By Ann Levine February 2, 2004 - In their third quarter earnings call, Consolidated Graphics (NYSE: GCX) announced sales of $184.2 million, compared to $186.3 million for the same period last year. Third quarter sales represent a 5% increase over second quarter sales of $174 million. Net income for the third quarter was $5.5 million of $0.39 per diluted share. Net income for the same period last year was $5.7 million or $0.42 per diluted share. Compared to the quarter ending in September, net income was up 15% from $4.8 million. Topics of this summary : CGX Strategy Fourth Quarter Guidance Q & A CGX Strategy In today's earnings call, Consolidated Graphics reported the third consecutive quarter of growth in sales, operating margins and net earnings. The quarter ending in December exceeded company expectations and has signaled a nearly complete recovery over last year' operating levels. The company reported that industry conditions appear to have stabilized resulting in cautious optimism regarding future performance amidst industry over-capacity and intense competition. In the call, Consolidated Graphics reported a continuation of strategic initiatives to gain market share and contribute to increased sales and profits: Maintain Leadership Position - The Company re-stated its leadership position in the industry due to geographic reach. National Accounts Program – National accounts in the December quarter were 8% of total sales representing a $1 million increase over the September quarter. CGX will build on increased sales and have added two sales professionals to increase reach and market share. CGXmedia – The Company grew its installed customer sites by 7% and plans a continuation of efforts in this area. Market Share Gains -Year over year same location sales performance exceeded expectations. Digital Printing – CGX will make additional investments in technology to grow and change with technological improvements. Acquisitions – The Company has observed an increased number of acquisition candidates due to economic conditions. No assurances were given regarding timing or type of acquisition. Balance Sheet – CGX maintains a strong balance sheet and has taken steps in past quarters to reduce total debt. In the past 9 months, debt reduction has been $38.6 million or 24% of total debt. Managing Costs – CGX has reduced headcount by 5% and realized other cost savings and has increased CGX's leverage on general/administrative expenses. Fourth Quarter Guidance CGX expects $175 million is sales for the quarter ending in March, or an approximate 6% improvement. Some of the growth will be attributed to acquisitions and approximately 3% will be due to same-location sales growth factor included in the guidance. Operating margins and diluted earnings per share will remain essentially flat with operating margins at 6% and earnings per share at $0.39. Q & A Interest expense for the quarter was $1.5 million. Interest expense was higher this past quarter due to a $400,000 one-time charge. Same stores revenues were down slightly more than 1%, reflecting a more positive performance than the expected decline of a 4-5%. Regarding the guidance for the quarter ending in March, CGX's confidence comes from the comparison of the weak performance last March – the Iraq situation having an impact – and the current stabilization of the economy. Company Chairman, Joe Davis, stated the Leadership Development program was the best thing CGX has ever done. Approximately 180 associates are in the program and there will be a 15-20% increase of employees entering the program in the next 12 months. Davis further stated that employees currently in the program and the graduates of the program are a dynamic and impressive group. He cited an example of sales professionals in the program having outperformed CGX veterans. Investments in digital capacity will vary from company to company depending on its size. In general, CGX plans on $100K-$500K in capital investments and expects annual revenues at 2X the amount of investment. CGX's Davis was not able to provide color on performance improvement by region except to say that the Boston area locations have been the hardest hit with the economic downturn and there have been some recent improvements in that market. Other regions cited in today's call (California, Chicago, Milwaukee, Texas, Baltimore/DC) have been traditionally strong markets. Historical margins will only be reached as the economy improves. As asked in many earnings calls this season, the impact of the Donnelley/ Moore Wallace merger was raised during today's call. CGX officials stated the combined company is likely to be involved in consolidating efforts in the near term and does not anticipate much impact of the merger in the near or long term.