CHICAGO — Lawson Products, Inc. (NASDAQ:LAWS), a distributor of products and services to the MRO marketplace and No. 37 on Industrial Distribution's 2014 Big 50 List, announced on Thursday its results for the third quarter ended Sept. 30.
Net sales for the third quarter of 2014 were $74.1 million versus $68.2 million for the third quarter of 2013, an increase of 8.6 percent. Both quarters in 2014 and 2013 had 64 selling days. Average daily sales increased 8.6 percent to $1.158 million in the recent quarter from $1.066 million a year earlier, and also increased 2.8 percent over $1.126 million in the second quarter of 2014. The sales increase was driven by a 13 percent year-over-year sales growth in our strategic accounts and 19 percent growth from our Kent Automotive division over the prior year. The increase was also driven by improved productivity of existing sales reps in the period and sales reps hired within the past year as they developed their territories.
"Our third quarter financial and operating performance demonstrates the value of recent infrastructure investments,” said Michael DeCata, president and chief executive officer. “The improved productivity from our existing sales team and the growth in the number of new sales representatives are helping top-line sales while continued improvements in operational efficiencies are strengthening our customer service and helping us deliver stronger bottom line results.
"We have grown our sales force by a net 88 direct sales reps in the first nine months of 2014 and remain on pace to grow the team by approximately 15 percent this year. Our focus remains on adding quality sales representatives in strategic geographical areas to continue to improve coverage of our targeted marketplace,” continued Mr. DeCata.
Gross profit percentage for the period was 60.1 percent compared to 60.4 percent in the third quarter of 2013. This modest decline was primarily due to lower net freight recoveries and an increase in lower margin strategic accounts.
Selling expenses increased as a percent of sales to 31.8 percent in the third quarter of 2014 compared to 31.2 percent in the third quarter of 2013. This increase primarily reflects the initial fixed expense associated with the expansion of the sales force. General and administrative expenses increased 6.5 percent to $20.3 million in the third quarter of 2014 from $19.0 million in the prior year quarter primarily reflecting a $2.4 million increase in our accounting for non-cash stock-based compensation which is directly tied to our stock price increase during the quarter. This increase was offset partially by a decrease in severance expense and $0.7 million in proceeds received from a favorable legal settlement.
Excluding stock-based compensation, severance expense and proceeds from legal settlements, adjusted non-GAAP operating income increased 25.0 percent to $2.2 million in the third quarter of 2014 compared to $1.7 million a year ago. The improvement was driven primarily by increased sales and was offset partially by the investment in hiring of new sales representatives. GAAP operating income for the third quarter of 2014 was $0.7 million compared to $0.9 million in the third quarter of 2013 reflecting the effect of increased stock price on stock-based compensation expense.
Net income for the third quarter of 2014 was $0.5 million, or $0.05 per diluted share, as compared to net income of $0.6 million, or $0.07 per diluted share, for the same period a year ago reflecting the effect of the aforementioned stock price increase on stock-based compensation.
During the third quarter of 2014, the Company paid off the remaining balance of its outstanding bank loan and was debt free on Sept. 30.
"As we look to the remainder of 2014 and into 2015, we will continue to focus on our key objectives: improving sales volume from existing sales reps while continuing to grow our sales force, maintaining high levels of existing customer service, and remaining disciplined in managing our operating expenses. With our strong balance sheet and our existing infrastructure, we are positioning ourselves for growth and accelerated performance," stated Mr. DeCata.
