Schawk, Inc., a leading provider of brand development and deployment services, enabling companies of all sizes to connect their brands with consumers, reported first-quarter 2012 results. Net loss in the first quarter of 2012 was $1.6 million, or $0.06 per diluted share, versus net income of $2.8 million, or $0.11 per diluted share, in the first quarter of 2011. Business and system integration expenses for the company's ongoing information technology and business process improvement initiative increased by approximately $1.9 million for the quarter compared to the prior-year period, which contributed in part to the decline in net income compared to the 2011 comparable period.
On a non-GAAP basis, adjusting for financial impacts relating to the business and system integration expense and other items as further detailed in this release, adjusted net income was $1.4 million, or $0.05 per diluted share, compared to $4.2 million, or $0.16 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 emerging markets as evidenced by our growth in Europe and Asia Pacific during the first quarter of 2012. In addition, we have also seen growth with existing key clients as they continue to consolidate their spending with fewer vendors. Due to both of these growth opportunities, we have continued to make certain investments in expanding our brand development and deployment capabilities to align with our clients' evolving needs. The year-over-year decline in profitability reflects those investments to further expand our business and also extend our presence in emerging markets. Over time, we expect that these investments can be further leveraged to improve the company's margins."
Consolidated Results for the First Quarter Ended March 31, 2012
Consolidated net sales in the first quarter of 2012 were $112.8 million compared to $107.2 million in 2011, an increase of approximately $5.5 million, or 5.1 percent. Year-over-year sales were negatively impacted by changes in foreign currency translation rates of approximately $0.5 million, as the U.S. dollar increased in value relative to the local currencies of certain of the company's non-U.S. subsidiaries.
Consumer packaged goods (CPG) accounts sales in the first quarter of 2012 were $89.6 million, or 79.4 percent of total net sales, compared to $81.6 million in the same period of 2011, an increase of 9.8 percent, primarily due to higher product and brand activity. Advertising and retail accounts sales in the first quarter of 2012 were $17.3 million, or 15.4 percent of total sales, a decrease of 9.8 percent, from $19.2 million during the first quarter 2011, primarily driven by reduced client promotional activity. Entertainment accounts sales for the first quarter of 2012 of $5.8 million, or 5.2 percent of total sales, decreased 9.4 percent, from $6.4 million in the 2011 period, driven by continued declines in print-related promotional activity.
Gross profit was $37.1 million in the first quarter of 2012, a decline of $1.7 million from the first quarter of 2011. Gross profit as a percentage of sales decreased to 32.9 percent from 36.1 percent in the prior-year period. The decline in gross profit percent was largely driven by the previously mentioned investments in expanding the company's brand development and deployment capabilities.
Selling, general and administrative (SG&A) expenses increased approximately $2.9 million to $33.9 million during the first quarter of 2012 from $31.0 million in the 2011 period. Included in SG&A expenses for the first quarter of 2011 is a credit to income of approximately $1.5 million related to reserve reductions for certain of the company's vacant leased properties in its European segment, for which changed circumstances required revisions in the estimates of future expenses related to the leases. Excluding this credit to income in the prior year, the increase in SG&A expenses in the first quarter of 2012 compared to the first quarter of 2011 is principally due to increases in the company's previously mentioned investments in expanding its brand development and deployment capabilities.
For the first quarter of 2012, the company reported business and systems integration expenses of $3.2 million, compared to $1.2 million in the prior-year period, relating to the company's ongoing information technology and business process improvement initiative.
The company recorded a $0.5 million loss on foreign exchange exposures in the first quarter of 2012, which was essentially the same loss reported in the first quarter of 2011. 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 from foreign currency hedges used to mitigate the company's foreign exchange exposures.
Acquisition integration and restructuring expenses increased from $0.4 million in the first quarter of 2011 to $1.1 million in 2012. These charges relate to employee terminations and other associated costs from the company's continued focus on consolidating, reducing and re-aligning its work force and operations. The actions taken during the first quarter of 2012 are expected to result in annualized savings of approximately $2.9 million, with approximately $2.4 million realized during 2012.
The company reported an operating loss of $1.6 million in the first quarter of 2012 compared to operating income of $5.5 million in the 2011 period. The decline year over year was driven primarily by the decline in gross profit, as well as increased expenses related to business and systems integration, acquisition integration and restructuring, and SG&A.
For the first quarter of 2012, the company reported a tax benefit of $0.8 million compared to an expense of $1.5 million during the same period in 2011, principally driven by the pre-tax loss in the first quarter of 2012.
Net loss in the first quarter of 2012 was $1.6 million, or $0.06 per diluted share, compared to net income of $2.8 million, or $0.11 per diluted share, in 2011. Non-GAAP adjusted net income was $1.4 million, or $0.05 per diluted share, for the 2012 period, compared to $4.2 million, or $0.16 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 the first quarter of 2012 was $9.6 million compared to $12.5 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.
Conference Call Schawk invites you to join its first-quarter 2012 earnings conference call on Thursday, May 3, 2012, at 9:00 a.m. Central time. To participate in the conference call, please dial 800-573-4840 or 617-224-4326 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=4759933. If you are unavailable to participate on the live call, a replay will be available through May 10 at 11:59 p.m. Eastern time. To access the replay, dial 888-286-8010 or 617-801-6888, enter conference ID 54954871, 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=4759933.