By Trevor Shackelford May 11, 2006 -- Banta Corporation (NYSE: BN) announced their first quarter 2006 results recently. The company released comparable results for continuing operations for the first quarter of 2006 and 2005, excluding the Banta Health Group, which was sold on April 12, 2005. Total revenue for Banta's first quarter was $384 million, compared to $386 million reported for the first quarter of fiscal 2005. Earnings from continuing operations for the first quarter of fiscal 2006 were $13.7 million, or $0.56 per diluted share, compared to $16 million, or $0.54 per diluted share, reported for the first quarter of fiscal 2005. Contents of this Summary * Quarter Highlights * Segment Performance * Guidance * Raine Radar * Q & A Quarter Highlights • The company entered into a 3-year agreement with Abet Diabetes Care. This agreement is expected to yield $100 million of revenue over three years. • Gross profit as a percentage of revenue declined to 21.3% from 21.7% reported for the first quarter of fiscal 2005. • Operating earnings were $19.6 million, down by $1.0 million from $20.6 million reported for the same period last year. • SG&A expenses as a percentage of revenue declined to 16.1% from 16.4% reported last year. • Interest expense for the quarter was $1.3 million, down by $243,000 from last year, primarily due to the reduction of long-term fixed rate debt. • Interest income approximately doubled in the first quarter, reached to $1.4 million from $737,000 reported last year. • Effective tax rate for the quarter declined to 30% from 32% reported last year. • Working capital decreased by $17 million. • Inventories were lowered by 19%, compared to year ago. • The company repaid approximately $9.0 million debt and approximately $8.0 million went to the prepaid part of the $24 million borrowed last December. • Capital spending for the quarter was $15.0 million. • During the quarter, the company repurchased approximately 268,600 shares at an average price of $48.95 per share. Segment Performance Printing Services Segment Banta reported Q1 revenues for the segment of $280 million, up 2% from $275 million reported for the same period last year. The increase was primarily due to paper price increases and double digit revenue growth from the literature management division. These gains were partially offset by a decline in several other divisions in the printing service segment due to price and mix changes. Operating earnings for the segment were $16.1 million, compared to $16.5 million reported for the same period last year. Pricing and volumes posed significant issues for the publication and consumer catalog divisions. Revenues in the book division were down, however operating earnings were up slightly from last year. The literature management division reported double-digit growth in revenue and triple digit growth in operating earnings. The direct marketing division reported gains in revenue and operating earnings. Volume and pricing were issues for both the publication and catalog divisions. The company is planning to rebuild another major press in the catalog division during the second quarter of fiscal 2006. Supply-Chain Management Service Segment Q1 revenues for the segment were $103 million, compared with $111 million reported for the same period last year. Out of the revenue decline, about half was related to currency valuation. Operating earnings declined to $11.4 million, compared to $12.4 million reported for the same period last year. The overall earnings decline was due primarily to annual negotiated price reductions with several major customers and recognition of equity based compensation expenses. The company reported that, despite the pricing issues and added expenses; operating margin remained at 11.1% of revenue. Guidance According to its Chairman, President and CEO, Stephanie A. Streeter, Banta’s corporate outlook for the remainder of the year is unchanged. The company expects that 2006 will be another record year. Second quarter results are anticipated to be close to those in the same period last year. Banta also expects strong performance in the second half of the year. For the full fiscal year 2006, revenues are projected to be in the range of $1.6 billion to $1.65 billion, and diluted earnings per share from continuing operations are expected to be in the range of $3.00 to $3.15, which includes the expected annual costs of $0.18 per share for equity based compensation. Raine Radar Although earnings this quarter were pretty much flat and revenue declined somewhat year over year, things are still looking good for Banta. After all, the first quarter last year was the beginning of a record pace for the company, which Banta is looking to top this year. Supply-chain services were a bit soft, but continue to benefit from strong volume from some of its larger customers. Results in the printing segment were mixed, but the company is continuing to take steps to improve profitability for that business. Although some analysts may have been hoping for a stronger first quarter, the company is still on track to meet its 2006 goals. Q & A 1. Pricing and volume weakness in the publication division was primarily due to decreased drop down from those, like Quebecor or RR Donnelley, who typically print larger volume magazines. 2. Banta said that its mail facility in the publication unit should be up and running in the second quarter of fiscal year 2006. The company intends to offer some postage cost savings to its customers through inline mailer capabilities. 3. In the first quarter of fiscal 2006, the company contributed approximately $10 million to its pension from cash balances held by the company. 4. The company expects that the revenue of $100 million from the Abet contract will be spread evenly on an annualized basis over the three years, although perhaps a little lower this year, since the company is starting up the Scotland and Singapore operations this year. 5. Banta’s J&J contract is all out of its Scotland facility but the company believes that there is an opportunity to make that global. 6. Currently the company intends to handle budget management services in house. 7. Banta acknowledged that the sales cycle time is quite long, up to 12 months, for its supply chain business. 8. The company expects margins in the supply chain business to improve over time. To start up, the company is taking new customers with lower margins and then finding opportunities to take costs out of the system.