Zep Inc. ZEP, a leading consumable chemical packaged goods company
that manufactures a wide variety of high-performance maintenance and cleaning
chemicals, today announced an update to its previously issued guidance
regarding its complexity-reduction activities.
Zep Inc. is pleased to report that its near-term complexity-reduction
activities, including facilities consolidation and headcount reductions are
already underway. Across its network, Zep Inc. will be consolidating selected
smaller distribution and production facilities this year. As a result of these
and other changes, the company will reduce its non-sales work force by
approximately 6% or 80-100 positions. While savings will be partially offset
by investments in selected areas of growth; such as sales force expansion over
the next year, the company remains confident in the gross savings estimates.
* Accordingly, management now believes that its annualized cost savings will
be near the high-end of its previous estimate of $8-$12 million with
approximately 70% achieved by the end of the first fiscal quarter of 2014,
an additional 20% in the second fiscal quarter and the balance in the
third fiscal quarter, yielding approximately $9 million of recorded
cost-savings in fiscal 2014.
* Approximately 80% of the cost-reduction activities will be reflected as
improvements to selling, distribution and administrative expense with the
other 20% reflected as improvements to cost of goods sold.
* The Company also believes that the associated one-time costs will be near
the midpoint of its previous estimate of $4-$7 million. The majority of
the restructuring charge is expected to be recorded in the fourth fiscal
quarter of 2013 with the balance recorded in the fiscal first and second
quarters of 2014.
"I'm pleased to report that our cost-reduction efforts, which are focused on
bringing costs in line with our revenue expectations, are proceeding on
schedule," said John K. Morgan, Chairman, President and Chief Executive
Officer of Zep Inc. “I'm proud of our associates for moving forward with the
dedication and professionalism required to achieve these important objectives
as we seek to align our cost structure for the future.”
Zep Inc. also reported that after conducting a comprehensive analysis of
business trends and its sales pipeline, it now believes fiscal 2013 revenue
will range between $685-$690 million.
* As a result of recent successes from our organic sales pipeline, which
will partially offset some revenue losses which were included in our
previous estimates, management expects that the next two quarters could
result in modest revenue growth, exceeding our previous guidance of flat
revenues during that period. The following two quarters could result in
sales declines of 0-3% compared to previous guidance of declines of 5%.
* The addition of Zep Vehicle Care will positively impact comparative
results through the first quarter of 2014.
* Average Daily Sales (ADS) in Zep Inc.'s North American direct business had
stabilized within a defined range prior to our implementation of SAP on
December 1, 2012, at which time we experienced considerable disruption in
our ability to service certain customers. At this time ADS appears to have
stabilized once again within a defined range, but at a lower level
established during the disruption. As such, we expect that comparisons
within our sales & service business will improve beginning in the second
fiscal quarter of 2014.
* Product line and customer rationalization strategies will continue as
planned and the Company continues to believe that its actions could put
pressure on the retention of certain larger customers. It's important to
note however, that this assumption was included in the revenue guidance
highlighted above.
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