Workflow Management Reports 2Q, Margins Pressured by Lower Prices
Wednesday, December 05, 2001
PALM BEACH, Fla.--Dec. 4, 2001--Workflow Management, Inc. the nation's leading outsourcer of print, today reported fiscal 2002 second quarter results for the period ended October 31, 2002. Second quarter revenues for the period ended October 31, 2001 increased 7.4% to $160.3 million compared to $149.2 million last year. Revenues in the Company's Solutions Division increased 14.2% to $78.9 million, while the Printing Division increased 1.2% to $84.9 million compared to $69.1 million and $83.9 million, respectively. Second quarter operating income was $5.8 million compared to $8.1 million last year. Net income was $1.4 million, or $0.11 per diluted share, versus net income of $2.8 million, or $0.21 per diluted share, in the year-ago second quarter. Adjusting for the implementation of FAS 142, in the prior year for the second quarter diluted earnings per share would have been $0.24. "In light of the current industry and economic challenges, we are pleased to report second quarter results at the upper end of our revised guidance,'' commented Tom D'Agostino, Sr., Chairman, President and Chief Executive Officer. We started our second quarter with strong revenue momentum and we were on track to exceed our initial expectations. Unfortunately, the industry-wide drop off in demand following the tragic events of September 11th resulted in gross margin pressure as printing companies lowered prices to fill excess capacity. Normally, we would be able to absorb a portion of those pressures; however, we were unable to do so given the magnitude of the events. Our profitability was also impacted by our expense structure, which we had built to support anticipated growth. We have responded quickly to these rapid changes in the business environment through several expense reduction initiatives." Revenues for the six months ended October 31, 2001 increased 8.4% to $315.5 million compared to $291.1 million during the same period in fiscal 2001. Revenues in the Company's Solutions Division increased 14.1% to $154.8 million with the Printing Division rising 3.4% to $168.1 million. For the six months ended October 31, 2001, operating income declined 6.1% to $13.2 million versus $14.0 million during the same period last year. Net income for the first six months of fiscal 2002 was $3.7 million, or $0.28 per diluted share, versus net income of $4.3 million, or $0.32 per share in the comparable period last year. Adjusting for the implementation of FAS 142, in the prior year six-months diluted earnings per share would have been $0.38. In addition to the $7.5 million in expense reduction previously announced, Workflow Management also is implementing initiatives to improve profitability while preserving capital. The Company anticipates closing additional facilities which should help improve margins in the Printing Division. Additionally, expense reduction efforts are expected to reduce annual SG&A expenses. The Company expects the facility consolidations, operating expense reductions and administrative improvements to enhance profitability in subsequent quarters. Mr. D'Agostino continued, "The near-term business environment remains challenging and the economic outlook is uncertain; however, we are implementing strategies to insulate our operating results. We have crafted an intermediate strategy with two operating imperatives. The first is preserving capital given the challenging environment, while remaining poised to invest as conditions improve. Second, we are prudently operating our business while adhering to our long-term initiatives of increasing market share and improving profitability. Our position as a market-dominant operator in this space will be highly reinforced in this difficult environment.'' The Company reiterated its recently issued earnings guidance for fiscal 2002 ending on April 30, 2002. Based on the economic outlook and internal expectations, the Company expects to realize revenues in the range of $615 million to $625 million and earnings per share of $0.70 to $0.80. Mr. D'Agostino concluded, "While clearly we have new challenges, out of challenge grows opportunity. We believe that our strategic position will allow us to capitalize on these opportunities. We have adjusted to market conditions and expect to return to more normalized levels of profitability. Our strategies remain in place and we are dedicated to fulfilling the plan that will result in long-term growth and increased shareholder value.''