Standard Register Reports Q2 Results, Restructuring Show Results
Press release from the issuing company
DAYTON, Ohio--July 19, 2002--Standard Register today reported results for the 2002 second quarter and first half ended June 30, 2002. The company also shared its outlook for 2002 and reaffirmed its strategies to drive superior long-term performance.
Net income for the 2002 second quarter was $11 million or $0.38 per diluted share, compared to $2 million or $0.07 per diluted share for the comparable quarter of 2001. The 2001 second-quarter results included restructuring and other nonrecurring charges that reduced that period's net income by $4 million or $0.15 per diluted share; net income in the 2002 quarter increased 83 percent over 2001 second-quarter net income of $6 million, or $0.22 per share, excluding these charges. Earnings in the 2002 quarter were aided by gains on the sale of assets, research and development tax credits received, and lower incentive pay accruals; together these items improved EPS by approximately $0.10 per diluted share.
Revenue for the 2002 second quarter was $254 million compared to the $315 million reported in the prior-year period. The decrease in revenue and the significant increase in net income in the quarter were primarily the result of restructuring undertaken in 2001. During the restructuring, the company eliminated approximately $250 million of low-margin and nonstrategic business, reduced yearly fixed operating costs by over $125 million, reduced production capacity by 30 percent, and improved working capital turnover by 25 percent. The combination of these changes produced dramatic improvements in profitability and return on capital beginning in the fourth quarter of 2001.
"We are pleased that we held the gains made in our 2001 restructuring," said Dennis L. Rediker, president and chief executive officer. "Our gross margins were strong and we held down our overall selling, general and administrative expenses even while making incremental investments in strategic initiatives to drive increased growth and profitability for the long term. These included investments in talent as well as Six Sigma and e-business initiatives."
Despite the earnings increase, second-quarter results were below plan. The residual effects of the company's 2001 restructuring efforts as well as economic conditions and industry dynamics caused revenues and, consequently, profits to fall short of company targets.
"We came through 2001's restructuring with strong results and optimism about our ability to execute on our strategies for growth in 2002. However, we underestimated the challenge of ramping up revenue following the restructuring and reorganization. New-business generation was delayed while sales representatives focused on establishing relationships with customer accounts they inherited and we focused on profitability," said Rediker.
For the first half of 2002, revenue was $518 million, down from $633 million in the period last year due primarily to business discontinued during restructuring. Net income was $22 million or $0.77 per diluted share in the 2002 first half. For the 2001 first half, the company reported a loss of $59 million, or $2.15 per share; excluding restructuring charges and other nonrecurring items, net income in the 2001 period was $12 million or $0.44 per share.
"We believe that our strategies are correct and will drive superior long-term performance," said Rediker. "Customers resonatewith our focus on being a strategic thought partner in helping them improve their business results; not only do we provide proprietary printed solutions, such as secure documents, but also systems, e-business solutions and services that help customers improve processes and leverage technology to transform how they operate. Our initiatives to drive operational excellence and an ongoing flow of innovative solutions should further strengthen our competitive advantage. And our emphasis on fast-growing markets will help us accelerate growth longer term, as we make headway in multi-billion-dollar markets growing at double-digit rates, such as print on demand, document outsourcing and automatic identification markets.
"Our business model is sound. The strategic business units we formed have increased customer focus and market knowledge. The specialized sales forces we created in 2001 for the new business units of Label Solutions and Fulfillment Services showed consecutive quarterly revenue growth and have a solid pipeline of business. With each business unit's leadership team and strategies now in place, our focus will be on executing the plans to accelerate profitable growth across our businesses."
The company's balance sheet continues to be strong. Cash and short-term investments increased $36 million during the quarter to $216 million. Total debt was unchanged at $202 million.
"We have generated $160 million in net cash flow since the beginning of the restructuring in January 2001," said Rediker. "Wehave a very strong financial position, with the resources to invest in acquisitions and other initiatives to enhance long-term shareholder value."
On July 2, Standard Register acquired Toronto-based InSystems Technologies, Inc., a leading provider of advanced document-automation solutions and extended relationship management (XRM) software. On July 12, the company acquired select operations of PlanetPrint, a business services company headquartered in Minneapolis, that provides consulting, software development and integration services, and a comprehensive suite of digital, on-demand printing and outsourcing solutions. The businesses acquired had combined revenues of approximately $41 million in 2001. The company paid a total ofapproximately $100 million in cash for the two acquisitions. The acquisitions are expected to have a neutral impact on Standard Register's 2002 net income and to begin to contribute positively to earnings in 2003.
"InSystems and PlanetPrint bring additional solutions, technology and talent to help us deliver even more value to customers and accelerate our growth," said Rediker. "They bolster our full spectrum of solutions -- from paper to digital -- that help customers improve their business results by leveraging information. The acquisitions also strengthen our position in fast-growing markets including content-management services, variable print on demand, and document outsourcing."
Standard Register seeks to continue to extend its market reach and capabilities through acquisitions as well as alliances and internal developments.
Based on the company's first-half experience and its expectations about the industry and the economy for the remainder of the year, the company is adjusting its outlook for 2002.
Excluding the new acquisitions, the Company currently targets second-half revenue to slightly exceed that for the first half, producing 2002 revenue of approximately $1.04 billion. At the $1.04 billion revenue level, net income is estimated to be in the range of $1.40 to $1.50 per diluted share.
The acquisitions made in July are expected to add approximately $23 million to Standard Register's second-half revenue, while having a neutral impact on company earnings.
"With our cost structure in line, we have a significant opportunity to drive additional profits as revenue accelerates," Rediker said. "Our actions to increase revenue will include a new key account management program, coordinated cross-selling, and increased product and market specialization within our sales force. There is also upside opportunity if economic conditions improve in our markets."
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