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MOD-PAC CORP. earnings per share increases 800% in Q4

Friday, February 05, 2010

Press release from the issuing company

BUFFALO, NY - MOD-PAC CORP, a manufacturer of custom and stock paper board packaging and personalized print products, today reported total revenue of $12.77 million in the fourth quarter of 2009, which ended December 31, 2009, down 6.2% compared with revenue of $13.62 million in the 2008 fourth quarter. Excluding 2008 fourth quarter specialty print and direct mail sales which was rationalized in the second quarter of 2009, total revenue grew $139 thousand, or 1.1%, compared with the 2008 fourth quarter. Solid 6% sales growth in the custom folding carton line was mostly offset by reduced sales in the stock packaging and personalized print lines which have been impacted by the weak economy.
Net income for the fourth quarter of 2009 was $1.26 million, or $0.36 per diluted share, a significant increase when compared with net income of $129 thousand, or $0.04 per diluted share, in the fourth quarter of 2008. Net income growth reflects the effectiveness of the product line rationalization which eliminated unprofitable business combined with improved productivity and cost reductions.

For the full year 2009, total revenue was relatively unchanged at $48.9 million as 13.7% growth in custom folding cartons offset the impact of six months less sales from the specialty print and direct mail product line and the decline in stock packaging and personalized print sales. Excluding 2009 and 2008 specialty print and direct mail sales, total revenue was $47.4 million for 2009, up $2.7 million, or 6.0%, when compared with $44.7 million for 2008. GAAP net loss for the year was $2.0 million, or $0.58 per diluted share. Excluding $2.0 million in onetime charges associated with the product line rationalization and the write-down of impaired assets, net income would have been $12 thousand, or $0.00 per diluted share. (See reconciliation of GAAP net income (loss) and earnings (loss) per share to adjusted net income (loss) and earnings (loss) per share in the attached table.)

Fourth Quarter 2009 Sales Review:
- Sales of folding cartons, which include custom folding cartons and stock packaging, were up 2.5%, or $0.29 million, to $12.03 million in the 2009 fourth quarter from $11.74 million in the prior year fourth quarter. Custom folding carton sales drove the product line increase.
- Custom folding carton sales for the fourth quarter of 2009 were $8.96 million, up $0.51 million, or 6.0%, from 2008 fourth quarter sales of $8.46 million. Sales growth was driven by continued sales growth with existing customers, particularly those that provide private label branded products.
- Stock packaging sales were $3.07 million in the 2009 fourth quarter, a decline of $0.22 million, or 6.6%, from $3.28 million the prior year period. The stock packaging line has been impacted by economic conditions over the last year.
- Print service sales, which are now solely comprised of personalized print, were down $1.15 million, or 65.9%, to $0.60 million in the 2009 fourth quarter compared with $1.75 million in the same period in 2008. Of the decline, $0.99 million was related to sales in the prior year’s fourth quarter for specialty print and direct mail. Personalized print sales declined $165 thousand, or 21.6%, to $0.60 million in the fourth quarter of 2009 compared with sales of $0.76 million in last year’s fourth quarter. The decrease was primarily due to current economic conditions.    

Mr. Daniel G. Keane, President and CEO of MOD-PAC CORP., commented, “The rationalization of the specialty print and direct mail product line has enabled us to focus our resources on expanding our custom folding carton business. We believe our ability to provide on demand short runs of customized cartons for our customers is a cost effective means for them to address their customers changing requirements.”

Fourth Quarter Operating Results: Cost discipline and product line rationalization drove margin expansion

Gross profit for the 2009 fourth quarter was $2.98 million, or 23.4% of total revenue, compared with gross profit of $2.12 million, or 15.6% of total revenue, in the same period the prior year. The improvement in gross profit and margin was driven by the savings realized from the product line rationalization as the Company realized lower depreciation expense and decreased labor and supply costs. Also contributing to the improved margin was lower freight and utility costs and improvements in productivity.

Selling, general and administrative (SG&A) expense was down $126 thousand, or 6.7%, to $1.75 million, or 13.7% of total revenue, in the fourth quarter of 2009 when compared with $1.88 million, or 13.8% of total revenue, in the same period the prior year. The decrease was due to lower wages from the product line rationalization, reduced professional service fees, and lower bad debt expense.

Mr. David B. Lupp, Chief Operating Officer and Chief Financial Officer commented, “Having rationalized product lines and increased our focus on our core products, we are now driving a leaner, more productive operation. We have made several operational improvements that have increased our productivity enabling us to strengthen our earnings power. We believe that we can continue to build efficiencies and grow sales by targeting customers that value our quality, speed and valuebased pricing.”

Adjusted earnings before interest, asset impairment, taxes, depreciation and amortization, and noncash option expense (Adjusted EBITDA) was $2.03 million in the fourth quarter of 2009 compared with $1.23 million in the 2008 fourth quarter. The Company believes that, when used in conjunction with GAAP measures, Adjusted EBITDA, which is a non-GAAP measure, helps in the understanding of operating performance. (See the reconciliation of Net Income (loss) to Adjusted EBITDA in the attached table.)

As required by generally accepted accounting principles, in the second quarter of 2009 the Company recorded a full valuation allowance on its net deferred tax asset due to the uncertainty with respect to utilizing it in the future based on a past trend of operating losses. As a result, the effective tax rate for the fourth quarter of 2009 was 0%, compared with 43.2% for the fourth quarter of 2008. The Company has approximately $0.64 million in net operating loss carry forwards that can be applied to future income.

Liquidity: Asset sales and strong cash generation from operations increased cash on hand

Cash and cash equivalents were $3.78 million at December 31, 2009, a substantial increase compared with $0.32 million at October 3, 2009 and $0.20 million at December 31, 2008. MOD-PAC generated $2.26 million in cash from operations during the quarter from higher net income, higher non-cash depreciation and amortization expense, and decreased working capital requirements. Also, in the fourth quarter of 2009, the Company sold its Blasdell, NY facility for net proceeds of $1.4 million and assets related to the specialty print and direct mail rationalization for approximately $0.6 million.

Capital expenditures in the fourth quarter and full year of 2009 were $0.13 million and $0.98 million, respectively, compared with $0.39 million and $2.0 million, in the same periods the prior year. Capital spending was focused on equipment and system improvements. Approximately half of the capital expenditures in 2008 were for productivity and efficiency initiatives that provided a benefit to the organization in 2009. Capital expenditures are expected to be approximately $1.2 million in fiscal year 2010. Depreciation and amortization was $3.19 million in 2009 compared with $3.74 million in 2008. Lower depreciation primarily reflects a reduced asset base from the write-down of assets associated with the rationalized product line in the second quarter of 2009.

MOD-PAC has access to a $5.0 million committed line of credit with a commercial bank, which expires in March 2010. The line of credit was paid off in full in the fourth quarter of 2009, a decrease of $0.6 million from the October 3, 2009 balance, and $1.0 million from the December 31, 2008 balance. An additional $0.2 million of the line of credit was in use through standby letters of credit. The Company is currently in negotiations with several financial organizations regarding a new line of credit.

There were no shares repurchased by the Company in 2009. MOD-PAC has authorization to repurchase 75,885 shares.

Year-End Review: 13.7% growth in custom folding carton sales; Excluding one time charges achieves breakeven on flat sales

Total revenue for 2009 was flat with 2008 at $48.90 million. Net sales, excluding rent, for the same period was down slightly to $48.35 million, compared with $48.41 million in 2008. New customers and gaining additional business from existing customers drove the 13.7% growth in custom folding carton sales to $34.85 million compared with $30.65 million in the prior year. Economic conditions continued to negatively impact stock packaging and personalized print sales, which were down 7.4% to $8.95 million, and 22.4% to $3.03 million, respectively, in 2009 when compared with 2008 results. In 2008, specialty print and direct mail had $4.19 million in sales. This product line had $1.52 million in sales during the first half of 2009.

Gross profit for 2009 was $7.38 million, or 15.1% of total revenue, up $0.65 million, or 9.7%, from gross profit of $6.72 million, or 13.8% of total revenue, in 2008. Increases in gross profit dollars and margin expansion reflect the effectiveness of rationalizing product lines and eliminating losses associated with specialty print and direct mail as well as process improvements that are driving productivity gains.

SG&A expense in 2009 decreased 4.1% to $7.55 million, or 15.4% of total revenue, compared with $7.87 million, or 16.1% of total revenue, in 2008. The decrease was due to lower professional service fees, reduced advertising, and lower bad debt expense, slightly offset by higher commission and depreciation expense.

Included in the 2009 results was $1.8 million of expense that was associated with the write-down of impaired assets due to the Company's rationalization of the specialty print and direct mail product line.

Adjusted EBITDA for 2009 was up to $3.51 million compared with $2.99 million in 2008. (See the reconciliation of Net Income (loss) to Adjusted EBITDA in the attached table.)

Mr. Lupp concluded, “We have successfully completed the turn around of our operations that provides a solid platform from which we can grow. Our strategy is to continue to further penetrate the custom folding carton market, specifically in the niche applications where our rapid turn around, high quality carton design, and responsive service address the unique needs of our customers that serve a broad variety of customers needing smaller print quantities. We are also evaluating opportunities to expand the markets served with our personalized print and stock packaging products while focusing our products and services to improve efficiencies.”

 

 

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