Schawk Reports Q2 Results: Net Loss of $1.5 Million
Thursday, August 02, 2012
Press release from the issuing company
Schawk, Inc., a leading provider of brand development and deployment services, enabling companies of all sizes to connect their brands with consumers, reported second-quarter 2012 results. Net loss in the second quarter of 2012 was $1.5 million, or $0.06 per diluted share, versus net income of $4.0 million, or $0.15 per diluted share, in the second quarter of 2011. Business and system integration expenses for the company's ongoing information technology and business process improvement initiative increased by approximately $2.1 million for the quarter compared to the prior-year period, which contributed in part to the decline in net income.
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 $2.7 million, or $0.10 per diluted share, compared to $6.9 million, or $0.26 per diluted share, during the prior-year period.
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 second quarter and first six months of 2012. In addition, we have seen growth with existing key clients as they continue to consolidate their spending with fewer vendors. The year-over-year decline in profitability reflects certain investments we made to expand our brand development and deployment capabilities and extend our presence in emerging markets. However, due to persistent economic headwinds in the Americas, we took additional steps to leverage our operations and will continue to look for opportunities to improve our profitability over time."
Consolidated Results for the Second Quarter Ended June 30, 2012
Consumer packaged goods (CPG) accounts sales in the second quarter of 2012 were $92.4 million, or 79.5 percent of total net sales, compared to $86.8 million in the same period of 2011, an increase of 6.5 percent, primarily due to increased product and brand development activity. Advertising and retail accounts sales in the second quarter of 2012 were $18.2 million, or 15.6 percent of total sales, a decrease of 6.0 percent, from $19.3 million during the second quarter 2011, primarily driven by continued reductions in client promotional activity. Entertainment accounts sales for the second quarter of 2012 of $5.7 million, or 4.9 percent of total sales, decreased 21.7 percent, from $7.2 million in the 2011 period, driven by continued declines in print-related promotional activity.
Gross profit was $39.8 million in the second quarter of 2012, a decline of $1.7 million from the second quarter of 2011. Gross profit as a percentage of sales decreased to 34.3 percent from 36.7 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 $4.4 million to $34.0 million during the second quarter of 2012 from $29.7 million in the 2011 period. Included in SG&A expenses for the second quarter of 2011 is a credit to income of approximately $0.8 million for the settlement of a lawsuit related to enforcing a non-compete agreement with the former owner of a business acquired by the company. Excluding this credit to income in the prior year, the increase in SG&A expenses in the second quarter of 2012 compared to the second quarter of 2011 is principally due to increases in the company's previously mentioned investments in expanding brand development and deployment capabilities.
For the second quarter of 2012, the company reported business and systems integration expenses of $4.3 million, compared to $2.1 million in the prior-year period, relating to the company's ongoing information technology and business process improvement initiative.
The company recorded a $0.1 million loss on foreign exchange exposures in the second quarter of 2012, which was $0.1 million lower compared to the loss reported in the second 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 $0.7 million in the second quarter of 2011 to $2.5 million in the same quarter of 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 second quarter of 2012 are expected to result in annualized savings of approximately $8.6 million, with approximately $4.0 million realized during 2012.
During the second quarter of 2011, the company recorded an expense of $1.8 million as a result of its decision to terminate participation in a union supplemental retirement and disability fund in California. This expense did not reoccur during the second quarter of 2012.
The company reported an operating loss of $1.1 million in the second quarter of 2012 compared to operating income of $7.0 million in the 2011 period. The decline in income year over year was driven primarily by the decline in gross profit and increased expenses for business and systems integration, acquisition integration and restructuring and SG&A. Partially offsetting these expense increases was a reduction in multiemployer pension withdrawal expense.
For the second quarter of 2012, the company reported a tax benefit of $0.5 million compared to an expense of $1.8 million during the same period in 2011, principally driven by the pre-tax loss in the second quarter of 2012.
Net loss in the second quarter of 2012 was $1.5 million, or $0.06 per diluted share, compared to net income of $4.0 million, or $0.15 per diluted share, in 2011. Non-GAAP adjusted net income was $2.7 million, or $0.10 per diluted share, for the 2012 period, compared to $6.9 million, or $0.26 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
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