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SGK (Schawk) Reports Revenue Growth in Q3

Thursday, October 31, 2013

Press release from the issuing company

Revenue Up 4.4 Percent Year Over Year; Operating Income Grew $7.4 Million Year Over Year; Earnings per Diluted Share From Continuing Operations Improved $0.22 Year Over Year

DES PLAINES, IL - Schawk, Inc. (NYSE: SGK), now marketed as SGK (the "Company"), a leading global brand development, activation and deployment company, reported third-quarter 2013 income from continuing operations of $3.5 million, or $0.13 per diluted share, compared to a loss from continuing operations of $2.3 million, or a loss of $0.09 per diluted share, in the third quarter of 2012, representing an improvement of $0.22 per diluted share.

Net revenues grew 4.4 percent during the third quarter of 2013 compared to the prior-year quarter. Excluding a $1.0 million negative impact of changes in foreign currency translation rates, revenue growth was approximately 5.4 percent for the third quarter of 2013 compared to the same period last year. Additionally, the Company's largest client channel, consumer packaged goods (CPG), grew 6.4 percent in the 2013 third quarter.

Operating income for the 2013 third quarter was $5.8 million compared to an operating loss of $1.6 million for the same quarter last year, an increase of $7.4 million. On a non-GAAP basis, adjusting for financial impacts relating to certain items further detailed in this release, third-quarter adjusted operating income was $8.6 million in the 2013 period compared to $6.7 million in the prior-year period, an increase of approximately 29 percent.

Adjusted income from continuing operations was $5.3 million, or $0.20 per diluted share, for the third quarter of 2013 compared to $3.0 million, or $0.12 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, "Each of our segments experienced solid revenue growth in the third quarter. In addition, our largest client channel, CPG, grew 6.4 percent globally in the quarter, and has now seen year-over-year quarterly growth for two years, reflecting the momentum SGK has gained from investing strategically to better align with our clients' needs. Within our Americas and Europe segments, CPG revenue growth was particularly strong. In addition, our profitability from continuing operations improved significantly during the quarter, driven in part by revenue growth and measures we have taken to improve our cost structure."

Consolidated Results for the Quarter Ended September 30, 2013
Net revenues in the 2013 third quarter were $110.7 million compared to $106.0 million in the same period of 2012, an increase of approximately $4.7 million, or 4.4 percent. Year-over-year revenues were negatively impacted by changes in foreign currency translation rates of approximately $1.0 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 third quarter of 2013 was $95.8 million, or 86.5 percent of total net revenues, compared to $90.0 million in the same period of 2012, an increase of 6.4 percent, primarily due to greater product activity with brand development and deployment. Retail and advertising client revenue in the 2013 third quarter was $14.9 million, or 13.5 percent of total net revenues, a decrease of 6.6 percent, from $16.0 million during the prior-year quarter, primarily due to continued reductions in client promotional activity.

Cost of services (excluding depreciation and amortization) was $67.9 million in the 2013 third quarter, an increase of approximately $2.0 million from $65.8 million in the 2012 third quarter. The increase in cost of services during the third quarter of 2013 compared to 2012 was mainly due to an increase in labor related to the revenue growth during the quarter. As a percentage of revenue, cost of services (excluding depreciation and amortization) improved to 61.3 percent in the third quarter of 2013, or 80 basis points, from 62.1 percent in the prior-year quarter.

Selling, general and administrative expenses (excluding depreciation and amortization) were essentially the same in the third quarter of 2013 compared to the prior-year quarter at $29.4 million. Reductions in expenses driven by the Company's cost reduction efforts implemented during 2012 and throughout 2013 offset investments that the Company made to improve its opportunities for long-term revenue growth. As a percentage of revenue, selling, general and administrative expenses (excluding depreciation and amortization) improved to 26.6 percent, or 110 basis points, from 27.7 percent.

Business and systems integration expenses related to the Company's information technology and business process improvement initiative decreased $1.0 million to $2.0 million in the third quarter of 2013 from $3.0 million in the third quarter of 2012, as the Company's investment in the system build phase was substantially complete.

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 $1.2 million in the third quarter of 2012 to $0.7 million in the third quarter of 2013. The actions taken during the third quarter of 2013 are expected to result in annualized savings of approximately $2.0 million, with approximately $0.7 million to be realized during 2013. Actions taken during the first nine months of 2013 are expected to result in annualized savings of approximately $5.2 million, with approximately $2.7 million expected to be realized during 2013.

Operating income was $5.8 million in the third quarter of 2013 compared to an operating loss of $1.6 million in the prior-year comparable quarter. The year-over-year increase was driven primarily by the higher net revenues in the third quarter of 2013 compared to the third quarter of 2012, as well as reduced business and systems integration expenses, reduced acquisition integration and restructuring expenses and impairment of long-lived assets during the third quarter of 2012 that did not occur in the 2013 period. Non-GAAP adjusted operating income was $8.6 million for the third quarter of 2013 compared to $6.7 million in the prior-year comparable period.

In the 2013 third quarter, tax expense was $1.3 million compared to a tax benefit of $0.2 million during the same period in 2012. The increase in tax expense over the prior-year period was principally driven by the increase in the before-tax income from continuing operations.

Income from continuing operations in the third quarter of 2013 was $3.5 million, or $0.13 per diluted share, compared to a loss from continuing operations of $2.3 million, or a loss of $0.09 per diluted share, in same period of 2012. Non-GAAP adjusted income from continuing operations was $5.3 million, or $0.20 per diluted share, for the third quarter of 2013 compared to $3.0 million, or $0.12 per diluted share, on a comparable basis for the prior-year period.

Management Adjusted EBITDA Performance
Management adjusted EBITDA for third quarter of 2013 was $14.0 million compared to $11.3 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.

 

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