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Courier's overall Q1 sales off 3% - but digital business up sharply

Thursday, January 20, 2011

Press release from the issuing company

North Chelmsford, Mass. - Courier Corporation, one of America's leading book manufacturers and specialty publishers, today announced results for the quarter ended December 25, 2010, the first quarter of its 2011 fiscal year. Revenues for the quarter were $61.2 million, down 3% from last year's first-quarter sales of $63.1 million. Net income for the quarter was $1.7 million or $.14 per diluted share, compared to $2.8 million or $.23 per diluted share in the first quarter of fiscal 2010. However, the company reaffirmed its confidence in the remainder of the fiscal year, citing a history of quarter-to-quarter fluctuations in the timing of orders as well as major long-term agreements with two of its largest customers. Based on these and other factors, Courier raised its full-year earnings guidance by $.05 to a range of $.90 to $1.20 per diluted share.

First-quarter results were off in both of Courier's business segments. At the same time, both segments benefited from the successful startup of Courier Digital Solutions, which has enabled improved efficiency in short-run production, leading to an increasing flow of manufacturing orders from Courier Publishing as well as other educational and trade publishers.

"While our new fiscal year got off to a slow start, we remain confident that we will hit our targets for the full year," said Courier Chairman and Chief Executive Officer James F. Conway III. "A major factor in our first-quarter shortfall was the timing of manufacturing orders in the religious market. Yet our relationship with our largest religious customer has never been better, and we are in the early stages of a new multi-year agreement which is already contributing to an expanded worldwide role for Courier. At the same time, we had excellent performance from Courier Digital Solutions, which is capitalizing on the accelerating trend towards customized college textbooks. And on the publishing side, we saw the first sales increase at Creative Homeowner in more than 3 years.

"During the quarter we also continued to add much-needed four-color capacity, both digital and offset, as our second HP digital inkjet system and our fourth high-speed manroland press ramped up smoothly and efficiently. And while our capital expenditures inevitably rose to cover the costs of these new systems, we remain in a strong position financially as well as an improved position competitively. So I am excited about our prospects for the remainder of our fiscal year."

Book manufacturing: focusing on long-term opportunities

Courier's book manufacturing segment had first-quarter sales of $53.0 million, off 3% from $54.8 million in last year's first quarter. The segment's operating income was $3.8 million, versus $5.7 million a year ago. Gross profit in the segment was $11.4 million or 21.5% of sales, versus $13.1 million or 23.8% of sales in fiscal 2010, reflecting lower one-color capacity utilization and pricing pressures throughout the industry.

The book manufacturing segment focuses on three publishing markets: education, religion, and specialty trade. Sales to the education market were up 4% in the quarter due to increased sales of four-color textbooks for colleges and universities, though one-color sales were down in keeping with the industry's continuing shift from one- to four-color production. Sales to the religious market were down 22% from last year's first quarter, reflecting both the timing of orders from the company's largest religious customer and the prior-year comparison with one of the strongest quarters in the history of its religious business. Sales to the specialty trade market were up 4% from a year ago.

During the quarter the company completed the installation of its second HP digital inkjet printing system and ramped up production at its Courier Digital Solutions facility to a three-shift operation to keep pace with accelerating demand in the education and trade markets. In addition, shortly after the end of the quarter, Courier signed a multi-year manufacturing agreement with one of the world's leading educational publishers and began preparing to acquire a third HP digital press in time for the peak textbook season in late spring.

"This was a quarter of tremendous accomplishments in our book manufacturing segment," said Mr. Conway. "We worked closely with two of our largest customers to lay the foundations for long-term growth in religious and educational sales, and we added capacity that will help customers make the most of their opportunities across the entire book publishing life cycle. The smooth startups of both of our new presses illustrate our ability to move quickly to take leading positions in high-growth markets. And with each new press we have also raised the bar in terms of operating efficiency and responsiveness to customers' evolving needs."

Publishing: sales off, but Creative Homeowner improves

Courier's specialty publishing segment includes three businesses: Dover Publications, a niche publisher with thousands of titles in dozens of specialty trade markets; Creative Homeowner, which publishes books on home design, decorating, landscaping and gardening; and Research & Education Association (REA), a publisher of test preparation books and study guides.

First-quarter revenues for the segment were $10.8 million, down 7% from $11.6 million in last year's first quarter. Sales were down 3% at Dover and down 31% at REA, with the decline at REA reflecting an exceptionally strong first quarter in fiscal 2010 due to the simultaneous effects of a major product launch and a chain-wide merchandising order at a large nationwide bookseller. Creative Homeowner sales were up 7%, reflecting improving sales of home plans as well as home-center book sales. Overall, the segment lost $809,000 in the quarter, versus a loss of $514,000 in fiscal 2010, reflecting the impact of slower sales at Dover and REA.

"As in book manufacturing, there were positive currents at work in our publishing segment," said Mr. Conway. "Dover's consumer marketing expertise helped drive an increase in online sales for the quarter, while the sales decline at REA was largely a function of how well last year's first quarter set the stage for its double-digit sales growth throughout the year. Equally important, retail sell-through for REA products was up in the quarter, signaling the likely advent of a new wave of ordering for the coming spring testing season. We were also pleased to see signs of a potential sales turnaround at Creative Homeowner after the long drought of the nationwide housing slump. In addition, thanks to its greatly reduced cost structure, most of Creative Homeowner's sales increase went straight to its bottom line. With more hopeful signs appearing elsewhere in the U.S. economy, we look forward to a stronger spring throughout the segment."


"Over the years we have learned to take quarter-to-quarter fluctuations in stride as we pursue our long-term goals," said Mr. Conway. "One of the most valuable assets we bring to the task is the exceptional strength of our key customer relationships, as illustrated by our recent agreements. With the steps we have taken early in fiscal 2011, we are confident that we will be able to reap the rewards throughout the remainder of the year and beyond. For this reason we are raising our guidance for fiscal 2011 as a whole.

"For fiscal 2011 overall, we expect to achieve total sales of between $271 million and $283 million, an increase of between 5% and 10% over fiscal 2010. We expect earnings per diluted share of between $.90 and $1.20, versus our fiscal 2010 earnings of $.85 per diluted share, excluding last year's impairment charge.

"In addition to measuring our performance by generally accepted accounting principles, we also track several non-GAAP measures including EBITDA (earnings before interest, taxes, depreciation and amortization) as an additional indicator of the company's operating cash flow performance. This measure should be considered in addition to, not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. In fiscal 2011, we expect EBITDA to be between $42 million and $47 million, compared to $38 million in fiscal 2010, excluding last year's impairment charge.

"Factors not incorporated into our guidance include the possibility of future impairment or restructuring charges."


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