Commentary & Analysis
FREE: Consolidated Graphics' riding high on Q4 results and getting ready for more acquisitions: Summary of Q4 Earnings Call
In their fourth quarter earnings call,
By WhatTheyThink Staff
Published: May 5, 2004
In their fourth quarter earnings call, Consolidated Graphics (NYSE: CGX) announced sales for the March quarter were $183.4 million, compared to $166.1 million a year ago. Net income for the March quarter was $6.2 million, or $.44 per diluted share, compared to a year ago with a net loss of $29.1 million, or $2.13 per diluted share which included a pre-tax impairment of goodwill of $38.0 million.
For the year-ended March 31, 2004 , total sales were $708.1 million, compared to $710.3 million for the previous year. Net income for the year was $20.0 million, or $1.44 per diluted share, compared to a net loss of $87.3 million, or $6.47 per diluted share, a year ago.
Topics of this summary :
- Chairman's Comments
- CGX Strategy
- First Quarter 2005 Guidance
- Q & A
"We are pleased to report results for the fourth quarter that significantly exceeded our expectations," commented Joe R. Davis, Chairman and Chief Executive Officer. "Sales in the March quarter were $8.1 million, or 4.6% higher than our forecast, reflecting our ability to capitalize on a strengthening economy and stabilizing commercial printing industry conditions. Operating margins in the March quarter increased to 6.3%, our fourth consecutive quarter of margin improvement and equaling the margins we had delivered in the first three quarters of fiscal 2003 prior to the Iraq war. In addition, net income and earnings per share showed significant growth over the previous quarter and the prior year period. This top-line and bottom-line expansion resulted in the generation of $24.4 million in operating cash flow, a 52% increase over the December quarter, and reflects our continued ability to leverage our industry-leading position to drive meaningful growth throughout our business."
Mr. Davis continued, "Fiscal 2004 was an important year for Consolidated Graphics, as we used the strength of our business model to benefit from improving economic conditions and a modest recovery in the commercial printing marketplace. We continued to generate significant cash flow, which enabled a total debt reduction for the year of $52.3 million, or 32%, while also investing $31.2 million in acquisitions and capital expenditures. In the March quarter, our acquisition of Eastwood Printing, a premier full-service web and sheet-fed printing company, expanded our market share and added important new capabilities to our operations in the Denver area. Additionally, our recently announced agreement with Xerox Corporation provides Consolidated Graphics with the most advanced digital color technology in the industry as well as the resources to assist in marketing this technology to current and prospective customers. Each of these developments, in conjunction with our continued efforts to grow and fortify our national accounts program, will provide significant positive momentum as we enter fiscal 2005."
In today's earnings call, Consolidated Graphics reported the fourth consecutive quarter of growth in sales, operating margins and net earnings. In the call, Consolidated Graphics gave an update on some of their strategic initiatives to gain market share and contribute to increased sales and profits:
- Maintain Leadership Position - The Company re-stated its leadership position in the industry due to geographic reach.
- National Accounts Program National accounts in the March quarter were flat over the December quarter. CGX has added four more sales professionals to increase reach and market share.
- CGXmedia The Company grew its installed customer sites by 7% and plans a continuation of efforts in this area.
- Digital Printing CGX, together with their Xerox agreement, will make additional investments in technology to grow and change with technological improvements.
- Acquisitions The Company has observed an increased number of acquisition candidates due to economic conditions. No assurances were given regarding timing or type of acquisitions.
- Balance Sheet CGX maintains a strong balance sheet and has taken steps in past quarters to reduce total debt to $111.5 million. The cash flow for the March quarter was $24 million which was their highest quarterly level for the year. In 2004, they spent $5.3 in acquisitions and $4.1 million in cap expenditures. CGX expects that the $19.8 million cap ex spent in 2004 will be the same number for the 2005 budget. EBITDA was $20.8 million; a quarterly high.
First Quarter 2005 Guidance -
CGX expects a flat quarter over March. Operating margins and diluted earnings per share will remain essentially flat with operating margins at 6.3% and earnings per share at $0.44.
Q & A
- CGX has 65 locations in 25 states and 24 of their facilities offer digital printing. Most of those have VDP capabilities and can service all their customer needs across the U.S. Demand in the future will dictate how much and where additional digital capabilities will be added.
- The Xerox agreement refers marketing assistance. In additions Xerox, will provide internal training to CGX's sales force and operating personnel. This is a strategic alliance and CGX was mentioned in the Xerox press release.
- On their last earnings call they had not seen any volumes directly related to the National Do Not Call list.Joe Davis said that is it too difficult to measure whether this legislation has benefited the current quarter results.
- CGX will realize Election year benefits through work from the Republican and Democratic parties; both locally and nationally.
- CGX has been buying companies since 1985 and Joe Davis talked very generally about their experience without revealing anything about CGX's targets in 2005 only to say that they will be increasing their staffing levels for M&A.
Editor's Note: The Q&A portion of the call appeared staged with questions to allow Joe Davis to repeat press release information and sell analysts on their Xerox agreement. For example, one analyst sounded like he was reading from a script so that Joe Davis could once again repeat basic financial ratios and CGX strategies to the audience. Substance was minimal and the call was very short; only 28 minutes which we found surprising given that this was a quarter and year end call.