By Gail Kailing April 28, 2003 -- Standard Register (NYSE: SR), provider of document management and label solutions, consulting and fulfillment services, and e-business solutions, announced results for the 2003 first quarter ended March 30, 2003. Revenue was down 10.5% from the previous year to $236 million. Gross margin dropped from 40.0% to 37.5% and net loss was $1.1 million for the quarter compared to a net profit of $10.9 for the same period last year. Quarterly dividends paid were $0.23 per share. Topics of this summary: * The Market * Strategies/Tactics * Looking Ahead * Q&A Summary The Market Dennis L. Rediker, President and Chief Executive Officer, summarized the market as: weak demand, pricing pressure, and cautious capital spending. Revenues were down more than expected. There was less customer activity and lower volume. Industry overcapacity continues causing ongoing price pressure. Some of the revenue drop was a residual effect of the 2001 restructuring. Customers are changing their own strategies, not just making tactical cuts. The larger customers are looking at Standard Register as a strategic partner, which aligns with the consultative approach now in place. The selling cycle is longer and, with the required time to implement the new solutions, the revenue impact will be felt in the second half of 2003. Strategies/Tactics Peter A. Dorsman, Executive Vice President and Chief Operating Officer, endorsed the disciplined approach the company is taking. Standard Register is continuing to invest in consulting services and technology to meet customers' changing needs. At the same time the company is reducing its cost structure by closing facilities, consolidating warehouses, and reducing staff. Sales management and staff have been added to the direct sales force, and there are new sales initiatives going forward. A lead generation operation has been organized to provide qualified leads to direct sales and an inside sales group was added to serve smaller accounts, allowing direct sales to concentrate on larger accounts. A strategic accounts operation provides collaborative business support across the company. New label solutions have been developed for vertical markets, including a pharmacy solution delivered to three new pharmacy chains. The program prints subscription labels, patient advisories, and marketing information. It reduces costs, improves accuracy, and integrates into existing prescription applications. The cost reduction plan includes: * Consolidation of four printing/fulfillment operations into one state-of-art facility in Dallas, TX. * Closing a rotary plant. * Shuttering three warehouses. * Headcount reduction of less than 10% projected for second quarter. Looking Ahead While management is disappointed with the first quarter results, they are optimistic about the long term. Standard Register will continue to align its cost structure with the expected revenue stream, and will remain realistic about opportunities and sales cycles. The close rate on multimillion contracts has improved. There is new business for the label/forms group, print-on-demand/Smartworks, and facilities management. New account implementations - the transfer of new customer inventories to Standard Register warehouses - are rapidly growing with about 15 actual or scheduled implementations in the first quarter. The PathForward consulting initiative is moving ahead; experienced personnel are in place and several Fortune 1000 clients have been added. The consulting service provides analysis and recommendations concerning document strategies and e-business, that can interface with Smartworks. Fulfillment services have seen reduced costs and improved customer retention. The software infrastructure has been improved and provides customers with web access for ordering, tracking and managing their materials. Print-on-demand is a continued success and the intent is to grow a bigger share of the market. Newly acquired InSystems serves financial clients with a number of solutions including an e-correspondence system for call center operations. This solution rapidly generates professional, personalized correspondence providing increased productivity and reduced costs. Standard Register is in the middle of a fundamental transformation to acquire, develop or license technology to develop unique solutions to meet customers' needs. The transformation is expected to continue to show improvement through 2004. It is certainly a difficult economic time for a transformation - the company will be ready for the economic rebound when it occurs. Q&A Summary * Capital expenditures for the quarter will be about $4 million. * Cost savings from restructuring will come from consolidation and closing of plants. SGA will see about a $5 million savings. * Lower gross margins are a result of the cost structure. As revenue declined the margin also declined since there weren't as many opportunities to save on fixed expenses. * The confidence that customers will commit to the new solutions based on significant technical investments comes from two areas. First, the company now has the platform to sell into the customer base. Second, the things customers have been putting off should be treated as pent up demand. The same economic forces faced by Standard Register are operating on its customers. During tough economic times it's good to look at how you conduct business. Customers are moving into a more strategic view. Those are the customers who are looking at new technology and consulting services. There is definitely more interest in those areas as customers look at longer term issues and respond favorably. Longer selling cycles and implementation time may delay actual revenue. * Standard Register is streamlining consulting operations to take out costs and more effectively assist customers. These are multiple-phase engagements that result in both early and follow-on revenue. Consulting operations can recommend additional services such as print-on-demand to reduce ancillary costs of document production and use. * InSystems offers software that allows customers to drive self-service for their customers and really cuts costs. The solutions also allow customers to streamline their own operations and drive their own top line. * Standard Register's cost cutting efforts have been both proactive and reactive. Most cost cutting in the last year was part of the overall planned restructuring. The transformation strategy to become more of an information solutions partner. This was scheduled and planned in 2001, and has been executed well. The results were positive and still affecting the company: margins are up, asset utilization is up, and cash was generated. The revenue shortfall didn't allow the company to fully prove the platform in 2002. New initiatives investing in productivity and focusing the sales force will drive revenue. Changes going forward may be more of a reaction to the economy. The company improved its own processes and has improved productivity. There is a continuing oversupply in the industry, and Standard Register may retire more capacity. * The Moore/Wallace merger has yet begun, and customers have not been impacted. To merge two large companies will have some impact, and Standard Register is optimistic that some revenue will be generated from the merger later in the year. * Two attempts to increase prices by roughly 5% each time, by two different companies, have failed. No one followed suit so the increases were rolled back. A better economy may support an increase, though the timing isn't known. * Standard Register is clearly optimistic about the second half of the year, and carefully avoiding "irrational exuberance!" The initial restructuring in 2001 eliminated about $250 million of low margin business. The company expects to see some recovery later this year, as there is evidence that it could occur. Backlogs have declined, as have inventories. Stored inventories have stabilized after eight continuous quarters of declines. The sales funnel is fuller than it has been for some time. Wins are outpacing losses