Commentary & Analysis
FREE: CGX Reports Six Consecutive Quarters of positive Operating Margins: Summary of Q2 Earnings Call
By Susan Kelly November 3,
By WhatTheyThink Staff
Published: November 3, 2004
By Susan Kelly November 3, 2004 -- In their second quarter earnings call, Consolidated Graphics (NYSE: CGX) announced revenue for the September quarter was $191.1 million, up 5% compared to $181.5 million in the June quarter and up 9% compared to $174.6 million a year ago. Net income for the September quarter was $7.6 million, or $0.53 per diluted share, representing increases of 11% and 10% compared to the June quarter's net income of $6.8 million and $0.48 per diluted share. Compared to the September quarter a year ago, net income increased 59% and diluted earnings per share increased 56%. Overall, September quarter revenues were at a record level for Consolidated Graphics, and operating margins improved for the sixth consecutive quarter and was the highest in the last twelve quarters. Topics of this summary: Chairman’s Comments CGX Strategy First Quarter 2005 Guidance Q & A Chairman’s Comments “This quarter's results clearly exemplify the strength and breadth of our business model," commented Joe R. Davis, Chairman and Chief Executive Officer. "All of the elements of our business strategy measurably contributed in the quarter. Of the total increase in revenues from the year-ago quarter, our acquisition program contributed 3% and our internal growth strategy contributed 6%, which includes revenue from election related printing of 3%. In July, we acquired Electric City Printing in South Carolina. I am especially pleased we were able to leverage this revenue growth into further improvement in operating margins." Mr. Davis continued, "Going forward, we intend to further capitalize on these same growth strategies. We are evaluating various acquisition opportunities in accordance with our disciplined approach to acquisitions. Our multi-faceted strategy to generating internal growth consists of further developing national sales and cross-selling activity, capturing market opportunities and capitalizing on further improvement in economic and industry conditions. At the same time, we remain very committed to controlling costs and operating as efficiently as possible." Mr. Davis concluded, "Our strong balance sheet and market-leading position give us confidence in achieving long-term growth in sales and profits. In the near term, while our recent performance trends have been positive, continued improvement in economic and industry conditions is an important factor in our ability to sustain our momentum. We have 65 plants in 25 states. No competitor comes close to our geographic coverage or scope of capabilities.” Financial Summary Capital expenditures were $5.0 million for the quarter for a total of $11.5 million year to date. CGX is expecting to spend $25 million for the year. Total debt has been reduced by 21% to $102 million. The cash flow for the September quarter was $16.2 million which impacted from acquisitions, seasonal adjustments, etc. EBITDA was $24 million. Third Quarter 2005 Guidance In the upcoming December quarter, CGX expects to generate revenue of $194 million and earnings per diluted share of $0.54; reflecting a 1% growth rate and based on a flat gross margin rate of 7.1% Q & A Margin increase for the quarter was due to the volume of election work and that it is better priced since these sales are non-commissionable. Paper price increases were not identified as a factor for future growth as compared to competitors. CGX says that they are not impacted by paper prices thereby no impact on the financial statements. Trading volume is low of CGX stock and an analyst asked if CGX would consider paying a dividend. Davis responded that the best use of cash is to grow the business and buy good companies. Cross-selling initiatives: There are 600 salespeople in CGX and they are assigned to a location. Most are sheet fed printing operations. Salespeople can sell any capabilities to their customers.