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Aceto Corporation deals with distribution and marketing of pharmaceutical active and intermediate ingredients, nutraceutical products, finished dosage generics form, agricultural protection products, and specialty chemicals. The business is organized along product lines and divided into three categories: specialty chemicals, health sciences, and agricultural protection products. Products in health sciences include intermediate pharmaceutical, active ingredients (APIs), neutraceutical products, and finished dosage forms of generic drugs. Specialty chemicals include a variety of chemicals used in making surface coatings, plastics, textiles, lubricants, and fuels. Agricultural products segment, on the other hand, deals with sales of fungicides, herbicides, insecticides, and other agricultural chemicals. Corporation’s strength lies in regulatory support, sourcing, marketing distribution, and quality assurance. Management’s report on matters relating to internal control shows that the company has maintained effective financial control.

On the other hand, Heartland Express, Inc. is a short-to-medium haul truckload of general commodities that was founded in 1978. The company was publicly traded in November 1986. Its headquarters are located in North Liberty, Iowa. "The company provides regional dry van truckload services through its corporate headquarters and regional terminals. It transports freight for key shippers and generally makes revenue on the number of miles per load delivered". Firm’s strength lies in maintaining high-quality customer service, and this is driven by the presence of experienced drivers and latest equipment. Regional operations of the company are considered to account for 71.3% of its gross revenues. Although the company has been facing challenges, it has remained confident in its operation model that is focused on maintaining strict cost control and hiring experienced and careful drivers. The company has attained 12.3% return on assets, 18.1% return on equity, 12.8% net margin, and an operating ratio of 81.7% over the past five years (Heartland’s Report 2011). This shows that the company is optimistic in attaining its goals.

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 At the end of 2010-2011 fiscal year, Aceto’s Company reported a $ 65,797 and $ 7,112 increases in net sales and operating income respectively (Aceto Corp Report 2011).  The company made a substantial increase of $ 2,387 in net income in 2010 fiscal year. This translated to $ 0.34 per share increase of company’s net income. The company paid cash dividends of $0.10 per common share in 2011, 2010, and 2009 fiscal years. As of June 30, 2011, company’s financial position remained strong. This was exhibited by short-term investments and cash equivalents of $ 29,607, shareholders’ equity of $ 160,821, and working capital of $ 115,429 (Aceto Corp Report 2011). Operating income at the end of 2011 fiscal year was $ 16,550 compared to $ 9,438 in the prior year. This translated to an increase of $ 7,112 and was due to an overall increase in gross profit of $ 11,683. Expense interest also increased by $ 1,570 for the year ended June, 30, 2011. This increase was attributed to the interest accrued on bank loans that were used to partially finance the acquisition of rising assets.

Heartland Company has continued to reward its shareholders with payment of dividends. For instance, the company has paid $337.5 million to its shareholders in over the past 30 consecutive quarters. Over 24 years, that is from 1986 to 2010, Heartland has increased its revenue from $21.6 million to $499.5 million while increasing net income from $3.0 million to $62.2 million (Heartland’s Report 2010). This has been attributed to the ever expanding service, acquisition of new customers, existing customers, and unrelenting expansion of company’s operations (Ashton 2003). Heartland has made five acquisitions since 1987, the recent one being in 2002. These acquisitions made Heartland solidify its position within the existing regions, pursue new customer relationships, and expand new operations. Confidence of the company in its future financial strength has been exemplified by company’s repurchases of 8.9 million shares. Company’s operating model has ensured the building of a solid foundation through adverse times such as recession and escalating fuel prices. This is exhibited by company’s net margin of 12.8% and an operating ratio of 81.7% over the past five years. Heartland ended financial year 2010 with a net margin of 12.5% and an operating ratio of 87% (Heartland’s Report 2010). In addition, the company achieved 11.8% return on assets and 17.7% return on equity. Cash flows from operations in the same year were $98.6 million and remained stable throughout the year. The company maintains a debt free balance sheet, and this makes it to be stronger in the market.

Analyses of financial performance of the two companies are shown in financial statements below.

A summary of Aceto’s consolidated statements of income (Aceto Corp Report 2011).  

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2011

2010

2009

Net income

 

Earnings per share

 

Weighted average shares outstanding

 

Dividends diluted per share

$ 8,968

 

$ 0.35

 

$ 25,906

 

 

$ 0.34

$ 6,581

 

$ 0.26

 

$ 24, 979

 

 

$ 0.26

$ 8,629

 

$ 0.35

 

$ 24,487

 

 

$ 0.35

 A summary of Heartland’s consolidated statements of income (Heartland’s Report 2010).

 

2010

2009

2008

Net income

 

Earnings per share

 

Weighted average shares outstanding

 

Dividends diluted per share

$ 62,216

 

$ 0.69

 

$ 90,689

 

 

$ 1.08

$ 56,949

 

$ 0.62

 

$ 91,131

 

 

$ 0.08

$ 69,968

 

$ 0.73

 

$ 95,900

 

 

$ 0.08

From the figures presented above, the future looks bright for both companies. From Aceto’s statements of income, there is an increase in net income trend, though there was a decline in 2010. Earnings per share as of 2011 were $ 0.35, and were constant in comparison to previous years. This shows that Aceto’s business operations in the market have become more stable. On the other hand, analyses of Heartland’s income statements show that there are fluctuations in company’s net income. There was a major decline in 2009, but the company responded and achieved some improvement in 2010. The company had a major increase in dividends diluted per share, which depicts that company’s shares in stock exchange gained value.

Heartland’s company has eleven regional operations that concentrate on the provision of short-to-medium haul truck load carrier services. Heartland’s management team believes in the use of efficient equipment and high-quality operations in dissemination of services to customers. To become effective in all of these operations, the company has aggregated its operating divisions into one consistent segment. These segments continuously receive guidance on authoritative disclosures about enterprise segments and related information making the company remain competitive and realize the above gains.

Comparisons of company’s consolidated statements of cash flows are as follows:

A summary of Heartland’s consolidated statements of cash flows (Heartland’s Report 2010).

 

2010

2009

2008

Net cash by operating activities

 

Net cash provided by (used in ) investing activities 

 

Net cash used in financing activities

 

Cash and cash equivalent

 

Beginning period

Ending period

$ 96,607

 

 

$ 68,106

 

 

 

 

$ 97,944

 

$ 52,351

 

 

$ 121,120

$ 101,103

 

 

($ 52,773)

 

 

 

 

52,630

 

$ 56,651

 

 

$ 52,351

$ 121,812

 

 

($ 27,117)

 

 

 

 

$ 46,004

 

$ 7,960

 

 

$ 56,651

A summary of Aceto’s consolidated statements of cash flows (Aceto Corp report 2011).

 

2011

2010

2009

Net cash by operating activities

 

Net cash provided by (used in ) investing activities 

 

Net cash used in financing activities

 

Cash and cash equivalent

 

Beginning period

Ending period

$ 14,038

 

 

$ 69,200

 

 

 

$ 49,974

 

 

$ 30,850

 

 

$ 28,664

$ 15,499

 

 

($ 6,109)

 

 

 

$ 2,441

 

 

$ 57,761

 

 

$ 30,850

$ 22,511

 

 

($ 4,063)

 

 

 

$ 4,261

 

 

$ 46,515

 

 

$ 57,761

Analysis of cash flows statements of companies shows that the two companies have been striving to remain competitive as cash flows of each fiscal year are on the rise. This shows that both companies have the ability to make interest payments.

A summary comparison of Heartland’s and Aceto’s balance sheets is shown below:

A summary of Heartland Company’s balance sheet (Heartland’s Report 2010)

 

June 30, 2011

June 30, 2010

Total current assets

 

Property and equipment, net

 

Long term investments and other assets

$ 198, 615

 

$ 12,095

 

 

$ 100,955

$ 195,553

 

$ 6,913

 

 

$ 36,298

Current liabilities

 

Long term liabilities

 

Stakeholders’ equity

$ 83,186

 

$ 67658

 

$ 160,821

$ 74,629

 

$ 17,578

 

$ 139,644

A summary of Aceto Company’s balance sheet (Aceto Corp Report 2011)

 

December 31, 2010

December 31, 2009

Total current assets

 

Property and equipment, net.

 

Long term investments and other assets

$ 193,786

 

$ 220,452

 

$ 91,797

$ 124,514

 

$ 275,170

 

$ 151,479

Current liabilities

 

Long term liabilities

 

Stakeholders’ equity

$ 48,900

 

$ 122,948

 

$ 334,187

$ 47,054

 

$ 136,439

 

$ 367,670

Heartland’s Corporation increased its total assets as in the end of June 30, 2011 fiscal year. Long-term investments, property, and equipment assets of the company also increased. This depicts market stability of the company and its ability to venture into new markets to become more competitive (Copeland 2001). On the other hand, Aceto’s company increased its total assets, property and equipment, and long-term investment assets. This was exhibited by the acquisition of the Rising Company.

Analysis of quarterly reports shows that two companies have been performing fairly well in the market. Examples of quarterly reports of both companies are shown below:

Heartland’s quarterly financial report (Heartland’s report 2010)

 

First

Second

Third

Fourth

Year ended 2010

Operating revenue

 

Operating income

 

Net income

 

Earnings per share

$ 115,617

 

 

 

$ 15,831

 

$ 11,887

 

$ 0.13

$ 127,411

 

 

 

$ 22,033

 

$ 16,653

 

$ 0.18

$ 127,245

 

 

 

$ 29,061

 

$ 18,297

 

$ 0.20

$ 129,243

 

 

 

$ 24,782

 

$ 15,379

 

$ 0.17

Year ended 2009

Operating revenue

 

Operating income

 

 

Net income

 

Earnings per share

$ 114,979

 

 

 

$ 19,040

 

 

$ 14,141

 

$ 0.15

$ 116,974

 

 

 

$ 22,271

 

 

$ 17,615

 

$ 0.19

$ 113,390

 

 

 

$ 22,410

 

 

$ 14,507

 

$ 0.16

$ 114,196

 

 

 

$ 15,806

 

 

$ 10,686

 

$ 0.12

 Aceto’s Corporation quarterly returns (Aceto Corp report 2011)

 

For the quarter ended

Year ended June 30, 2010

Sept 30, 2009

Dec 31, 2009

March 31, 2010

June 30, 2010

Net sales

 

Gross profit

 

Net income

 

Net income per diluted share

$ 70,609

 

$ 11,816

 

$ 1,003

 

$ 0.04

$ 70,910

 

$ 10,780

 

$ 2,501

 

$ 0.10

$ 99,347

 

$ 15,852

 

$ 3,841

 

$ 0.15

$ 105,765

 

$ 4,238

 

$ 4,238

 

$ 0.17

Analysis of Strategic Issues Facing Aceto’s Company

Analysis of Aceto Corporation and subsidiaries shows that the company can face some strategic issues in its operations. The primary challenge to the corporation is competition with other regional and global distributors of pharmaceutical and chemical products (Penman 2007). Greater financial, distribution, and marketing resources of competitors can result in Aceto Company’s price reductions, loss of market share, and reduced profit margins for their products. This will adversely affect cash flows, business operations, and financial condition of the company. The launch of new generic products (generic industry) by competitors can result in rapid and significant declines in product pricing, which will ultimately lead to a decrease in net sales.

Second is the introduction of regulatory bodies, FIDA, for example, resulting in delays of introduction of products to the market. Aceto’s timely delays in relation to competitors’ product introductions will adversely affect company’s financial condition. The process of obtaining regulatory/FIDA approval on marketing of new and generic pharmaceuticals products is costly, time consuming, rigorous, and predominantly unpredictable (Bettman 2009). Thus, failure of Aceto to successfully acquire this approval on timely basis would result in reduction of net sales, hence leading to lower profit margins.

Aceto’s dependence on limited number of suppliers can seriously affect timely delivery of products. Hence, future operational results of the company will rely on the performance of suppliers. For instance, product costs will be affected if there is an upswing or shortage in supply. This will seriously affect company’s cash flows, operating results, and financial condition. Introduction of healthcare reforms or other third-party players can seriously challenge pricing of pharmaceutical products. Such measures and healthcare reforms can affect selling, marketing, and distribution of Aceto’s products. Thus, net sales of the company will be easily affected by these measures and reforms.

Inventories on hand could be adversely affected by the changes in market conditions, product demand, and uncertainties in the global market (Bettman 2009). If the value of the inventory is affected, operating results, cash flows, and the financial condition of the company will be affected (Barney 2007). Quarterly fluctuations due to either timing of contracts, government regulation changes, or cancellation and delay of contracts can have a significant impact on company’s quarterly results. Like for instance, the revenue and operating results in some quarters can decrease below investors' and analysts' expectations of securities. This will lead to a decline of company’s common stock trading price.      

Another significant issue that Aceto Corporation can face is failure to obtain products from outside manufacturers. Lack of Aceto’s company to address manufacturing problems, regulatory issues, delays in manufacturing process, and disruption or damage of raw materials can lead to poor products delivery to customers. This will seriously affect net sales of products, which in turn will lead to financial problems. The company also faces a challenge of handling environmental issues e.g. contamination of the environment. For example, Pulvair Site group has alleged that Aceto shipped hazardous chemical products to them, thus they consider them as the main contributor to site contamination. This resulted in the closure of their business due to contamination of the environment. The group thus is considered to seek for a settlement from Aceto, which will ultimately have an adverse effect on Aceto’s operating results, cash flows, and financial condition in the future reporting period.

Aceto’s Financial Position and its Ability to Address the Challenges

Although Aceto Corporation has been experiencing a continuous increase of challenges, in the fiscal year 2010-2011, the company reported $ 65,797 and $ 7,112 increase in net sales and operating income respectively. Corporation’s net income also increased by $0.34 per diluted share to $ 8,968, implying that financial position of the corporation, as of June 30, 2011, still remains strong. This overall financial condition of Aceto’s Corporation shows that its products in the market and operations are competitive (Ireland 2007).

To overcome these challenges, Aceto Corporation has partnered with both suppliers and customers in the provision of generic equivalent of drugs coming off patent. The Corporation believes in the existence of a well developed APIs which makes the Corporation have the potentials of reaching higher commercial levels in the future as patents on existing drugs expire. Acquisition of intellectual property and strong product lines will enhance the expansion and enhancement of product operations (Lundholm 2007). The Corporation also continues to explore more opportunities for the provision of a second source option for existing generic drugs. That is, to supply the APIs for the sale of more mature generic drugs in which their prices has stabilized. By leveraging the corporations’ quality assurance, worldwide sourcing, and regulatory capabilities, the corporation can be an economical second source option for the provision of existing APIs to other generic companies. Through acquisitions and takeovers, Aceto Corporation can establish another platform for the company’s growth and to have a competitive advantage over competitors. For example, the acquisition of Rising will provide Aceto Corporation with the presence of a marketer and developer of their own brand of generic pharmaceuticals.

In the specialty chemicals segment, Aceto Corporation continued to respond to the dynamical needs of the customers by producing customer based organic pigments. With the increase in Aceto’s businesses in more than ten countries, it makes the corporation gain strength in the market of its products. Finally, Aceto Company has continued to pipeline the introduction of new agricultural protection products into the market. Though the company has been receiving competition from other products, the company plans to file new products with the EPA. This will make the company have more additional products in the market, leading to more net sales which will in turn translate to increase in profit margins. Stakeholders should also ensure that new products channeled into the market conform to environmental standards. They should not contaminate the environment.

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