Cadmus Communications Reports Q1 Results: Declining Sales and Debt Reduction
Friday, October 29, 2004
RICHMOND, Va., Oct. 28 -- Cadmus Communications Corporation today announced net sales of $103.0 million for the first quarter of its fiscal year 2005, a decline of 4% from $106.9 million in last year's first quarter. Operating income was $8.2 million and net income was $3.2 million, or $0.34 per share, for the first quarter of fiscal 2005, compared to operating income of $7.1 million and net income of $2.1 million, or $0.23 per share, in the first quarter of fiscal 2004.(1) The results(2) for the first quarter of fiscal 2005 include $1.0 million, or $0.07 per share net of taxes, of other income from an insurance recovery. Bruce V. Thomas, president and chief executive officer, remarked, "We are generally pleased with our results for the first quarter. While we did see a decline in revenues, our operating income, operating margins, EBITDA, EBITDA margins, and EPS all improved over the first quarter of last year and were better even before considering the impact of our insurance recovery. These improvements were achieved despite a more challenging pricing environment in our Publisher Services segment as several large customer contracts came up for renewal." Continuing, Mr. Thomas stated, "We are pleased with the continued strong performance of our Specialty Packaging business, which recorded a double-digit increase in net sales and a significant increase in operating income. We continue to expand our Global Packaging Solutions unit, adding global production partners and broadening our range of 'in country' packaging solutions. We are also encouraged by the improved profitability in our special interest magazine business, which achieved nearly 4% operating margins for the quarter. While this was short of our 5% target, it was much improved over last year. Finally, we continued to invest in and are making good progress with our growth-oriented initiatives. We are encouraged that these initiatives will position us to deliver better growth as we go forward." Paul K. Suijk, senior vice president and chief financial officer, added, "We are pleased with our cash flow and debt reduction of $6.1 million for the quarter. Our capital spending was lower than the prior year period primarily due to timing, as the first quarter of last year had several larger projects including the addition of press capacity and equipment for our journal print operations and equipment for our packaging business. In addition, we continue to focus on working capital initiatives to further de-leverage the Company. During the quarter, we repurchased approximately 22,000 shares of our common stock under the previously announced stock repurchase program to minimize potential dilution relating to increased exercises of stock option grants." First Quarter Operating Results Review Net sales for the first quarter totaled $103.0 million compared with $106.9 million last year, a decrease of 4%. Publisher Services segment sales were $86.6 million, a decrease of 6% from $92.3 million last year, as a result of (i) management's plan to manage capacity, improve business mix, and generally drive for higher margins in the special interest magazine market, (ii) lower freight and postage (which are pass through costs for the Company), and (iii) pricing pressures as several larger customer contracts came up for renewal. Specialty Packaging segment sales were $16.4 million, an increase of 12% from $14.6 million last year, as this division continued to benefit from recurring projects from healthcare and consumer products customers and from improved revenues from its Global Packaging Solutions initiative. Operating income was $8.2 million or 8.0% of net sales in the first quarter, compared to $7.2 million, or 6.7% of net sales last year, adjusted as described below.(5) Net income for the first quarter totaled $3.2 million, or $0.34 per share, compared with income, adjusted as described below,(6) of $2.2 million, or $0.24 per share, in last year's first quarter. The results for the first quarter of fiscal 2005 include a $1.0 million, or $0.07 per share net of taxes, insurance recovery related to a previously disclosed employee fraud in the Publisher Services segment. Adjusted for this recovery, operating income was $7.2 million, or 7.0% of net sales, and net income was $2.5 million, or $0.27 per share. For the quarter, Publisher Services operating income rose 9% to $9.5 million and operating margins rose to 10.9% from 9.4% last year. Adjusted for the insurance recovery, operating income for the Publisher Services segment declined 2% but operating margins rose to 9.8% from 9.4% last year(7). Specialty Packaging operating income rose 243% as the business continued to benefit from higher overall volume, improved business mix, and efficiencies derived from new and more efficient technology and work flows. Cash generated from operations resulted in a decrease in total debt of $6.1 million for the quarter, excluding the market value of swap agreements. The Company repurchased approximately 22,000 shares of its common stock during the first quarter under the previously announced stock repurchase program. Outlook for Fiscal 2005 Commenting on the Company's outlook for fiscal 2005, Mr. Thomas stated, "For the balance of fiscal 2005, we expect to encounter continued pricing pressures in most of our markets. Despite this, we believe that the combination of continued momentum in our Specialty Packaging segment and the positive impact of our growth and profit improvement initiatives in our Publisher Services segment should permit us to sustain our track record of year over year improved earnings throughout fiscal 2005. Assuming that industry and market conditions do not deteriorate and we continue to obtain the expected benefits from our key initiatives, our targets remain unchanged."