Schawk Reports 3Q Earnings, Revenues Down 11% This Year
Thursday, October 18, 2001
DES PLAINES, Ill., Oct. 17 -- Schawk, Inc., North America's leading provider of digital imaging prepress services to the consumer products industry, reported that it had income after taxes of $2.6 million before restructuring charges and the loss at its software start-up InterchangeDigital in the third quarter of 2001, better than the $2.5 million in the second quarter of 2001 but below the prior year third quarter of $4.4 million on the same basis. Earnings per share for the third quarter ended September 30, 2001 excluding restructuring charges of $0.01 per share and the loss at InterchangeDigital of $0.01 per share, were $0.12 per share compared with $0.12 per share in the second quarter of 2001 and versus $0.20 per share in the prior year third quarter on the same basis. Schawk reported net income of $2.1 million or $0.10 per share, fully diluted, in the third quarter compared with $3.6 million or $0.17 per share, fully diluted, in third quarter 2000. Revenues for the quarter were $47.2 million compared with $50.6 million in third quarter 2000. For the nine months ended September 30, 2001, net income was $5.6 million or $0.26 per share, fully diluted, as compared with $10.4 million or $0.49 per share, fully diluted, in the prior year nine months period. Nine months revenues were $140.6 million compared with $158.2 million for the nine months of 2000. David A. Schawk, president and chief executive officer commented: "In the third quarter, we experienced a continuing softness in business with our major customers. Advertising pages continue to be down, while in packaging, consumer products companies remain conservative and cost-conscious. Having said that, we are seeing signs of improvement at several accounts in the first weeks of the fourth quarter. "Based on discussions with clients and a knowledge of what their upcoming needs will be, we believe the business and revenue trend will be positive for the fourth quarter and for 2002. We have strong competitive service offerings and a leadership position. Many of our large accounts that had been holding back are beginning to release new designs and promotions. We know that there is significant pent-up demand.'' Mr. Schawk added that during the quarter, the company continued with productivity and service-based initiatives to give the company and its clients long-term benefits in speed, responsiveness and efficiency. Third Quarter Results Revenues were down 6.8% in the third quarter as compared with the prior year third quarter for the reasons noted above. However, third quarter revenues were even with the second quarter of 2001 and up versus the first quarter of 2001. Gross margin was 40.0% in the third quarter of 2001 versus 40.8% in the prior year third quarter. The cost reductions that the company has initiated over the past two years are helping the company maintain strong gross margins despite a drop in revenues. Operating income decreased $1.6 million to $4.5 million from $6.1 million in the previous year third quarter. Operating margins before restructuring charges decreased four points to 10% from 14% in the prior year third quarter on the same basis. The drop in operating income and margins was primarily due to the drop in sales and the negative impact of start-up operations. Restructuring charges reduced operating income $0.3 million in the current quarter versus $0.9 million in the prior year third quarter. The restructuring charge of $0.3 million in the third quarter of 2001 relates to 60 positions that were eliminated. The company continues to take action to reduce costs to improve productivity rates. These reductions were broad-based, permanent, and will positively impact the cost structure of the operations where the reductions occurred. "I want to emphasize that our staff reductions, while very difficult, reflect both economic slow downs and system efficiencies.We believe that as a result of many of the systems we have put in place we are able to work faster and better, with fewer people. In this way, we continue to manage our costs, and our clients benefit by significant improvements in responsiveness. "By streamlining our processes and enhancing our capabilities, we are saving clients days and even weeks. We are in a business where cutting a few days off a process can save a client millions of dollars. Productivity enhancements enhance our competitive position.'' Nine Months Review Revenues for the nine months ended September 30, 2001, were $140.6 million, an 11.1% decline from the comparable prior year period. Most of the decrease occurred in the first six months of 2001 as the company's clients reduced spending on branding, marketing and advertising in reaction to the slowing economy in 2001. Operating income was $12.3 million for the nine months ended September 30, 2001, a decrease of $8.4 million from the prior year. Before restructuring charges, the operating margin was 9.5% in the current year-to-date period as compared with 13.7% for the prior year period on the same basis. The decrease in operating income and margins was due to lower sales and the negative impact of start-up operations. Income taxes were at an effective rate of 41.4% for the year-to-date period ended September 30, 2001, as compared with 42.0% in the comparable prior year period. The lower effective tax rate in 2001 reflects the positive impact of tax planning strategies implemented by the company. Net income was $5.6 million or $0.26 per share, fully diluted, for the nine months ended September 30, 2001, as compared with $10.4 million for the comparable period of the prior year. The lower revenues and operating income from a combination of a slow down in the economy and the impact of additional costs of start-ups were the main reasons for the decrease in net income. "We continue to incur start-up losses at certain operations, including InterchangeDigital, because we believe that these investments have the potential to generate significant value in the future,'' said Mr. Schawk. "Although these investments hurt current quarterly results, we continue to focus on what we need to do to keep Schawk as the leading provider of digital imaging prepress services and consulting services, not only for today but for tomorrow.'' InterchangeDigital has developed revolutionary software that helps Schawk clients manage millions of digital assets, such as graphics and graphic images, photographs, and artwork. The unique attribute of the software is that it also enables users to organize and coordinate information related to those graphics, such as information about printers and print runs, and other job information. The true benefit of this software is to facilitate our client's ability to get their products to market more quickly.It is already a key part of several clients' operations, but the sales cycle is long, creating the near-term loss situation. Mr. Schawk concluded: "Pent up demand in our clients marketing departments bodes well for 2002. While it is to early for use to provide specific financial guidance for 2002, nevertheless, the general outlook is encouraging and we are upbeat about our prospects for the fourth quarter and 2002. "Our food and beverage clients have been refreshing their brand images on a four-year cycle over the past eight years. In 1994 the company had its best volume year ever. In 1998 the company surpassed the previous volume and profits record. Therefore, we are cautiously optimistic that 2002 will be a strong year in keeping with the cycle.''