Hawkins Stock Jumps 16% as Water Treatment Chemicals Supplier Posts Record Q2 Profit and Beats Estimates

Shares of Hawkins Inc. jumped more than 16% on Tuesday. The specialty chemicals and water treatment company reported record second-quarter profit that beat analysts' expectations, driven by strong demand in its water treatment business.

Hawkins shares rose $21.89, or 16.16%, to $157.33 in early trading on the Nasdaq. The gain lifted the company's market value to about $3.2 billion. The shares had risen about 12% in after-hours trading on Monday after the results were released.

Even after Tuesday's jump, the stock is down about 18% over the past 52 weeks.

Record quarter

For its fiscal second quarter, which ended Sept. 27, Hawkins reported:

Sales of $313.8 million, up 12% from a year earlier, with organic growth of 11% Net income of $27.8 million, a second-quarter record, up 23% Diluted earnings of $1.34 a share, up 23% Gross profit of $76.6 million, up 13%, or 24% of sales Adjusted EBITDA of $59.1 million, up 16%

The results topped analysts' estimates for both earnings and revenue, according to market reports.

"Our second quarter results reflect the agility of our employees and the resilience of our business model," President and Chief Executive Patrick Hawkins said.

Water treatment leads

The company's Water Treatment segment was the biggest driver of growth:

Water Treatment: Sales rose 16% to $175 million, with gross profit of $51.7 million, a 30% margin. Industrial Solutions: Sales rose 10% to $62.2 million, with gross profit of $10 million. Food & Health Sciences: Sales rose 5% to $76.7 million, but gross profit fell 4% to $14.9 million.

Hawkins supplies chemicals used to treat drinking water and wastewater for municipalities and industrial customers. The business tends to provide steady demand because water treatment is an essential service. It has also been a focus of the company's growth strategy.

"We will continue to deliver on our strategy of investing in our higher-margin businesses," Hawkins said.

Acquisitions

Hawkins has expanded its water treatment business through acquisitions. During the quarter, it acquired Dave Symonds & Associates, a Florida company. After the quarter ended, it completed the purchase of Eagle Labs, adding two locations in the Dallas-Fort Worth area.

Cash flow and returns

Over the first six months of the fiscal year:

Operating cash flow rose 6% to $75.5 million. Free cash flow rose 14% to $53.1 million. The company repurchased $18.6 million of its stock and repaid $15 million of debt.

Its leverage ratio fell to 1.22 times, from 1.37 times at the end of the previous fiscal year.

Hawkins also declared a quarterly cash dividend of 20 cents a share.

Outlook

Hawkins said it expects trends in the second half of the fiscal year to be similar to the first half.

"We expect the second half trends to be consistent with what we saw in the first half," the chief executive said.

The company cautioned that second-half selling, general and administrative expenses will not benefit from a $6.2 million one-time reduction that lowered costs in the same period a year earlier. It expects an effective tax rate of about 25% to 27% for the full year.

Rebound from a tough year

Tuesday's surge marked a sharp turnaround for a stock that had lagged over the past year. Before the results, the shares were down about 30% from a year earlier, as investors worried about slowing growth and margin pressure in parts of the business.

The strong quarter, especially the double-digit organic growth and higher margins in water treatment, appeared to ease some of those concerns.

About Hawkins

Hawkins, based in Roseville, Minnesota, was founded in 1938. It operates three segments serving water treatment, industrial and food and health customers across the United States.

Market backdrop

The results came as investors digested a busy week of earnings and prepared for the Fed's interest rate decision on Wednesday. Smaller industrial and chemical stocks have been volatile this year amid concerns about economic growth and high interest rates.

Analysts said they would watch whether Hawkins can sustain its organic growth rate and continue expanding its higher-margin water treatment business through acquisitions.