentage declined from 57.4% to 54.8% which was unchanged from the first quarter. Lower outbound freight recoveries, additional labor to support customer service and a shift toward higher volume strategic customers with lower margins reduced gross margin on a year over year basis.
Excluding the restructuring related severance charge of $6.6 million, total selling, general and administrative expenses decreased $1.2 million from the year ago period. Operating expenses were also impacted by a non-cash goodwill impairment charge of $28.3 million offset by a gain of $2.1 million from the sale of properties. Including the charges and the gain on sale of properties, operating expenses were $78.3 million for the quarter versus $46.7 million in the prior year period.
Excluding the aforementioned charges and the gain on sale of properties, adjusted operating loss for the quarter ended June 30, 2012 was $4.8 million compared to adjusted operating income of $2.1 million for the quarter ended June 30, 2011. Including these items, the operating loss for the quarter was $41.4 million.
Net loss for the second quarter of 2012 was $61.2 million, or $7.12 per diluted share. During the quarter the Company increased the valuation allowance related to the recoverability of its deferred tax assets by $33.5 million which resulted in net tax expense of $19.5 million for the period. Excluding the non-recurring items referred to above as well as the increase in the tax valuation allowance, diluted loss per share was $0.39 compared to earnings of $0.12 per diluted share in the prior year period.
Second Half 2012 Initiatives
As the Company continues to focus on its long-term transformation, the following events are expected to occur in the near future:
-- Sales force transformation - Lawson will continue the transition of its independent agent model to an employee model. This transition is planned to be completed in the United States during the first quarter of 2013. Management anticipates minimal disruption while its sales representatives continue to service their existing customers.
-- Website launch - A redesigned website will be launched in a phased approach. The website will be fully integrated and allow orders to be placed directly on-line as well as enhancing the Company's visibility to a broader base of customers.
-- Distribution network consolidation - The Company will consolidate distribution operations currently performed at three separate Illinois locations into a new state-of-the-art leased facility in McCook, Illinois. This facility will become the hub of Lawson's distribution network and will help to improve the Company's operating efficiency.
-- Credit facility - The Company entered into a new five year $40.0 million credit facility that provides the necessary liquidity to fund its future operations and continue its transformation.
Mr. Neri concluded, "We continue to take the necessary steps to transform the Company. We believe the recently completed restructuring and the implementation of our new ERP system, along with the initiatives scheduled to be completed in the near future, will enable us to better leverage our competitive advantages and reposition the Company for long-term growth and profitability."
Lawson Products, Inc. will conduct a conference call with investors to discuss second quarter 2012 results at 9:00 a.m. EST on August 9, 2012. The conference call is available by direct dial at 877-317-6789 in the U.S. or 412-317-6789 from outside of the U.S. A replay of the conference call will be available approximately one hour after completion of the call through August 24, 2012. Callers can access the replay by dialing 877-344-7529 in the U.S. or 412-317-0088 outside the U.S. The PIN access number for the replay is 10016326#. A streaming audio of the call and an archived replay will also be available on the investor relations page of Lawson's Web site through September 9, 2012.
About Lawson Products, Inc.
Founded in 1952, Lawson Products, Inc. LAWS -4.77% is an industrial distributor of more than 375,000 different maintenance and repair supplies. Lawson Products serves its customers through a dedicated team of sales representatives and employees. The Company services the industrial, institutional, commercial and government markets in all 50 U.S. states, Canada and Puerto Rico. You can learn more about the company on its Web site, www.lawsonproducts.com .
This Release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. The terms "may," "should," "could," "anticipate," "believe," "continues," "estimate," "expect," "intend," "objective," "plan," "potential," "project" and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These statements are based on management's current expectations, intentions or beliefs and are subject to a number of factors, assumptions and uncertainties that could cause or contribute to such differences or that might otherwise impact the business and include the risk factors set forth in Item 1A of the December 31, 2011, Form 10-K filed on March 1, 2012 and the June 30, 2012 Form 10-Q filed on August 9, 2012. The Company undertakes no obligation to update any such factor or to publicly announce the results of any revisions to any forward-looking statements whether as a result of new information, future events or otherwise.