Founder, BWS Financial Inc

Hamed Khorsand

Founder

Independent Stock Specific Research

BWS Financial Inc

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Equity Bottom-Up

<ul>
<li>HWKN is entering fiscal 2025 (March) with a business model that is changing from its historical norms. The revenue mix is changing in fiscal 2025.</li>
<li>This change should lead to HWKN receiving a higher valuation in the market than it has historically received since the water treatment business is very different from HWKN’s industrial business</li>
<li>A higher earnings profile for HWKN and earnings continuing to grow in fiscals 2025 and 2026 leads us to raise our price target to $96 from $74</li>
</ul>


HWKN is entering fiscal 2025 (March) with a business model that is changing from its historical norms. The revenue mix is changing in fiscal 2025.
This change should lead to HWKN receiving a higher valuation in the market than it has historically received since the water treatment business is very different from HWKN’s industrial business
A higher earnings profile for HWKN and earnings continuing to grow in fiscals 2025 and 2026 leads us to raise our price target to $96 from $74


HWKN: Sales Mix Change Is a PT Change, Now $96

<ul>
<li>Hawkins (HWKN) reported fiscal third quarter (December) results benefiting from higher mix of water treatment sales as the industrial segment dealt with its seasonal soft period</li>
<li>HWKN has grown its water treatment segment through acquisitions including several made towards the beginning of the December segment</li>
<li>Water treatment sales were approximately $9 million less than expected due to the timing of acquisitions closing and their sales contribution during a seasonally soft quarter for the segment</li>
</ul>


Hawkins (HWKN) reported fiscal third quarter (December) results benefiting from higher mix of water treatment sales as the industrial segment dealt with its seasonal soft period
HWKN has grown its water treatment segment through acquisitions including several made towards the beginning of the December segment
Water treatment sales were approximately $9 million less than expected due to the timing of acquisitions closing and their sales contribution during a seasonally soft quarter for the segment


<ul>
<li>HWKN reported fiscal second quarter (September) results with improved gross margin and continued reversal of last in first out (“LIFO”) reversals</li>
<li>HWKN converted inventory to cash that was then used to reduce the debt balance allowing HWKN to acquire two more water treatment businesses</li>
<li>The quarter included a sharper decline in industrial sales than expected. However, the higher gross margin in water treatment and health and nutrition segments were able to offset the impact</li>
</ul>


HWKN reported fiscal second quarter (September) results with improved gross margin and continued reversal of last in first out (“LIFO”) reversals
HWKN converted inventory to cash that was then used to reduce the debt balance allowing HWKN to acquire two more water treatment businesses
The quarter included a sharper decline in industrial sales than expected. However, the higher gross margin in water treatment and health and nutrition segments were able to offset the impact


<ul>
<li>HWKN reported fiscal first quarter (June) results where higher prices had offset the decline in unit volume.</li>
<li>Without having to take LIFO reserves, HWKN was able to materially beat our expectations. We do not believe this is likely to occur again in the September quarter</li>
<li>There is no evidence of unit volumes rising in the short-term. However, input costs might have stabilized in the June quarter</li>
</ul>


HWKN reported fiscal first quarter (June) results where higher prices had offset the decline in unit volume.
Without having to take LIFO reserves, HWKN was able to materially beat our expectations. We do not believe this is likely to occur again in the September quarter
There is no evidence of unit volumes rising in the short-term. However, input costs might have stabilized in the June quarter


<ul>
<li>HWKN reported Q4 (April 2) results at first read suggesting beating estimates. However, demand has been declining and EPS beat our forecast due to one-time gain on an asset sale</li>
<li>The competitive environment has intensified in recent quarters where imports are being offered at lower prices while HWKN faces higher costs</li>
<li>We have changed our fiscal 2024 estimates to incorporate reduced sales from the asset sale, longer timeline in gross margin improvement, and the industrial segment facing competition</li>
</ul>


HWKN reported Q4 (April 2) results at first read suggesting beating estimates. However, demand has been declining and EPS beat our forecast due to one-time gain on an asset sale
The competitive environment has intensified in recent quarters where imports are being offered at lower prices while HWKN faces higher costs
We have changed our fiscal 2024 estimates to incorporate reduced sales from the asset sale, longer timeline in gross margin improvement, and the industrial segment facing competition


United States

Hawkins, Inc. formulates, manufactures, blends, distributes, and sells reagent grade laboratory chemicals and industrial chemicals.  The Company also provides water treatment equipment and chemicals to commercial and industrial entities. Hawkins services customers located in the Midwest United States.

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Hawkins Inc (HWKN US)

HWKN: Sales Mix Change Is a PT Change, Now $96

Entering fiscal 2025 (March), HWKN's sales mix shifts to water treatment as a majority, which carries a higher gross margin and steadier state of...

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HWKN: Eyes of Free Cash Flow

Gross margin remains above 20 percent with the Company able to generate free cash flow to begin reducing the debt from acquisitions made in the...

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HWKN: Water and Margin Growth, PT to $74

HWKN reported results showing gross margin improved better than expected. Water treatment is becoming a larger portion of the business, which...

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HWKN: Returning to Buy Rating

We are upgrading to Buy from Neutral. HWKN now has less debt on its balance sheet and improved clarity in growing earnings

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HWKN: One-Time Gain Hides Miss

HWKN's beat our EPS due to a gain on an asset sale within its SG&A line. Without this gain, EPS would have missed our forecast due to the decline...

BWS Financial Inc

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