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Banta Reports Improved Q3 Results: No Clear Evidence of Economic Recovery

Wednesday, October 30, 2002

Press release from the issuing company

MENASHA, Wis., Oct. 29 -- Banta Corporation today reported improved third quarter net earnings and earnings per share compared to the same period last year. Sales for the third quarter were nearly 7 percent lower, reflecting soft economic conditions that have continued to persist throughout the year. Net earnings for 2002's third quarter reached $19.5 million, 4 percent higher than the $18.7 million reported for last year's third quarter. Diluted earnings per share were 76 cents compared with 2001's 75 cents. Additional shares outstanding versus last year's third quarter, primarily from stock options, reduced 2002 third quarter diluted EPS by 2 cents. Third quarter sales were $352 million compared with $378 million for the same period last year. An 8 percent reduction in paper prices reduced this year's third quarter sales by approximately $5 million. For the first nine months of 2002, net earnings rose 5 percent to $43.4 million compared with $41.4 million last year, before an investment write-off taken during 2001's first quarter. Including the write-off, net earnings for last year's first nine months were $33.9 million. Diluted earnings per share reached $1.70 versus last year's $1.67, excluding the write-off ($1.36 including the write-off). Sales for 2002's first nine months were $1.02 billion compared with last year's $1.09 billion. Banta President and Chief Executive Officer Stephanie Streeter said achieving strong third quarter earnings is a testimony to employees' hard work, specifically their efforts to pursue new revenue opportunities and maximize efficiencies in all areas. "We have won new customers, gained market share and driven profitability throughout our businesses," says Streeter. "The cost-control initiatives we began early last year remain in effect and they are an important factor in our ability to report solid profitability on lower sales." Third quarter gross margins improved to 23.3 percent from 20.8 percent in 2001's third quarter. Operating margins rose to 9.4 percent from last year's 9.1 percent. "The modest reduction in third quarter Print Sector revenue did not accurately reflect the manufacturing activity at most of our facilities," said Streeter. "Overall, printing plant utilization was very good. Efforts to acquire new customers and gain market share helped us make up for the revenue reductions due to competitive pricing and lower paper prices." Without the paper price decrease in the third quarter, Banta's Print Sector sales would have equaled last year's third quarter. Including reduced paper prices, Print Sector sales decreased by 2 percent. Third quarter highlights within the Print Sector, compared to the prior year, include: * Banta's book division reported higher sales and earnings, with strong activity in trade products and literature management services. Solid plant utilization and successful efficiency initiatives drove profitability gains. * Banta's catalog facilities reported healthy manufacturing activity and increased profitability for the third quarter. Business-to-business catalogs were especially strong, benefiting from two major catalog projects. In Banta's consumer catalog division competitive pricing remains a difficult challenge, however its operations continue to maximize efficiencies and gain market share, which helped create improved plant utilization in the third quarter. * The soft economy continued to have the greatest impact on Banta's direct marketing business. An industrywide reduction in project frequency and print quantities for direct mail programs has created intense pricing pressures and lower volume for Banta's direct marketing operations. * The publications division reported solid manufacturing activity in the third quarter, despite a nearly 11 percent decrease in magazine advertising pages. Market share gains in Banta's special-interest magazine niche helped counter reduced page counts, creating good plant utilization and improved profitability. Banta's supply-chain management business faces the same economic challenges as its customers. The continued weak technology spending environment caused a 22 percent reduction in third quarter supply-chain management sales compared to the same period last year. However, operating earnings benefited from a favorable product mix that included more value-added work, stringent cost controls, increased efficiencies and the release of $1.2 million of reserves related to the shutdown of a facility completed during the quarter. The corporation's healthcare business reported higher operating profits on 10 percent lower revenue. The improved performance resulted from a tighter focus on working capital management and an increase in the number of products sourced from lower-cost foreign suppliers. Banta's operations continue to deliver strong cash flow: * Solid manufacturing activity produced free cash flow of approximately $46 million in the third quarter. Third quarter earnings before interest, taxes and depreciation totaled $52 million. Total debt was reduced by $62 million compared to this time last year, resulting in a nearly 40 percent reduction in interest expense for the third quarter. * The corporation's balance sheet was strengthened as long-term debt to total capitalization dropped to 20 percent, compared to 30 percent at the end of 2001's third quarter. * Working capital (net of cash) improved by nearly $50 million versus 2001. "We performed very well during the third quarter and for the first nine months of this year," emphasizes Streeter. "We gained new customers, took market share and continued to demonstrate operational excellence in a very difficult economic environment. Although we do not see clear evidence of a recovery in either the economy or our customers' markets, at least through the first half of 2003, demand for our products and services should accelerate once promotional activity, advertising and technology spending return. In the meantime, we will continue our focus on cost control and generating excellent cash flow." Despite the persistence of a depressed economy and the lack of forward visibility from Banta's customers, management believes that for the full-year 2002, the corporation will exceed last year's net earnings and EPS of $2.31. However, previous EPS guidance of $2.40 to $2.45, given July 26 when Banta released its 2002 second quarter earnings, now appears too optimistic given economic conditions. "We are presently in our planning process for 2003," notes Streeter. "Given the continued sluggishness of the economy and the lack of signs from our customers for revenue recovery until possibly the latter part of next year, we are currently examining all options to insure that our cost structure and capacity are properly aligned with our revenue expectations for the remainder of this year and 2003."




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