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SGK Q1 Results Impacted by Matthews Merger

Thursday, May 01, 2014

Press release from the issuing company

DES PLAINES, IL - Schawk, Inc., now marketed as SGK, a leading global brand development, activation and deployment company, reported first-quarter 2014 results. Loss from continuing operations in the first quarter of 2014 was $2.7 million, or a loss of $0.10 per diluted share, versus income of $1.3 million, or $0.05 per diluted share, in the first quarter of 2013.

Included in the loss from continuing operations for the first quarter of 2014 was $8.1 million of merger-related expenses relating to the Company's entry into a definitive merger agreement with Matthews International Corporation on March 16, 2014.

In addition, the Company reported income of $1.9 million in the first quarter of 2014, relating to a decrease in the estimated liability originally recorded in 2012 for the Company's withdrawal from its remaining multiemployer pension plan within the United States.

Operating loss for the first quarter of 2014 was $5.0 million compared to operating income of $1.7 million for the same quarter of 2013.

On a non-GAAP basis, adjusting for financial impacts relating to merger-related expenses, the reduction in the Company's multiemployer pension withdrawal liability and certain other items further detailed in this release, 2014 first-quarter adjusted operating income was $3.6 million compared to $4.4 million in the prior-year period.

Adjusted income from continuing operations was $2.7 million, or $0.10 per diluted share, for the first quarter of 2014 compared to $3.0 million, or $0.11 per diluted share, during the same period of 2013. 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, "As previously announced, we entered into a definitive merger agreement with Matthews International Corporation on March 16, 2014, which we presently expect to close sometime during the third quarter of 2014. While we work toward completing the steps necessary to consummate the merger, we continue to remain focused on providing world-class brand development and deployment services to our clients."

Consolidated Results for the Quarter Ended March 31, 2014
Consolidated net revenues in the first quarter of 2014 were $101.9 million compared to $107.2 million in the prior-year period, a decrease of approximately $5.3 million, or 4.9 percent. Year-over-year revenues were negatively impacted by changes in foreign currency translation rates of approximately $0.7 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) client revenue during the first quarter of 2014 was $89.0 million, or 87.3 percent of total net revenues, compared to $94.1 million in the same period of 2013, a decrease of 5.4 percent, due to reduced client activity within brand development and deployment. Retail and advertising client revenue in the first quarter of 2014 was essentially flat at $12.9 million, or 12.7 percent of total revenues, compared to $13.0 million during the same period of 2013.

Cost of services (excluding depreciation and amortization) was $65.4 million in the first quarter of 2014, a decrease of approximately $2.7 million from $68.2 million in the prior-year period, mainly due to cost reduction actions taken during 2013 and in the first quarter of 2014.

Selling, general and administrative expenses (excluding depreciation and amortization) decreased $2.2 million to $28.3 million in the first quarter of 2014 from $30.4 million in the same period of 2013. Reductions in expenses were driven by the Company's cost reduction efforts implemented during 2013 and in the first quarter of 2014.

Expenses related to the Company's pending merger with Matthews International Corporation, which included compensation-related expenses and professional fees, were $8.1 million during the first quarter of 2014.

Business and systems integration expenses related to the Company's information technology and business process improvement initiative decreased $1.1 million to $1.6 million in the first quarter of 2014 from $2.7 million in the prior-year period.

In addition, the Company reported $1.9 million of income resulting from a decrease in its multiemployer pension withdrawal liability originally recorded in 2012.

During the first quarter of 2014, operating loss was $5.0 million compared to operating income of $1.7 million in the prior-year period driven primarily by the merger-related expenses and a decline in consolidated net revenues, partially offset by decreases in cost of services and SG&A as well as the multiemployer pension withdrawal income. Non-GAAP adjusted operating income was $3.6 million for the first quarter of 2014 compared to $4.4 million in the prior-year comparable period.

The Company reported a tax benefit of $3.1 million in the first quarter of 2014 compared to a benefit of $0.7 millionduring the same period of 2013, due primarily to the Company's loss from continuing operations coupled with certain discrete tax benefits recorded during the 2014 quarter.

Loss from continuing operations was $2.7 million in the first quarter of 2014, or a loss of $0.10 per diluted share, compared to income of $1.3 million, or $0.05 per diluted share, in the same period of 2013. Non-GAAP adjusted income from continuing operations was $2.7 million, or $0.10 per diluted share, for the first quarter of 2014 compared to $3.0 million, or $0.11 per diluted share, on a comparable basis for the prior-year period.

Management Adjusted EBITDA Performance
Management Adjusted EBITDA for the first quarter of 2014 was $8.6 million compared to $9.0 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.

Conference Call
In light of the pending merger with Matthews International Corporation, the Company will not be holding a first-quarter 2014 earnings conference call.

 

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