By Susan Kelly August 2, 2004 -- Banta Corporation (NYSE: BN) announced second quarter revenues of $368 million, 9% higher than last year's $337 million. Net earnings for the second quarter were $15.2 million, 12% above last year's $13.5 million, which exclude 2003's special charges relating to a restructuring and litigation settlement. Including the special charges, last year's net earnings were $7.3 million. Second quarter diluted earnings per share was reported at $0.60, 13% above 2003's $0.53, excluding special charges. Raine Radar: Ms. Stephanie Street, Chairman and CEO of Banta, started off the call identifying the rising Global Outsourcing trend; one they do see not changing in the foreseeable future. Banta has made this their number one strategy. In fact almost one-third of Banta’s business in from their supply chain management sector….and growing. However, the worldwide competition is stiff. Now that CMGI has purchased Modus Media, and with RR Donnelley continuing to get back into the turnkey game through their Telecommunications division, the pricing battles in the U.S. alone, for the big tech companies will be brutal. Now that Banta’s “pearl” five-year contract with HP is coming to end, can Banta really be a player in supply chain? We believe any future M&A activity will be defensive in nature given the rush for big customers to share Banta’s productivity improvements faster than Banta can deliver the operating margins via increased volumes. Topics of this summary: Sector Performance 2004 Guidance Q & A Sector Performance Supply-Chain Management Sector continued to deliver strong results in the second quarter. Revenue increased 28% to $103 million, and operating earnings of $11.1 million rose 9%, before 2003's special charges. Operating margins declined due to pricing pressures and revenue mix, however Banta was able to deliver the results due to facility utilization and last year's restructuring activities. Print Sector’s revenue for the second quarter was above the same period last year, at $238 million compared with $231 million, the result of improved commercial print activity. Sector operating earnings, before last year's special charges, increased 15% due to higher plant utilization in direct marketing and last year's catalog division restructuring and modernization. Banta's direct marketing division benefited from a strong increase in demand; particularly for the division's print personalization services. Significant new business was secured during the quarter and the outlook for the third quarter remains promising. Catalog division delivered a healthy increase in operating earnings, benefiting from 2003's restructuring and the Minneapolis plant modernization. Revenue for the quarter declined primarily due to last year's St. Paul plant shutdown and the resulting planned decline in print capacity. Book division revenue was essentially flat while operating earnings declined compared with the same period last year. Educational print volumes increased over the prior year, but pricing pressures negatively affected revenue, margins and profitability. Publications division continued to gain market share and grew revenue in the second quarter. The division's internal measure of average page counts per publication for the quarter increased for the first time in more than three years. A modest decline in operating earnings was due to pricing pressures and significant new-equipment start-up expenses at the Kansas City publications plant. Healthcare products division reported mixed results for the second quarter. While revenue increased 3% operating earnings declined 24% due to higher raw material costs, specifically paper, tissue and resin. 2004 Guidance Banta’s Chairman and CEO, Stephanie Streeter refrained from giving any specific guidance for future quarters or for the full year 2004 given the market volatility and price pressures they are experiencing in the market. The CFO gave some formula assumptions to analysts However, no specifics as to earnings and share price were estimated. (Editor’s Note: Banta continues to play games with their guidance numbers and throws teasers about low-to-mid single digits versus stating an actual range.) Q & A The acquisition market in the last 90 days is heating up and Banta is seeing additional opportunities. They are looking at supply chain for new markets and geographies and looking in selected segments for book and publications print for additional capabilities. Debt for quarter was $69MM and $25MM in current maturities. Cash decreased $10MM for the quarter and capital expenditures were $19MM. Pricing in print, in particular, is because capacity utilization issues still exist. In supply chain contracts with large tech customers call for year-over-year price reductions as well as sharing costs savings. Also they are adding lower margin business in the healthcare business with a 5-year contract in exchange for larger volumes. Ms. Streeter has been appointed to the U.S. Olympic Committee. Their major cost increases are similar to other public companies: employee healthcare costs, planning and compliance issues for Sarbanes Oxley, and one-time investment to identify productivity improvements. New product wins have been in the healthcare business. New customer wins have been in supply chain, primarily in the tech sector: H/W, S/W and Telecommunications; which consists of less value add and more material pass through. Analysts seemed surprised about HP contract extension only goes to end of 2004; as the original 5-year contract coming to an end. Don Belcher, former Banta Chairman, stated in a local paper that Stephanie Streeter is planning to double and triple the size of Banta over the next couple of years. When asked to verify, Stephanie would not comment on the timing.