By Trevor Shackelford February 18, 2005 -- Courier Corporation (NASDAQ: CRRC) today announced strong sales gains in its first quarter results. The company reported Q1 revenues of $51.3 million, up 10% from the $46.8 million of last year’s first quarter sales. Net income increased 6% to $4.1 million, or $0.50 per diluted share, from $3.9 million, or $0.48 per diluted share, from the same period last year. The company credited higher sales to the education market for the increases. Topics of this summary: Quarter Highlights Segment Results Guidance Raine Radar Q & A Quarter Highlights Courier’s new Lithoman four-color press has been very successful due primarily to an increase in textbook sales of 8%. The company believes that the press is beating expectations with an increase of 20% in four color sales, and has plans to add an identical press in late 2005. Courier’s Dover and REA businesses are pursuing a joint technological infrastructure which had a Q1 cost of $100,000. The total cost over the year is estimated at $600,000 with expectations of $800,000 in savings in the year 2006 alone. The specialty book publishing segment had double-digit revenue growth; however 99% of these gains came from the acquisition of REA. Tax rate increased from 35% - 36% in 2005 due to the Jobs Creation Act, which reduced earnings by approximately $0.01 per share in the Q1. Segment Results Book Manufacturing Courier's book manufacturing segment had first-quarter sales of $42.9 million, up 8% from last year's first quarter. Pretax income for the segment rose 15% in the quarter to $5.6 million or $0.43 per diluted share, versus $4.8 million or $0.39 per diluted share in 2004. Gross profit in the segment rose 5% to $11.9 million, but decreased as a percentage of sales to 27.8% from 28.6% in 2004, reflecting the effects of selectively lowered pricing tied to market share increases. The book manufacturing segment saw increases in each of its three markets: education, religion, and specialty. Sales in the education market led with a 9% gain, including increases from elementary through high school and college. Sales to the religion market were in line with expectations, posting a 6% gain and bringing the twelve month growth to 4%. Sales to the specialty market were up 7%, a substantial improvement over the 2% gain seen in the Q4 of 2004. Specialty Book Publishing Courier’s specialty book publishing segment is composed of two businesses. Dover Publications publishes thousands of titles over a broad and diverse range of niche genres. Research & Education Association (REA) was acquired in January 2004 and publishes test preparation and study guides. The segment reported a 13% gain to $10.3 million in the first quarter of 2005 up from $9.1 million in the same period last year. The sales increases came almost entirely from the inclusion of REA’s $1.1 million in sales, however net income before taxes for the segment fell from $1.3 million in the Q1 2004 to $1.1 million in 2005. Dover sales increased 1% overall from a year ago, with strong increases in sales to bookstore chains and direct-to-consumer channel tempered by weak sales overseas and to non-bookstore customers such as gift and craft shops. Dover’s pretax income was $1.1 million for the Q1 2005 implying that REA was only able to break even. The company cited investments in management, technology, and marketing as the reason for the loss of income. Chairman and CEO James F. Conway III noted that Dover’s sales growth was not up to expectations and stated that two additions to management were made along with changes to warehouse operations to try to correct the problem. Guidance Conway today largely reaffirmed the guidance for 2005 presented three months ago stating, “ We are confident that we have entered into an extended period of growth in book manufacturing, and we are ready to take full advantage of it." Courier expects to see 7% to 9% sales growth resulting in total sales of between $226 and $231 million. Earnings per diluted share are anticipated to reach $2.64 to $2.79 for fiscal 2005. This represents a $0.11 per diluted share decrease from the outlook Conway provided in November based on the impact of newly adopted stock option accounting rules. Raine Radar It’s interesting that Courier would find fault with its Dover division for a lack of sales growth when in reality the “sales growth” from the inclusion of REA did nothing for the bottom line. One would expect a focus on profitability in REA at least as much as Dover’s sales growth. Courier should also be careful not to imply that the 13% growth rate in specialty book segment is in any way sustainable. That growth is entirely based on the acquisition of REA. Those comments aside, one can’t argue too much with management in a company with no debt and an extremely solid 5 year return on equity ratio of 17.7. Q & A An upcoming wild card for the specialty book segment could come from the release of the sixth Harry Potter book, which could drive shorter run productions to Courier as capacity in other publishers is taken up with the young magician. EPS growth was only at 4.5% in the first quarter, which lags behind the 2005 guidance, but senior management sees Courier making that up in volume and modest margin improvements during the balance of 2005. The bulk of the Dover-REA technology investment will be completed by the end of 2005, spread equally over the course of the year.