Schawk, Inc. (NYSE: SGK), a leading provider of brand development and deployment services, enabling companies of all sizes to connect their brands with consumers, reported fourth-quarter and full-year 2011 results. Net income in the fourth quarter of 2011 was $5.8 million, or $0.22 per diluted share, versus $6.3 million, or $0.24 per diluted share, in the fourth quarter of 2010. Net income for the full year of 2011 was $20.6 million, or $0.79 per diluted share, compared to $32.4 million, or $1.25 per diluted share, for the comparable prior-year period. Business and system integration expense related to the company's ongoing information technology and business process improvement initiative increased $2.2 million and $7.2 million for the fourth quarter and full year, respectively, compared to the prior-year comparable periods, which contributed in part to the overall decline in net income.
On a non-GAAP basis, adjusting for certain financial impacts relating to the business and system integration expense and certain other items as further detailed in this release, 2011 full-year adjusted net income was $20.6 million, or $0.79 per diluted share, compared to $31.1 million, or $1.20 per diluted share, during the prior-year period, on a comparable basis.
President and Chief Executive Officer David A. Schawk commented, "We continued to see client expansion in global markets as evidenced by our growth in Europe and Asia during 2011, thereby reflecting our clients' strategies to invest more in emerging markets relative to the more mature markets. However, we also saw reduced activity in the Americas, particularly in the food and beverage categories and with our advertising and retail accounts clients as they continued to reduce their promotional activities. Overall, we believe our global scope and breadth of capabilities positions us well to capitalize on opportunities in all markets as the economy improves."
Mr. Schawk continued: "We made significant investments during 2011 to further align our product and service offerings with client needs, while improving the operational and financial performance of the company for the long term. First, our acquisition of Brandimage expanded and complemented our global brand development and deployment capabilities. Second, our continuing information technology and business process improvement initiative will provide greater visibility into ongoing client activities, allowing further integration of our operations over time. Finally, with our new revolving credit and private shelf facility, we have greater flexibility to invest in the business while reducing the company's overall cost of debt."
Consolidated Results for the Year Ended December 31, 2011
Consolidated net sales in 2011 were $455.3 million compared to $460.6 million in 2010, a decline of approximately $5.3 million, or 1.2 percent. Year-over-year sales were positively impacted by changes in foreign currency translation rates of approximately $6.9 million, as the U.S. dollar decreased in value relative to the local currencies of certain of the company's non-U.S. subsidiaries.
Consumer packaged goods (CPG) accounts sales during 2011 were $347.7 million, or 76.4 percent of total net sales, compared to $343.1 million in the same period of 2010, an increase of 1.3 percent, primarily due to the positive impact of foreign currency translation rates. Advertising and retail accounts sales in 2011 were $79.7 million, or 17.5 percent of total sales, a decrease of 9.8 percent, from $88.4 million during 2010, primarily driven by reduced client promotional activity coupled with the loss of a non-core retail client during the third quarter of 2010. Entertainment accounts sales for the full year of 2011 of $27.9 million, or 6.1 percent of total sales, decreased 4.1 percent, from $29.1 million in 2010, driven by continued declines in print-related promotional activity.
Gross profit was $163.0 million during 2011, a decline of $15.5 million from 2010. Gross profit in 2011 as a percentage of sales decreased to 35.8 percent from 38.8 percent in the prior-year period. The full-year decline in gross profit percent was largely driven by the reduced operating leverage resulting from lower year-over-year revenue coupled with an increase in cost of sales resulting from the company's acquisitions.
Selling, general and administrative (SG&A) expenses increased approximately $0.1 million to $122.8 million during 2011 from $122.7 million in 2010. Excluding the company's acquisitions, SG&A expenses would have declined year over year.
For 2011, the company reported business and systems integration expenses of $8.5 million, compared to $1.3 million in the prior-year period, relating to the company's ongoing information technology and business process improvement initiative.
The company recorded a $1.1 million loss on foreign exchange exposures in the full year of 2011, compared to a loss of $2.3 million in 2010. The company's net foreign exchange gains or losses relate primarily to currency exposure from intercompany debt obligations of the company's non-U.S. subsidiaries, net of the impact of gains or losses arising out of foreign currency hedges entered into to mitigate the company's foreign exchange exposures.
Acquisition integration and restructuring expenses declined from $2.2 million in 2010 to $1.5 million in 2011. These charges relate to employee terminations and other associated costs which arose from the company's continued focus on consolidating, reducing and re-aligning its work force and operations. The actions taken during 2011 are expected to result in annualized savings of approximately $5.0 million for 2012, with approximately $2.0 million realized during 2011.
During 2011, the company's asset impairment expenses declined by $0.6 million. During 2010, certain equipment sustained damage and was rendered inoperable at one of the company's facilities.
Additionally, the company recorded expense of $1.8 million during 2011 as a result of its decision to terminate participation in a union supplemental retirement and disability fund in California. During 2010, the company recorded income of $0.2 million reflecting its final adjustment of a multiemployer pension withdrawal liability resulting from the company's withdrawal from a union supplemental retirement and disability fund during 2008.
The company reported operating income of $27.3 million in 2011 compared to $49.6 million in 2010. The decline year over year was driven primarily by the decline in gross profit and increased business and systems integration expenses coupled with the increased multiemployer pension withdrawal expense.
For the full year of 2011, the company reported a tax expense of $1.5 million compared to $10.0 million during the same period in 2010. The decrease in tax expense for 2011 compared to the prior year is primarily due to discrete period tax benefits resulting from the release of valuation allowances in certain of the company's international subsidiaries during 2011.
Net income in 2011 was $20.6 million, or $0.79 per diluted share, compared to $32.4 million, or $1.25 per diluted share, in 2010. Non-GAAP adjusted net income was $20.6 million, or $0.79 per diluted share, for 2011 compared to $31.1 million, or $1.20 per diluted share, on a comparable basis for the prior-year period. Please refer to the tables at the end of this press release for a reconciliation of these non-GAAP measures.
Management Adjusted EBITDA Performance
Management adjusted EBITDA for full year 2011 was $60.6 million compared to $75.4 million for the prior-year period. Please refer to the "Reconciliation of Non-GAAP Management Adjusted EBITDA" table attached at the end of this press release for a reconciliation of these measures.
Schawk invites you to join its fourth-quarter and full-year 2011 earnings conference call on Wednesday, March 7, 2012, at 9:00 a.m. Central time. To participate in the conference call, please dial 866-730-5769 or 857-350-1593 at least five minutes prior to the start time and ask for the Schawk, Inc. conference call, or on the Internet, go to http://Phoenix.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=82169&eventID=4729137. If you are unavailable to participate on the live call, a replay will be available through March 14 at 11:59 p.m. Eastern time. To access the replay, dial 888-286-8010 or 617-801-6888, enter conference ID 59821177, and follow the prompts. The replay will also be available on the Internet for 30 days at the following http://Phoenix.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=82169&eventID=4729137.