Zep Inc. Issues Update on Complexity-Reduction Activities, Sales, Sees FY Sales $685-690M

Zep Inc.

, 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.