Log In | Become a Member | Contact Us

Leading printing executives into the future

Connect on Twitter | Facebook | LinkedIn

Featured:     European Coverage     Production Inkjet Analysis

IKON Announces Q1 Results: Building new channels with suppliers for growth

Friday, January 24, 2003

Press release from the issuing company

VALLEY FORGE, Pennsylvania--January 23, 2003--IKON Office Solutions, the largest independent distributor of document management products and services in the U.S. with operations in Canada, Mexico and Europe, today reported results for the first quarter of its fiscal year which ends September 30, 2003. Earnings per diluted share for the first quarter of Fiscal 2003 were $.21 compared to $.22 for the first quarter of Fiscal 2002. Net income was $32.5 million compared to $32.6 million for the same period a year ago. Revenues for the first quarter of Fiscal 2003 were $1.14 billion compared to $1.21 billion for the same period in the prior year, a decline of 6.1%. Three-quarters of the decline related to business downsizing and exit strategies employed during the first quarter of the prior year, equating to a decline in core revenues of approximately 1.5%. Core revenues represent the distribution of copiers/printers from leading vendors such as Canon and Ricoh and the Company's wide array of service offerings, including copier/printer fleet maintenance, outsourcing and lease financing. These core revenues continued to be impacted by a soft economy, but showed steady improvement in terms of profitability and shifts in customer and product mix consistent with the Company's long-term strategy for market leadership and profit expansion. "Our results this quarter were right on track with our expectations," stated Matthew J. Espe, President and Chief Executive Officer. "IKON's business model calls for improved profitability of our revenue streams and the creation of a more powerful and responsive infrastructure. Well-executed strategies in both these areas played a key role in delivering earnings results at the high end of our expected range for the quarter, despite a tentative economy. "Taking a conservative view of top line performance given the economic environment, our 2003 priorities will optimize the strength of our growing product and services portfolio, with a sharp focus on premium growth opportunities. This includes the distribution and servicing of color and high-end copiers/printers - two important building blocks to our equipment service and consumable revenue opportunities. On the services front, we will be capitalizing on IKON's strength in outsourcing, and expanding our service opportunities in the delivery of document management and workflow solutions to IKON's sizeable customer base. We are also working closely with our suppliers to build new channels for growth, particularly as we gain increased recognition as a strong partner for large regional, national and international accounts," continued Mr. Espe. "In the first quarter, we saw clear execution against these goals, with some great customer wins that demonstrate the value of IKON's size, scale and scope. We saw strong results in Europe - particularly in outsourcing. Across the entire organization, we also delivered strong results in color, and we continued to deliver growth in high-end equipment sales, including early signals that new high-end products like the Canon imageRUNNER Pro 150+ will be an added strength to our portfolio in 2003. "On the operational front, we will continue to use our centralized infrastructure to control costs in 2003, while we fund invaluable productivity investments, such as our e-IKON initiative currently underway - an enterprise-wide process redesign and system enhancement supported by the Oracle E-Business Suite. This investment will ensure that we have an efficient and extremely scalable infrastructure to support future growth as the economic climate improves. "Asset management also continues to be a top priority and we remain committed to meeting our free cash flow target of $250 to $275 million for the fiscal year," Mr. Espe concluded. Financial Analysis Year-to-year comparisons within both Net Sales and Services were impacted by actions the Company has taken to strengthen the business model and facilitate long-term profitability objectives. During the first quarter of Fiscal 2002, the Company exited its telephony business, sold its technology education business, and closed or sold a number of digital print centers and technology service locations. The Company also began to aggressively phase out the distribution of low-margin technology hardware - an undertaking expected to continue throughout Fiscal 2003. Net Sales, which includes the sale of copier/printer equipment, supplies and technology hardware, declined 7.4% from the first quarter of Fiscal 2002. As anticipated, technology hardware declined by over $28 million, accounting for about two-thirds of the decline. Sales of copier/printer equipment, the largest component within Net Sales, declined 3%. Sales of high-end, segment 5 & 6 equipment, as well as color sales, grew over the first quarter of Fiscal 2002, while sales of segment 1 - 4 equipment, fax, and other low-end devices, in total, declined. Gross profit margin on Net Sales climbed to 35.6%, from 34.2% in the first quarter of Fiscal 2002, due to an improved product mix and continued process improvements. Services, which include revenues from the servicing of copier/printer equipment, and outsourcing and other services, declined 6% from the first quarter of Fiscal 2002, primarily due to declines in outsourcing and other services as a result of the downsizing and sale of non-strategic businesses during the first quarter of the prior fiscal year. Excluding these factors, Services declined approximately 1% from the first quarter of Fiscal 2002. Gross profit margin on Services of 39.8% declined slightly from 40.1% for the first quarter of Fiscal 2002 primarily due to revenue mix. Finance Income grew 1.9% from the first quarter of Fiscal 2002 due to growth in the lease portfolio. IKON's customers continue to take advantage of the Company's captive leasing business. For the first quarter of Fiscal 2003, approximately 78% of IKON's equipment revenues in the U.S. were financed through IOS Capital, IKON's largest captive leasing business. Gross profit from finance subsidiaries in the first quarter of Fiscal 2003 increased to 58.9% from 55.8% for the first quarter of the prior year, reflecting lower average borrowing costs as a result of market rate reductions and the Company's chosen mix of capital resources to support lease financing. Selling and Administrative Costs declined $17.1 million in the first quarter of Fiscal 2003 compared to the same period in the prior year, primarily due to the benefits of prior infrastructure improvements and solid expense controls. For Fiscal 2003, the Company will absorb increased expenses such as health care and pension expense as well as resources devoted to its e-IKON investment. Operating Income was $64.5 million for the first quarter of Fiscal 2003, with operating margins increasing to 5.7%, from 5.4% for the first quarter a year ago. The improvement in the operating margin reflects the Company's drive toward its long-term goal of 8% to 10% operating margins. Outlook "In Fiscal 2003, we will continue to cultivate our business model, building upon our steady execution toward market leadership and operational excellence," said Mr. Espe. "We are encouraged by our performance in the first quarter and our continued execution of major initiatives that will provide significant long-term benefits. Maintaining our original expectations for Fiscal 2003, we expect to deliver modest improvement in operating margins given the economy and the need to dedicate additional resources to long-term revenue and profit building opportunities, such as our e-IKON implementation. Earnings are expected to be in the range of $.94 to $.98 per diluted share for Fiscal 2003. Revenues are expected to decline 2% to 4%, including an expected decline in technology hardware of approximately $120 to $150 million for the year. "For the second quarter, we continue to be mindful of the economic climate, but anticipate improved revenue performance in our core business. Revenues, including the expected decline in technology hardware, should decline 2% to 4%. Earnings for the second quarter are expected to be in the range of $.23 - $.25 per diluted share," Mr. Espe concluded.




Email Icon Email

Print Icon Print

Become a Member

Join the thousands of printing executives who are already part of the WhatTheyThink Community.

Copyright © 2016 WhatTheyThink. All Rights Reserved