Schawk, Inc. , a leading provider of brand development and deployment services, enabling companies of all sizes to connect their brands with consumers, reported third-quarter 2011 results. Net income in the third quarter of 2011 was $8.1 million, or $0.31 per diluted share, versus $7.8 million, or $0.30 per diluted share, in the third quarter of 2010.
On a non-GAAP basis, adjusting for certain financial and tax impacts further detailed in this earnings release, Adjusted net income was $5.6 million, or $0.22 per diluted share, in the third quarter of 2011 compared to $8.8 million, or $0.34 per diluted share, during the prior-year comparable period.
President and Chief Executive Officer David A. Schawk commented, "We continue to pursue opportunities for growth in emerging markets and to further enhance and integrate our services. During the third quarter, we expanded our business with certain key global clients as they advanced into developing and emerging markets and took advantage of our portfolio of integrated services, including our expanded digital services gained from our 2010 acquisitions. This increased client activity remains evident in our European segment where sales have increased over nine percent in the third quarter and first nine months of 2011 compared to the prior-year periods. In addition, we are excited about our recent acquisition of Brandimage which will further enhance our brand development services in emerging markets as well as in more established markets. Finally, we believe that our integrated and expanded service offering as well as our global capabilities align with our clients' goals to differentiate their brands and will position us well for future growth opportunities."
Consolidated Results for Third Quarter Ended September 30, 2011
Consolidated net sales in the third quarter of 2011 were $112.3 million compared to $112.6 million in the same period of 2010, a decrease of approximately $0.3 million, or 0.2 percent, principally driven by a decline in advertising and retail account sales partially offset by increased consumer packaged goods (CPG) account sales. Included in the quarter-over-quarter sales decline was an increase of $2.3 million in net sales related to foreign currency translation gains, as the U.S. dollar declined in value relative to the local currencies of certain of the Company's non-U.S. subsidiaries.
CPG accounts sales in the third quarter of 2011 were $86.6 million, or 77.1 percent of total sales, compared to $85.3 million in the same period of 2010, an increase of 1.6 percent. The increase over the prior-year quarter was primarily driven by higher product and brand activity by the Company's CPG clients. Advertising and retail accounts sales of $18.7 million, or 16.7 percent of total sales, in the third quarter of 2011 decreased 7.0 percent, from $20.1 million in the prior-year period driven by lower retail promotional activity. Entertainment accounts sales declined $0.1 million to $7.0 million, or 6.2 percent of total sales, for the third quarter of 2011 compared to $7.1 million in the same period of 2010.
Gross profit was $42.1 million in the third quarter of 2011, a decrease of $1.7 million from the third quarter of 2010. Third-quarter 2011 gross profit as a percentage of sales decreased to 37.5 percent from 38.9 percent in the 2010 third-quarter period. The decline in gross profit percent was largely driven by increased employee related costs.
Selling, general and administrative (SG&A) expenses increased approximately $2.5 million to $31.2 million in the third quarter of 2011 from $28.7 million in the third quarter of 2010 principally driven by $1.4 million of certain insurance recoveries during the third quarter of 2010, which is further detailed in the Company's third quarter 2011 Form 10-Q. The balance of the year-over-year change was driven by increased employee related costs.
During the third quarter of 2011, the Company reported business and systems integration expenses of $2.0 million compared to $0.1 million in the prior-year comparable period. As previously disclosed, these expenses relate to the Company's ongoing information technology and business process improvement initiative.
Acquisition integration and restructuring expenses increased from $0.3 million in the third quarter of 2010 to $0.5 million in the third quarter of 2011. The charges in the 2011 third quarter arose from the Company's continued focus on consolidating, reducing and re-aligning its work force and operations and are for employee terminations and other associated costs. These actions are expected to result in annualized savings of approximately $0.7 million, with approximately $0.3 million to be realized during 2011.
The Company reported operating income of $8.2 million in the 2011 third quarter compared to $13.6 million in the third quarter of 2010. The decrease in operating income compared to the prior-year period was primarily the result of the Company's business and systems integration expenses, third-quarter 2010 insurance recoveries and increased employee related expenses.
The Company recorded an income tax benefit of $1.1 million for the third quarter of 2011 compared to an income tax expense of $4.2 million in the third quarter of 2010. The income tax benefit in the third quarter of 2011, as compared to an income tax expense in the third quarter of 2010 is primarily due to discrete period tax benefits resulting from the release of certain valuation allowances for the Company's United Kingdom subsidiary in the third quarter of 2011.
Adjusted EBITDA and Management Adjusted EBITDA Performance Adjusted EBITDA for the third quarter of 2011 was $13.1 million compared to $18.3 million for the third quarter of 2010. Management adjusted EBITDA for the third quarter of 2011 was $15.7 million compared to $19.9 million for the third quarter of 2010. Please refer to the "Reconciliation of Non-GAAP Adjusted EBITDA and Management Adjusted EBITDA" table attached at the end of this earnings release for a reconciliation of these measures.
Conference Call Schawk invites you to join its third-quarter 2011 earnings conference call on Thursday, November 3, 2011, at 9:00 a.m. Central time. To participate in the conference call, please dial 800-320-2978 or 617-614-4923 at least five minutes prior to the start time and ask for the Schawk, Inc. conference call, or on the Internet, go to http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=82169&eventID=4226645. If you are unavailable to participate on the live call, a replay will be available through November 10 at 11:59 p.m. Central time. To access the replay, dial 888-286-8010 or 617-801-6888, enter conference ID 23999221, and follow the prompts. The replay will also be available on the Internet for 30 days at the following address http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=82169&eventID=4226645.