By Trevor Shackelford January 25th, 2006 -- Courier Corporation (NASDAQ: CRRC) recently announced their first quarter 2006 results. Total revenue for Courier's first quarter was $57.7 million, up 13% from $51.3 million reported for the same period in the last year, reflecting its continued penetration into the education market. Net income for the first quarter was $4.5 million, up 18% from $3.8 million reported for the same period in the last year. Net income per diluted share was $0.36, up 16% from $0.31 reported for the same period last year. First quarter 2006 results include the acquisition of Moore Langen, an Indiana-based printer specializing in book covers and packaging, in October. Excluding Moore Langen, first quarter sales were up 10%. Contents of this Summary * Quarter Highlights * Segment Performance * Guidance * Raine Radar * Q & A Quarter Highlights • According to its Chairman & CEO James F. Conway, the Moore Langen acquisition tripled the company’s capacity of cover production. • Company took the delivery of its second MAN Roland four-color press, which went into operation in December with an especially smooth start-up, and company also ordered a third MAN Roland press for delivery in late 2006. • In November, company raised the dividend on Courier stock by 20%, just six months after a 50% increase in last spring. • During the quarter Dover Publications completed warehouse consolidation and implementation of SAP and its enterprise-wide information system. •Cash provided from operations during the first quarter was $9.7 million including $4.5 million of net income, $3.4 million of depreciation and amortization and $1.3 million from reduction in working capital. • During the first quarter, $15 million of cash were used for acquisition of Moore Langen and $7 million were used for four-color presses. • Pre-publication expenditure was approximately $800,000, up 14% from last year. • Company ended the first quarter with approximately $20 million in cash. Segment Performance Specialty Publishing Segment Courier’s specialty publishing segment includes two businesses: Dover Publications, which publishes thousands of titles spanning a broad range of niche markets; and Research & Education Association (REA), a publisher of test preparation books, CD-ROMs and study guides. First quarter sales for the segment were $10.9 million, up 6% from $10.3 million in last year’s first quarter. Gross profit of the segment was 44.7% of sales, down from 49% a year ago, reflecting increased labor and other costs including approximately $200,000 related to the warehouse consolidation and systems implementation. Pretax income was $1.1 million or $0.06 per diluted share for the quarter, about equal to fiscal 2005. Book Manufacturing Segment Q1 sales for the segment were $48.2 million, up 12% from last year’s first quarter. Pre-tax earnings for the segment rose 10% in the first quarter to $6.2 million, or $0.32 per diluted share, compared to $5.6 million, or $0.29 per diluted share reported for the same period in 2005. Gross profit in the segment rose 14% to $13.6 million, increasing as a percentage of sales to 28.1% from 27.8% reported in 2005, reflecting higher capacity utilization and a favorable sales mix, though these were partly offset by increases in utility and medical costs. The book manufacturing segment focuses on three publishing markets: education, religion, and specialty trade. Sales to the education market rose 14% in the first quarter, with growth in four-color elementary and high school textbooks. Sales to the religious market were down 3% from last year’s first quarter, in keeping with expectations following a decision last year to discontinue certain low-priced religious trade work. Sales to the specialty trade market were up 12% from fiscal 2005, with a few large one-time orders contributing most of the increase. Guidance Courier expects it will be adding capabilities in book manufacturing this spring which will qualify the company for a larger share of textbook business in time for the coming school year. The company also expects its publishing business to realize greater gains from its marketing, technology and distribution initiatives as the year progresses. For fiscal 2006 overall, the company is maintaining its earlier guidance for sales growth of 14% to 16% (which includes the benefit of a 53-week year in fiscal 2006), resulting in total sales of between $258 and $263 million—a record high for Courier. The company also expects full year net income per diluted share to be between $1.94 and $2.04, representing an increase of between 16% and 22% from fiscal 2005 earnings of $1.67 per diluted share, and would also set a new company record. The company believes adopting accounting rules under FAS 123R, fiscal 2006 earnings will be reduced by approximately $0.06 per diluted share and fiscal year 2005 earnings by $0.10 per diluted share. Raine Radar Courier seems to have identified a major market opportunity for itself in textbooks, and has made a concerted effort of focusing a large part of its efforts around that space. If Courier’s market analysis is correct, the opportunity is also a long term one, with major new textbook orders being forecasted for the next four years. The company has been adding a lot of equipment, and seems to have no trouble filling it up. By adding equipment, the company also makes itself open to business which might have previously been too big. As of right now, it appears that the company has a lot to look forward to in 2006. Q & A 1. The company said that its sales efforts in the publishing division are concentrated on pushing the more popular titles. 2. The company said that growth potential in the publishing segment is pretty good and overall the segment was up 6% in the quarter. The company’s guidance includes continued growth. 3. The company expects that, when the MAN Roland press is operated at full capacity, it could generate sales of $20 to $25 million. 4. Courier believes that in the elementary and high school arena, the textbook adoption cycle between now and 2009 is going to see some major activity—in the range of $500 million to over $1 billion. 5. Courier expects specialty trade publishing to improve as an opportunity to double-digit level growth and the religious market lag to behind with much slower growth. 6. The company expects that four-color textbook printing will be tight in spring and throughout the summer and fall, but pricing will remain competitive. 7. Courier said that in the past year, the four-color press was running pretty much at full capacity. The company added a press within the last few weeks, which will significantly increase the company’s capacity. 8. Courier is hitting all-time highs with capital expenditures of $28 to $30 million in 2006, but expects that to taper off in 2007. 9. The company expects to maintain the return on assets in the range of 11% - 12%, similar to the past few years. 10. Courier believes that the cash balance it has built up on the balance sheet the past several years will allow the opportunity for improvement of return on assets by buying new presses going forward.