By Ann Levine April 19, 2004 - Courier Corporation (NASDAQ: CRCC) announced second quarter earnings per diluted share of $0.47 for the period ending March 27, 2004. This figure compares with earnings per share for the second quarter of 2003, flat at $0.47. Income from continuing operations was $3.9 million, essentially flat with the first quarter 2004, and slightly up from $3.8 million for the same period last year. Second quarter sales were $49.7 million up 2% from the $48.6 million reported for the second quarter of 2003. Topics of this summary: Segment Performance 4-Color Press Update Outlook Q & A Segment Performance Book Manufacturing Book manufacturing sales were $41 million for the second quarter of 2004. In the religious segment, sales were up 2% in the second quarter. Education segment sales were up 14% for the second quarter due to market share gains resulting in increased sales to the elementary and high schools. In the specialty trade segment, sales were down 20% for the second quarter as publishers have been cautious about inventory levels. Additionally, there was an overall decline in game book sales. Specialty Publishing Courier's specialty publishing segment includes Dover Publications and the recently acquired REA. In this segment overall, second quarter sales were $10.1 million, up 12% from the $9.1 million reported for the same period last year. Dover sales during the second quarter were down 1%. Sales to U. S. retailers were down 4%, sales to bookstore chains down 11%, direct to consumer sales increased 8%. Dover's second quarter international sales increased 13%. Due to a modification in the mailing pattern in consumer catalogs, 20% fewer catalogs were mailed during the quarter. Company officials predict that catalog sales should contribute to increased sales figures as the catalogs will be going out in the third and fourth quarters. Dover's fall list of new book titles includes 322 new titles bringing, the yearly figure to 660, the company highest ever. Second quarter sales for REA were $1.1 million and essentially met the company's expectations. 4-Color Press On previous calls, Courier had mentioned the growth in the four-color market and has now completed the installation of a four-color press in the Kendallville, IN plant. The press came on-line in April and is expected to be in full production this year. Start-up costs associated with the press were $150,000 and cut into second quarter earnings. Outlook Courier expects improved performance beginning third and fourth quarters. For fiscal year 2004, sales are expected in the range of $214-$219 million, a 6-8% increase over the previous year. Earnings per share are expected in the range of $2.57-$2.67 per share representing an 8-13% increase over fiscal year 2003. Dover Sales are expected in the double digits in the next 2 quarters and sales at REA of $3 million are expected for the remainder of the fiscal year. Book manufacturing is expected in show a 3-5% sales gain for the year. Q & A Although the addition of the new press will gradually increase Courier's efficiency and contribute to additional earnings growth, the press has just come on-line this month. Since just coming on line, the press hasn't reached its full capacity. Courier will see the benefit of the press this year, but crew training has not yet been completed and will not be until the end of the quarter. Although Dover's catalog sales were down for the quarter, the second half of the year is predictably the strongest in this segment. Courier stated Dover's overall numbers are positive, but analysts should recall that the specialty segment includes REA. Pre-publication expenditures were $1.2 million for the first six months of the year and are expected at $1.3 million for the second half. Since REA is a recent acquisition, Courier does not understand the seasonality of REA's sales. Yearly revenue projections are at $6 million on a 12-month basis, and expectations are for revenues of $4 million through September 30th. Estimates on the size of the color printing business are at $25 million. Courier was not able to estimate the size of competitor's business, though most likely larger, as Courier has just entered this market. The new press provides economies of scale and increased quality. The press is 25% faster, the speed to "make ready" is more efficient and its speed is in excess of the company's existing equipment. Although Courier paid $12 million for REA, a company with $6 million in sales, Courier stated during today's call that the acquisition will provide growth opportunities and the ability to leverage synergies. As an example, a fair amount of printing will now come to Courier as a result of the acquisition. REA is seen as a profitable business with the potential for 2x the revenue. Ann Levine is an Associate with Raine Consulting and can be reached at [email protected]