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Courier Announces 1st Quarter Results; Earnings Fall

Press release from the issuing company

NORTH CHELMSFORD, Mass.-- Jan. 17, 2007--Courier Corporation, one of America's leading book manufacturers and specialty publishers, today announced results for the quarter ended December 30, 2006, the first quarter of its 2007 fiscal year. A slowdown in textbook demand during the early fall and a lackluster start to the holiday season at major retail chains dampened Courier's sales growth and cut into earnings, but continued share gains and strong December orders led management to maintain its previous guidance for record full-year results. Revenues for the quarter were $64.3 million, up 11% from last year's first-quarter sales of $57.7 million, with the increase largely attributable to results from Courier's April 2006 acquisition of Creative Homeowner. Net income for the quarter was $4.0 million, down 10% from prior-year results of $4.5 million. Net income per diluted share was $.32, versus $.36 in the first quarter of fiscal 2006. Sales in both of Courier's business segments reflected the uneven environment that prevailed across the industry. Book manufacturing revenues were up 4% on modest growth in textbook sales and several large orders from specialty trade publishers. Sales in Courier's specialty book publishing segment rose 53% on solid performance by Creative Homeowner and continued sales growth at Research & Education Association (REA). These gains were partly offset by a 13% sales decline at Dover Publications. Yet while Dover's trade sales were down, retail sales of Dover books to consumers were up at leading chains, outpacing overall retail sales and indicating strong underlying demand for Dover products. "A pause in textbook orders in the early fall and a cautious holiday retail environment put pressure on both sides of our business this quarter," said Courier Chairman and Chief Executive Officer James F. Conway III. "Yet a closer look at our performance reveals grounds for optimism about the next several quarters. With healthy year-end order flow and the completion of our plant expansion in Kendallville, Indiana, our book manufacturing segment is ready to capitalize on share gains with four-color textbook publishers throughout the remainder of the year. In our publishing segment, Dover sales to retailers were off, but retailers' inventory of Dover books sold well to consumers, confirming that our products are on target and our new merchandising programs are working as planned. With increased sales and better-than-expected profitability at Creative Homeowner, plus a stellar quarter at REA, we look forward to strong growth for the remainder of our 2007 fiscal year." Book manufacturing sales up 4% Courier's book manufacturing segment had first-quarter sales of $50.0 million, up 4% from last year's first quarter. Pretax income for the segment was down 4% in the quarter to $5.9 million or $.30 per diluted share, versus $6.2 million or $.32 per diluted share in 2006. Gross profit in the segment also fell 4% to $13.1 million, decreasing as a percentage of sales to 26.1% from 28.1% in 2006, reflecting lower sales growth, a less favorable product mix and a very competitive marketplace. The book manufacturing segment focuses on three publishing markets: education, religion, and specialty trade. Sales to the education market rose 2% in the quarter, primarily driven by sales of college textbooks. Sales to the religious market were down 3% from last year's first quarter, reflecting normal fluctuations related to order timing. Sales to the specialty trade market were up 14% from fiscal 2006, helped by several large one-time orders. During the quarter, Courier completed a major plant expansion in Kendallville, Indiana, adding a third MAN Roland four-color press and enlarging its bindery with new equipment. This added capacity became available just in time for the increased order flow at the end of the quarter, with the new press running almost at full capacity within its first few weeks of operation. "Our Kendallville expansion could not have come at a better time," said Mr. Conway. "For the last few years, textbook publishers have been turning to Courier for an increasing share of their four-color production, and the trend has accelerated since our installation of new sewing systems last spring. When sales of textbooks slowed in the early fall, our manufacturing margins were affected. But as the quarter progressed, we received indications of a sharp upturn in textbook orders for 2007, particularly in the elementary and high school market. Then as college orders surged at the end of the quarter, we were able to handle the increased workflow thanks to the flawless startup and superb print quality of our latest MAN Roland press. We expect our expanded Kendallville plant to run at full capacity during the busy textbook season, more than making up for the first quarter's slower growth." Specialty publishing gains from Creative Homeowner sales Courier's specialty publishing segment includes three businesses: Dover Publications, a niche publisher with thousands of titles in dozens of specialty trade markets; Research & Education Association (REA), a publisher of test preparation books and study guides; and (since April 2006) Creative Homeowner, a publisher and distributor of books on home design, decorating, landscaping and gardening, as well as complete home plans and blueprints. First-quarter sales for the segment were $16.8 million, up 53% from $10.9 million in last year's first quarter, with the increase attributable to the addition of Creative Homeowner and sales growth at REA. Sales at Dover Publications, the segment's largest business, were down 13% following an exceptionally strong fourth quarter in fiscal 2006. However, many retailers reported increased sales of Dover books during the period, leaving lower inventories likely to be replenished in the coming quarters. Sales to two of Dover's largest customers were down 19% in the first quarter, yet their sales of Dover books to their customers was up 8% on average. Sales to smaller retailers were down 6% in the quarter, but orders received from these retailers were up 11%, reflecting healthy consumer demand. Pretax income for the publishing segment was $0.8 million or $.04 per diluted share for the quarter, down from $1.1 million or $.06 per diluted share in fiscal 2006. Gross profit was 41.8% of sales, down from 44.7% a year ago, due in part to the impact of Creative Homeowner's lower-margin distribution business. "Dover's results for the quarter were less than we had hoped, but better than the prior-year comparison suggests," said Mr. Conway. "Sales in the fall of 2005 were boosted by a $600,000 reduction in backlog following the completion of our SAP infrastructure conversion. This past fall we saw cautious ordering by trade retailers, but Dover books performed well in stores, in some cases significantly surpassing broader indicators of comparable-store sales. Dover's combination of attractive titles and innovative merchandising is working well for retailers, and during the quarter we placed hundreds of new displays in smaller stores around the country. Meanwhile, REA extended last year's growth with a 17% increase in first-quarter sales, while the addition of Creative Homeowner strengthened our top line and contributed to profitability. As a result, despite the quarter's challenges, we remain confident that full-year results will confirm the effectiveness of Dover's retail trade programs and the vitality of our entire publishing segment." Outlook "We expect the momentum we gained in December to build as we move further into our 2007 fiscal year," said Mr. Conway. "In book manufacturing, we enter the second quarter with our business even stronger than it was at this time last year, which was our best year ever. We expect continued strong performance through the remainder of the year, with particular success in the education market. In specialty publishing, we expect Dover sales to resume their healthy growth, and we look forward to continued gains at REA and Creative Homeowner. "For fiscal 2007 overall, we are maintaining our earlier guidance indicating sales growth of 13% to 16%, resulting in total sales of between $304 and $311 million, which would be a new record high for Courier. We expect earnings per share to grow as well, reaching $2.20 to $2.30 for fiscal 2007. This represents an increase of between 13% and 18% from fiscal 2006 earnings of $1.95 per diluted share, excluding the effect of the reversal of a tax reserve, which added $.30 to fourth-quarter and full-year earnings in 2006. "In addition to measuring our performance by generally accepted accounting principles, we also track several non-GAAP measures including EBITDA (earnings before interest, taxes, depreciation and amortization) as an additional indicator of the company's operating cash flow performance. This measure should be considered in addition to, not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. In the first quarter of fiscal 2007, Courier's EBITDA was $11.0 million, up 8% from the same quarter in 2006. For the full year of 2007 we expect EBITDA to be between $65 million and $67 million. This would represent an increase of 22% to 26% for the year."

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