Wallace Provides Third Quarter Outlook, Expects Lower Earnings
Press release from the issuing company
Lisle, IL, 5/21/01 - Wallace (NYSE: WCS), the leading national provider of comprehensive total print management products and services, announced that third quarter earnings will be lower than expected. The company anticipates reporting third quarter earnings of $0.34 per diluted share. Despite the lowered expectations, these results will still reflect a significant increase over the prior year's comparable (excluding restructuring and one-time charges and using a normalized tax rate) earnings of $0.27 per share.
Total revenues will be approximately $396 million, up roughly $7 million or 2% over the prior year. Revenues from Wallace's Forms and Labels segment were lower than expected, due primarily to the general economic slowdown that resulted in reduced shipping and inventory activity for the company's Total Print Management and transactional customers. Revenues from the Integrated Graphics segment, which historically has lower margin levels than the Forms and Labels segment, generally met expectations. This change in the revenue mix resulted in reduced overall margin levels, leading to lower earnings than originally anticipated.
Due to current and anticipated economic conditions, the company has also lowered its guidance for anticipated earnings performance for the fourth quarter. Fourth quarter results are expected to be similar to third quarter results. Management plans to provide additional detail on the third quarter, an outlook for fourth quarter, and guidance for fiscal 2002 in its quarterly earnings conference call scheduled for June 13.
"Despite the earnings shortfall, our overall third quarter performance was encouraging in several areas, particularly in light of the tough economic conditions that we are currently facing," said David Jones, Chairman and Chief Executive Officer. "We were encouraged by our ability to retain market share within both operating segments, despite decreasing customer demand and resulting competitive pressures within our industry. We are also pleased that we were able to report significantly higher earnings over the comparable period of the prior year.
"Cash flow generated by operations was on target for the quarter and remains ahead of our full-year plan, which is an encouraging sign that we are using working capital more efficiently, doing a better job of managing expenses, and getting more productivity out of assets. Because of strong cash flow, we were able to continue to pay down debt and further reduce our total debt to total capital ratio. These are all critical initiatives and position us well for the future."
"I am delighted with the results of our working capital management initiative," said Vicki Avril, Senior Vice President and Chief Financial Officer. "We were able to lower total debt by almost $21 million in the quarter. Our total debt to total capitalization ratio at the end of the quarter will be approximately 37%, compared to 38.5% at the end of our second quarter."
Jones explained that the print business is fiercely competitive right now, but that Wallace is leveraging its position as a large national provider of incremental print services to gain market share and capitalize on vendor consolidation. "We are going to focus on generating more Total Print Management (TPM) business. TPM is a service-based model that generates contractual, recurring revenues. We have recently aligned our sales structure to facilitate more TPM sales."
In addition, the company announced an organizational drive to establish processes and systems to increase standardized practices throughout the company, utilize shared services to reduce costs and improve efficiency, streamline reporting layers, improve the speed and thoroughness of financial reporting systems, and maximize responsiveness to customers. Management will address these initiatives in greater detail in its regular earnings announcement.
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