By Steven Schnoll November 5, 2004 -- Cadmus Communications Corporation (NASDAQ: CDMS) announced a 4% decrease in first quarter sales from last year but reported increased operating income of $8.2 million. Q1 revenue was $103.0 million for fiscal 2005 as opposed to $106.9 for Q1 2004. Net income was $3.2 million or $0.34 per share for Q1 compared to net income of $2.1 million or $0.23 per share in Q1 2004 fiscal. Topics of this summary: Company Performance Overview Guidance Q & A Company Performance Cadmus continues to focus on managing its business segments effectively. While sales in the Q1 declined by 4% operating income increased by 14.2% to $8.2 million. Margins on sales also increased to 8%. It should be noted the results were impacted by a $1 million insurance recovery booked in the quarter. Debt decreased by $6.1 million in the quarter as well. Specialty Packaging continues to shine in the Cadmus product mix with revenues increasing 12% to $16.4 million with operating margins expanding from 2.4% to 7.4%. The Global Packaging Solutions unit, with it’s distribute and print model is now expanding to Central America and Southeast Asia. Publishing Services continues to experience pricing pressure. With the renewal of the companies second largest account behind it the company can refocus on managing capacity to obtain higher margins and also look to the upcoming big year in the education marketplace. Guidance The company feels that fiscal 2005 will meet the expected goal of 3% increased revenue with operating margins of 5% Raine’s Radar One must be impressed with the continuing improved results being achieved at Cadmus. While revenue for the quarter decreased and the renewal of the contract for the companies second largest account drove pricing down the operating margin improved. While the magazine industry is seeing an upturn in advertising pages the emphasis Cadmus is placing on their emerging non-print related solutions like dPub, Article Works and Media Works and Specialty Packaging is impressive. They are gaining momentum in diversifying away from their print dependence while at the same time finding higher margins in these new areas. These products should eventually relieve the company from its heavy dependence on segment weary magazine printing. Q & A Pricing pressures are unchanged in the publication arena Without any acquisitions the company has been able to expand the top line The significant non-print offerings are expanding but still not ready to offset the decline in print revenue. The process used over the past few years to bring the company back is being maintained. Company should be able to maintain SG&A percentage. Debt expense should also be stable and under control. Working to maintain shareholder value by buybacks to not overly dilute share price earnings because of options. While specialty magazine business is off 8% cost reductions like the centralization of a single financial and management system and reducing executive headcount should help to improve margins. Company continues the process of segmenting journal and magazine manufacturing. Eliminate overlapping plant production. Seems to be a contradiction on whether pricing is stabilizing or still under pressure