By Ann Levine of Raine Consulting July 31, 2003 - Banta Corporation (NYSE: BN) reported second quarter sales of $337 million up 1.3% from $332 million in the same period last year. Net earnings were $7.3 million as opposed the $13.4 million last year. Earnings per diluted share were $0.28 versus last year's $0.52 per diluted share. Excluding charges, Banta's second quarter earnings were $13.5 million versus $13.4 million from the same period last year and diluted earnings per share were $0.53. Banta experienced special charges of $10.2 million in the second quarter that affected results. Pretax charges of $5.6 million were related to the restructuring and realignment announced in January in the consumer catalog and global supply chain management divisions. Another $4.6 million was related to a terminated acquisition and the follow-on litigation settlement. Topics of this summary: * New Initiatives * Financial Performance of Business Segments * Outlook * Q &A New Initiatives Banta will approach the third quarter with an aggressive sales posture. The company has added sales people in 4 of their 6 new divisions. The company is expanding 3 new fulfillment centers to create substantial returns. In the book sector, the second quarter is traditionally the lowest quarter. There has been lower educational volume and softness in demand for advertising. Educational publishers continue to be nervous due to the threat of state cut backs which means book orders are at a minimum. Banta's fulfillment arena is moving faster than print. In literature management, Banta is expanding to a broader list of customers. The second quarter brought in a major piece of business and another will be announced in the third quarter. The publications division has seen a reduction in page counts yet there has been an increase in revenues. Banta has focused on new revenue streams in the publications divisions. The catalog division has undergone an operational consolidation program. The shutdown of the St. Paul plant is now complete along with the equipment transfer. There was a delay in getting the new plant fully operational due to a delay in getting permits. This has caused the Minneapolis plant to lose two months of being fully operational. There will be $20 million in capital expansion at the new plant with additions to the facility and infrastructure. A significant payoff should be realized in 2004. Direct marketing has historically been the fastest growing market. Banta anticipates the national "No Call List" will have significant impact on telemarketers who will need to redirect spending and use direct marketing as an alternative. Banta has seen an increase in estimating activity to date and is prepared to capitalize on this market. Financial Performance of Business Segments: * Supply Chain Management has been a significant contributor to Banta's portfolio. Supply chain management has shown $80 million in sales up 15% from last year and operating earnings of $10.2 million up 79% before special charges. Health care continues to improve with 47% operating profits as compared to the second quarter of 2002. Most of these facilities have relocated to the Midwest. * Print Sector sales for the second quarter were below the same period last year, $231 million versus $237 million, and were impacted by the continuing weakness in advertising, capacity availability in consumer catalogs and lower volume in the educational market. Print Sector operating earnings were below last year's second quarter due to industry-wide pricing declines, volume weakness and restructuring charges. Print volume shortfalls continue to hamper progress of Banta's direct marketing business. Direct marketers remained cautious during the quarter with promotional plans, awaiting more visibility in the economy and consumer spending. While customer print estimating activity has picked up, as yet there has not been a corresponding increase in orders. * Banta's publications division delivered both improved sales and earnings in the second quarter despite an approximately 5 percent reduction in advertising pages. Gains in market share continued to drive the division's strong performance. New value-added services and the addition of print capacity in the second half of this year are expected to support continued growth in this division. * Educational book printing was below 2002's strong second quarter as publishers delayed ordering classroom materials until state budget cutbacks are finalized. Literature management services revenue grew 11 percent during the quarter as this business unit gained new customers and expanded its value-added service capabilities through the start up of two new fulfillment operations. * Catalog division sales and earnings were lower in the second quarter compared to the same period last year. Although sales showed only a 3 percent decline in a soft operating environment, operating earnings were negatively affected by permitting delays that constrained capacity and created additional costs. Also, industry-wide competitive pricing in the commercial print segment continues to affect earnings. Outlook Banta predicts continued but modest growth for the second half of the year with lower third quarter earnings projected at $0.10-0.12 earnings per share. Q & A 1. The printing delay by the Minneapolis plant will be quantified within the $0.10-$0.12 earnings guidance for the third quarter. A sizable amount of the impact occurred in the second quarter but it was compensated for by the performance in supply chain management. 2. Capital expenditures for 2004 will be in the $80 million range with $20 million spent on technology and $30-$40 million for maintenance expenditures. 3. Company restructuring has been primarily across 2 divisions with the print sector accounting for the bulk and supply chain management the remainder. 4. Although it may seem counterintuitive for Banta to be adding capacity when there is not the demand, the company is preparing for the future when the economy changes. Some capacity changes are also for the cost effectiveness of current equipment. 5. The remaining restructuring expenses will be taken in the third and fourth quarters of 2003 with 40% of the cost absorbed in Q3 and 60% in Q4. 6. Key customers in the supply chain management sector include all tech markets, software, hardware and networks. Banta has closed business deals in the first half of the year that will be realized in the second half and into 2004. New areas where efforts have been made are in medical, telecommunication and electronic games. Banta is making headway in penetrating these markets in more than a casual way. 7. Although Banta has a strong cash balance, the company is looking at acquisitions from the perspective of geographic expansion and expansion in to key print markets. Their focus will be on acquisitions that will provide future growth opportunities. Banta will not consider an international print acquisition at this time. 8. About 60% of Banta's supply chain management revenues are international. Very little in the print sector.