: Summary of Q2 Earnings Call By Jan Stoddard of Raine Consulting October 30, 2003 -- Consolidated Graphics, Inc. (NYSE:CGX) today announced results for its second quarter ended September 30, 2003. Revenues for the September quarter were $174.6 million, compared to $165.8 million in the June quarter and $181.8 million a year ago. Net income for the September quarter was $4.8 million, or $0.34 per diluted share, compared to net income of $3.6 million, or $0.26 per diluted share, in the June quarter and net income of $5.4 million, or $0.40 per diluted share, a year ago. For the six months ended September 30, 2003, total revenues were $340.5 million, compared to $357.9 million for the comparable period a year ago. Net income for the first half of this fiscal year was $8.3 million, or $0.61 per diluted share, compared to $10.4 million, or $0.77 per diluted share in the same period last year. Mr. Joe Davis, Chairman and Chief Executive Officer, and Christopher  Colville,  Executive Vice President and Chief Financial Officer conducted today's investor relations' call. Editor's Note : As the largest sheet-fed and half-web commercial printing company in the U.S., Consolidated Graphics offers a good barometer of the quarterly experience, as well as a benchmark for other printers. With improved sales and continued cost controls, CGX continues to improve margins and net income. However, no one, including Joe Davis, is predicting a solid economic rebound and next quarter forecasts still remain obscured.   Topics * Chairman Comments * Future Guidance * Q&A Chairman Comments CEO Joe Davis opened the call by noting, “During the quarter, we were encouraged to see some signs of stabilization in the commercial printing industry, which along with our own efforts at stabilization contributed sequential revenue growth and our second sequential quarter of margin improvement and net income growth.” Sales in September quarter were $174.6 million, a 5% improvement over the June quarter. However, citing the year's difficult industry conditions, sales declined 4% over same quarter in 2002. Earnings per share were $0.34 (a 31% improvement over the June quarter and a 21% improvement over the previously stated guidance of $0.21). This was partially the result of a more predictive sales environment over the quarter, which together with continuing cost control efforts enabled an increase in operating margins from 4.4% (June quarter) to 5.5% (September quarter). “This is a very positive trend,” commented Davis. Regarding the sales environment, Davis referred to the previous quarter's conference call regarding the winding down of the Iraqi conflict and a pick-up of sales momentum in the second half of the quarter. (This is not the usual seasonal pattern.) This momentum carried forward into the September quarter, positively impacting performance by giving CGX a “little more control” over pricing and job scheduling. However, Davis tempered this positive note by stating, “While we attribute some of this sales momentum to a perhaps an early indication of improvement in the economy, I don't know that there is a strong consensus that such economic improvement will continue.” Industry conditions remain very challenging. Competitive conditions created by industry overcapacity continue to be a significant issue and are reflected in the year-over-year CGX margin decrease. Davis noted the CGX will continue diligent cost controls such as head count discipline He gave the example that the slight decrease in the number of full time employees during the September quarter (despite a 5% increase in Sales) was managed not by additional hiring but by working a lot of overtime. Purchasing remains an area of focus and opportunity through leveraged buying power and scale in future growth through additional vendor rationalizations. Davis anticipates they will see the benefits of these purchasing initiatives by then upcoming March quarter. Davis reviewed other critical non-financial areas of focus including: 1. CGX continues its acquisition strategy positioning for long-term growth in sales and profits. There is a “sizeable pipeline of opportunities” to grow market position through acquisition. This quarter, CGX announced acquisition of two companies: Lithographix, Inc, San Francisco, CA and Custom Graphics, in Cleveland, Ohio. 2. National accounts contributed 8% of total September quarter sales. Aaron Grohs was promoted to Executive Vice President of Sales and Marketing to support critical national accounts. Grohs will focus on the CGX strategy to leverage the geographic footprints for national corporations seeking to consolidate and sole source print buying, creating solutions-selling programs for print and CGX, and individual location marketing efforts. (Grohs is the former President of Mercury Printing, a Consolidated Graphics company in Memphis, Tennessee.) 3. CGXmedia has expanded with its GOLD product and there are now 205 CGX sites (14% increase this year). GOLD (Graphics Online Layout Design) an e-solution is designed for end users to manage text, images and corporate layouts through a proprietary web page. 4. Kitting and fulfillment is offered in all CGX facilities with 10 locations that specialize in it. 5. CGX continues to expand capabilities in the digital print market. With 16 locations now offering digital printing solutions, Davis announced that they are looking for a “sole source digital provider” to leverage scale and continued installations where demand exists. 6. Printing technology is complex and CGX has developed a program based on “helpful, insightful education to customers.” It has been offered to customers at some facilities and will be expanded to others in the coming year. Future Guidance Colville echoed Davis' view that very challenging industry conditions and limited near-term visibility will remain, and projects that operating margins will remain sequentially flat, anticipating $170.4 million in revenue and diluted earnings per share of approximately $0.34 for the next quarter. Q & A Session: 1. When asked if the current selling expense run rate is maintainable over the next couple of quarters, Davis explained that last year's selling expense reflected higher expense due to recruitment expense resulting in some of this year's improvement. As sales grow, selling expense will increase due to sales commission. 2. The geographic areas with greatest improvements were Chicago and Boston (which had been previously hit hard due to dot.com's, biotech and services being down). 3. By economic sectors , CGX has seen improvement in the advertising and marketing sector citing several $500,000 projects in process (just the print component of a new product or campaign roll-out). 4. In describing CGX Media marketing direction , Davis noted that the GOLD product has enhanced other CGX Media products and is being marketed both locally and nationally. 5. “Our leadership development program is the best investment we have ever made at Consolidated Graphics,” stated Davis when asked for an update on the program. To date, 168 people are participating in this Leadership program now and CGX is hiring 62 more to participate this year. Davis noted that over 17% of company Presidents have graduated, as well as some of the highest performing sales reps. 6. Best practices (such as purchasing programs) are communicated and implemented through a series of President's meetings . Segmented by size (smaller, medium, larger companies), the company Presidents spent three days together. On a final note, Davis concluded the meeting with a light-hearted anecdote of 100-year old Arthur Wetzel who remains one of CGX's oldest stockholders. At his 100 th birthday party in Milwaukee, WI. Wetzel related how he has never yet sold a share of Consolidated Graphics stock.