Zep’s First Quarter Sales Rise 24%

Zep Inc.’s revenues for the first fiscal quarter ended November 30, 2010 rose 24% to $157.4 million, compared with $126.8 million in the same period of the prior year.

Zep said its first quarter fiscal 2011 sales performance benefited from $37 million of acquisition-related revenue. Organic growth through sales to customers in the automotive and food end markets was more than offset by volume declines in the company’s other end markets, the company said. For example, sales to customers accessed through the retail channel were down from the same period in the prior year for two reasons. First, sales in the retail channel in the first quarter of fiscal 2010 benefited from promotions that were not expected to and that did not recur. Second, during fiscal 2010, the retail channel benefited from demand for sanitizer products in response to concerns regarding the H1N1 virus, according to Zep.

Also, customers accessed through Zep’s industrial and institutional end markets—most notably manufacturing, schools, and government customers—continue to be negatively impacted by sustained high rates of unemployment and reduced government spending, the company stated in its financial release.

Price increases contributed $2.5 million in revenue during the first quarter of fiscal 2011. The increases were taken to offset continued increases in commodity costs, including D-limonene, which is used in a broad range of citrus-based cleaning and plumbing products, the company said.

“We are pleased with the financial and operational results we were able to achieve during the first quarter of fiscal 2011, particularly in light of the fact that organic sales growth, which we believe is adversely affected by sustained high unemployment, has not yet returned to the legacy business,” said John K. Morgan, chairman, president and CEO. “With the Amrep, Waterbury and Niagara acquisitions, we are continuing to execute on a strategy to diversify our business into one that is better aligned with the overall markets we serve. These acquisitions enabled us to increase revenue by 24% in this fiscal year’s first quarter. Moreover, our efforts during the last eighteen months to meaningfully lower the break-even point of the business through the execution of restructuring and cost reduction initiatives continued to positively impact our profitability. All-in-all, I am pleased with the progress our associates have made in achieving financial results in line with our long-term goals.”

First quarter fiscal 2011 adjusted net income was $5.9 million, an increase of $0.7 million. First quarter fiscal 2011 net income reflects charges totaling $1.0 million related to restructuring efforts and incremental expense due to an increased basis in acquired inventories and charges totaling $0.5 million related to restructuring efforts and acquisition costs. Also included in first quarter 2010 net income and earnings per diluted share is $0.7 million, from nonrecurring revenue associated with a royalty income settlement from Zep’s French licensee, according to the company.