Alpha Pro Tech, Ltd.

Consolidated sales for the fourth quarter of 2012 increased 7.5% to $9.8 million from $9.2 million, and full-year sales increased 6.6% to $41.1 million from $38.5 million. Gross margin was 34.4% in the fourth quarter versus 35.3% a year ago, and 35.2% for the year versus 36.5% in 2011. Net income was $118,000 in Q4 versus $355,000, and full-year net income increased 5% to $977,000 from $933,000; diluted EPS was $0.01 in Q4 versus $0.02 and $0.05 for the year versus $0.04. Looking ahead, management expects gross margin to remain in the 35% to 36% range, continued top-line growth in 2013, additional distribution agreements, stronger contribution from TECHNOply and REX Wrap Fortis, and slightly higher Infection Control sales.

Al Millar said the company’s 2012 strategy was to grow the top line through new product introductions and expanded distribution while rebuilding profitability, and he framed the year as progress toward that goal despite being below the company’s 10% revenue expectation. He emphasized Building Supply as the key growth engine, highlighted TECHNOply as a lower-end market-share tool, and said REX Wrap Fortis should contribute more in 2013 as new distribution comes online. His tone was constructive and optimistic, stressing that the company expects to continue growing market share and broaden its product and distribution base.

Lloyd Hoffman said fourth-quarter and full-year gross margins declined because of higher raw material costs and competitive pricing pressure in Building Supply, but he expects margins to stay in the 35% to 36% range going forward. He noted SG&A rose 26% in the quarter to $3.3 million and 5% for the year to $12.9 million, with the increase driven by sales and marketing spending, bonuses, and growth-related expenses. On the balance sheet, cash was $4.6 million at year-end versus $7.5 million a year earlier, inventory rose to $17.2 million, the company repurchased 1.1 million shares for $1.6 million during 2012, had repurchased 8.6 million shares for $10.8 million total, and had no debt plus an unused $3.5 million credit facility.

Analysts focused on why profitability lagged despite higher sales, and management pointed to higher fourth-quarter expenses rather than pricing concessions; Hoffman said the extended payment terms offered on Building Supply were only receivable timing, not margin pressure. Management was also asked about visibility into demand, and Millar said the pipeline looks better, especially through new distribution points. A question on dividends versus buybacks drew a cautious response: management said they have discussed dividends repeatedly, but they are not yet consistently generating operating income to support one, so they continue to favor buybacks for now.