MENASHA, Wis., Oct. 25 -- Banta Corporation today reported a very strong third quarter. Earnings from continuing operations for the quarter increased 23 percent to a record $21.7 million, compared with 2004's $17.6 million. Third quarter diluted earnings per share of 89 cents also reached an all-time high, rising 27 percent above the prior year's 70 cents. Revenue from continuing operations established a new third quarter record at $381 million, 7 percent above the $356 million reported in 2004's third quarter.
In addition to improved operating results, third quarter earnings were favorably impacted by a lower tax rate in 2005 compared with 2004, and third quarter earnings per share were favorably impacted by share repurchases since the beginning of 2005. These results exclude the contributions of Banta's healthcare products business, which was sold effective Apr. 12, 2005. Including the operating results of the discontinued healthcare business, last year's third quarter net earnings were $19.1 million (76 cents per diluted share).
"We are very pleased with our third quarter results," said Chairman and Chief Executive Officer Stephanie A. Streeter. "During the first half of the year we set the stage for a strong final six months of 2005, with major press rebuilds, press relocations, technology additions, new productivity programs and the establishment of our literature management division to capitalize on growing market opportunities. With the benefit of that heavy lifting during the first half of the year, we produced excellent results in the third quarter and we're very well-positioned for the rest of the year. I am extremely proud of the efforts and determination of our people. We've created momentum for the fourth quarter and I'm confident that we'll deliver a strong finish to the year."
For 2005's first nine months, revenue increased to $1.13 billion, 8 percent above the prior year's $1.05 billion. Earnings from continuing operations increased 13 percent to $49.4 million ($1.98 per diluted share) compared with the prior year's $43.8 million ($1.72 per diluted share). Including operating results from the discontinued operation of $700,000 and after-tax gains from the sale of assets in two separate transactions ($20.1 million from the second quarter sale of the healthcare business and $1.3 million from the first quarter sale of a related warehouse), net earnings for the first nine months of 2005 were $71.5 million compared with $48.4 million in the same period last year.
-- Third quarter Printing Services Sector revenue increased 11 percent over 2004's third quarter, reaching $284 million compared with the prior year's $257 million. About half of the increase was due to higher paper prices. Operating earnings rose 13 percent, benefiting from improved facility utilization and productivity initiatives, including equipment rebuilds.
-- The book division reported a very good quarter, with revenue increasing 3 percent and operating earnings up 16 percent, compared with 2004's third quarter. Helping drive profitability was a robust educational print market, which enabled strong facility utilization, and various efficiency initiatives,
including the addition of a new high-productivity press brought on line earlier this year. Educational book revenue increased 16 percent over the same period last year. Trade book revenue was good, on par with seasonal expectations. Negatively affecting the division's revenue growth, however, were customer requests to move several high-page-count business-to-business catalogs that have historically printed in the third quarter into the fourth quarter.
-- Banta's direct marketing division delivered excellent results in the quarter, helped by growing demand for the division's highly personalized direct mail products. Revenue for the quarter increased 11 percent, while operating earnings climbed 43 percent. The division benefited from a better product mix that contained more complex and targeted direct mail products, an increase in print personalization capacity and multiple productivity improvement efforts.
-- Exceptional year-over-year gains were achieved by Banta's consumer catalog division. Third quarter revenue increased 35 percent, while operating earnings rose even more dramatically. Market share gains and strong customer retention combined with significant productivity improvements to deliver excellent
third-quarter results. Operational improvements were aided by the major press rebuild that was completed near the end of the second quarter.
-- The publications division reported a 6 percent revenue increase for the third quarter, with approximately three-fourths of that increase due to higher paper prices. Operating earnings declined
13 percent compared with a very strong third quarter in 2004. The division continued to gain market share in special-interest magazines, however extra costs during the quarter, in areas such as employee training and productivity program start-up activities, reduced profitability.
-- Banta's literature management division reported a double-digit revenue increase in the third quarter, but operating earnings declined due to additional overhead expenses and a much less favorable product mix. Print volume was good during the quarter, however there was less activity involving higher-value kit assembly and fulfillment services, which affected profitability. The outlook for this business is good, with a higher-quality sales pipeline and several new business wins. Among the new projects is a major promotional program involving production and fulfillment of information packages related to the Medicare Part D prescription drug benefit.
-- The Supply-Chain Management Services Sector continued to experience good activity with its major technology customers during the third quarter, however both revenue and operating earnings were below last year's strong third quarter. Revenue declined 2 percent to $97.3 million, and operating earnings were 9 percent lower, at $11.1 million. A major factor affecting results was a temporary shutdown of the Houston, Texas, operation due to Hurricane Rita. Fortunately, no facility damage or injuries occurred. Despite the lost production at this one plant, productivity efforts and a favorable value-added product mix throughout the business resulted in improved third quarter operating margins compared with the first half of the year.
During the third quarter, Banta repurchased 374,400 shares of its common stock at an average price of $47.37. Through the first nine months of the year, 1,458,500 shares were repurchased at an average price of $44.96 per share. The corporation continues to have $84 million remaining of its $150 million share repurchase authorization.
Banta's effective income tax rate declined in the third quarter to 28.5 percent, reflecting the continued strength in profitability of operations outside the United States. Assuming this continued strength, and the successful resolution of normal tax audit activities, a similar rate is forecast during the fourth quarter, indicating an average rate for the year of approximately 30 percent. The decline in tax rate positively impacted the company's diluted EPS by approximately 4 cents per share in the third quarter. For the last half of the year, the effect should result in an increase in diluted earnings per share of approximately 8 cents to 9 cents above the level anticipated prior to the decrease in the tax rate. This estimate excludes any tax effect associated with potential repatriation of foreign earnings in the fourth quarter.
"We expect a strong finish to the year, with the momentum we have built thus far," says Streeter. "I am especially gratified by the significant benefits we've gained through many employee-led productivity programs and the positive results we've already achieved from our recent equipment upgrades. Our many initiatives helped drive performance in the third quarter, and they should continue to provide measurable benefits in the fourth quarter and beyond."
Banta management has reaffirmed its previous full-year 2005 revenue guidance, and modestly raised and narrowed the range for expected earnings per share. Revenue is expected to be in the range of $1.5 billion to $1.55 billion. Full-year diluted earnings per share from continuing operations are now anticipated to be in the range of $2.90 to $2.96, which includes the expected 8 cents to 9 cents per share increase due to a lower tax rate in the second half and excludes any tax effect of potential repatriation of foreign earnings. The prior range was $2.80 to $2.95.
"This increase in our EPS expectations is heartening in light of the negative impact to our third quarter results from the hurricane disruption at our Houston plant, and to our second half due to increased energy costs companywide. As a result of recent price increases, we now anticipate that energy costs alone during the second half will be well over a million dollars higher than originally forecasted," says Streeter.
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