Des Plaines, IL - Schawk, Inc., now marketed as SGK, a leading global brand development, activation and deployment company, reported second-quarter 2013 results. Income from continuing operations in the second quarter of 2013 was $2.6 million, or $0.10 per diluted share, compared to a net loss of $1.6 million, or a loss of $0.06 per diluted share, in the second quarter of 2012.

As previously announced, the Company completed the sale of various assets comprising its large-format printing operations located in Los Angeles, California to The Garvey Group, LLC on July 3, 2013, for an aggregate purchase price of $10.2 million, comprised of approximately $8.2 million in cash and a $2.0 million secured subordinated note, subject to certain post-closing adjustments, plus the assumption of certain liabilities. Accordingly, the Company reported a loss from discontinued operations, net of tax, of $6.7 million for the second quarter of 2013 compared to income of $0.1 million in the prior-year period.

Net revenues were relatively flat during the second quarter of 2013 compared to the prior-year quarter. The Company's largest client channel, consumer packaged goods (CPG), grew 2 percent globally. However, CPG client revenue growth was offset by declines in retail and advertising client revenue.

Operating income for the 2013 second quarter was $5.8 million compared to an operating loss of $1.2 million for the same quarter last year, an increase of $7.0 million. On a non-GAAP basis, adjusting for financial impacts relating to certain items further detailed in this release, second-quarter adjusted operating income was $9.0 million in the 2013 period, an increase of approximately 61 percent, compared to $5.6 million in the prior-year period.

Adjusted income from continuing operations was $4.6 million, or $0.18 per diluted share, for the second quarter of 2013 compared to $2.6 million, or $0.10 per diluted share, during the comparable prior-year period. Please refer to the tables at the end of this press release for a reconciliation of these non-GAAP measures.

Chief Executive Officer David A. Schawk commented, "Our profitability from continuing operations improved significantly during the quarter notwithstanding essentially flat revenue on a year-over-year basis. We saw continued growth with our consumer packaged goods clients within the Americas and Asia Pacific segments during the second quarter. However, declines in our Europe segment, largely driven by the challenging economic environment within that region, offset some of that growth. Our overall CPG growth in the quarter was offset by continued declines in promotional activity by retail and advertising clients, which are all within our Americas segment. Despite the flat revenue growth quarter over quarter, operating income improved in the 2013 second quarter, primarily from the cost reduction and capacity utilization actions implemented last year and through the first half of 2013, offsetting continued strategic investments to better align with client needs and improve opportunities for long-term revenue growth."

Consolidated Results for the Quarter Ended June 30, 2013
Net revenues in the 2013 second quarter were $110.5 million compared to $110.8 million in the same period of 2012, a decline of approximately $0.3 million, or 0.2 percent. Year-over-year revenues were negatively impacted by changes in foreign currency translation rates of approximately $0.4 million, as the U.S. dollar increased in value relative to the local currencies of certain of the Company's non-U.S. subsidiaries. 

CPG client revenue during the second quarter of 2013 was $96.1 million, or 87.0 percent of total net revenues, compared to $94.2 million in the same period of 2012, an increase of 2.0 percent, primarily due to higher product and brand development and deployment activity. Retail and advertising client revenue in the second quarter of 2013 was $14.4 million, or 13.0 percent of total net revenues, a decrease of 13.1 percent, from $16.5 million during the prior-year quarter, primarily driven by continued reductions in client promotional activity. 

Cost of services (excluding depreciation and amortization) was $66.6 million, or 60.2 percent of net revenues, in the 2013 second quarter, a favorable decrease of $3.6 million, or 5.1 percent, from $70.2 million, or 63.3 percent of net revenues, in the 2012 second quarter. The decrease in cost of services during the second quarter of 2013 compared to 2012 was mainly due to a decrease in labor related expenses driven by the Company's cost reduction and capacity utilization initiatives implemented during 2012 and throughout 2013.

Selling, general and administrative expenses (excluding depreciation and amortization) decreased $0.3 million, or 1.0 percent, in the second quarter of 2013 to $30.2 million from $30.5 million in the second quarter of 2012. The net reduction in expenses was driven by the Company's cost reduction efforts implemented during 2012 and throughout 2013, offsetting investments that the Company has made to improve its opportunities for long-term revenue growth.

Business and systems integration expenses related to the Company's information technology and business process improvement initiative decreased $2.6 million to $1.7 million in the second quarter of 2013 from $4.3 million in the second quarter of 2012, as the Company's investment in system designs matured.

Acquisition integration and restructuring expenses, related to employee terminations and other associated costs arising from the Company's continued focus on consolidating, reducing and re-aligning its work force and operations, decreased from $2.4 million in the second quarter of 2012 to $0.3 million in the second quarter of 2013. The actions taken during the second quarter of 2013 are expected to result in annualized savings of approximately $2.3 million, with approximately $1.2 million to be realized during 2013. Actions taken during the first half of 2013 are expected to result in annualized savings of approximately $3.2 million, with approximately $2.0 million expected to be realized during 2013.

The Company recorded a $0.7 million loss on foreign exchange exposures in the 2013 second quarter, compared to a loss of $0.1 million in the prior-year period. Net foreign exchange gains or losses relate primarily to currency exposure from intercompany debt obligations of the Company's non-U.S. subsidiaries. 

The Company reported operating income of $5.8 million in the second quarter of 2013 compared to an operating loss of $1.2 million in the prior-year comparable quarter. The year-over-year increase was driven by reductions in cost of services, acquisition integration and restructuring, and business and systems integration expenses. Non-GAAP adjusted operating income was $9.0 million for the second quarter of 2013 compared to $5.6 million in the prior-year comparable period.

For the 2013 second quarter, the Company reported tax expense of $2.1 million compared to a tax benefit of $0.5 million during the same period in 2012. The increase in tax expense over the prior-year period was principally driven by the increase in income from continuing operations coupled with certain discrete tax benefits during the prior-year quarter.

Income from continuing operations in the second quarter of 2013 was $2.6 million, or $0.10 per diluted share, compared to a loss of $1.6 million, or a loss of $0.06 per diluted share, in same period of 2012. Non-GAAP adjusted income from continuing operations was $4.6 million, or $0.18 per diluted share, for the second quarter of 2013 compared to $2.6 million, or $0.10 per diluted share, on a comparable basis for the prior-year period.

Management Adjusted EBITDA Performance
Management adjusted EBITDA for second quarter of 2013 was $14.3 million compared to $10.5 million in 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.