Double-Digit Gains in Education, Religious and Trade Sales

NORTH CHELMSFORD, Mass. - Courier Corporation, one of America’s leading innovators in book manufacturing, publishing and content management, today announced results for the quarter ended December 28, 2013, the first quarter of its 2014 fiscal year. Revenues for the quarter were $72.8 million, up 12% from $64.8 million in last year’s first quarter. Net income for the quarter was$2.6 million, up 9% over fiscal 2013. Net income per diluted share was $.23, up 10% from last year.

Courier reported strong sales growth in all three of its principal book manufacturing markets of education, religious and specialty trade. Revenues were up in both digital and offset production at the company’s Massachusetts and Indiana plants. In Courier’s publishing segment, first-quarter sales were even with last year, and the segment’s operating loss was cut nearly in half.

“Once again we began the year with a solid quarter, helped by strong performance in our major markets and continued sales growth at our digital facilities,” said Courier Chairman and Chief Executive Officer James F. Conway III. “It was also a busy quarter at our Kendallville offset plant, which ran close to capacity to meet rising four-color demand in the education market. For the second quarter in a row, textbook sales rose not only at the college level but also at the elementary and high school level, providing further indication that the elementary and high school market may finally be recovering as the economy improves and schools return to higher funding levels.

“Customized textbooks continued to be an important component of our education business. Several years of sustained growth have proven not only their value to students, but also the merits of producing them through our combination of proprietary software and HP digital inkjet technology. After successfully replicating our Massachusetts-based manufacturing model in Indiana last spring, we began investigating ways to leverage our technology and expertise in other promising markets. Our October announcement of a three-way partnership with Santillana and Digital Page, leaders in digital textbook publishing and digital print in Brazil, signals our impending entry into the largest education market in Latin America.

“Meanwhile, our publishing segment continued to turn out appealing new products with a lean organization focused on core strengths and promising opportunities. Several well-received new titles and good growth in online sales helped offset continued attrition in bricks-and-mortar sales channels. With revenues virtually unchanged from last year, the segment still managed to reduce its operating loss by 47%.

“With strong cash flow throughout the quarter, we continued to invest in new markets and technologies, adding another digital press in Kendallvilleand pursuing opportunities in Brazil. Today I am pleased to report that once again our Board of Directors has declared a dividend of $.21 per share, the same as last quarter.”

Book manufacturing: strong sales across the board

Courier’s book manufacturing segment reported first-quarter sales of $65.6 million, up 14% from $57.5 million in last year’s first quarter. The segment’s operating income was $5.3 million, down slightly from $5.5 million a year ago, reflecting a tight pricing environment as well as increased depreciation, amortization and other costs associated with investments in FastPencil, Brazil and the expansion of the Kendallville digital facility.

The book manufacturing segment focuses on three markets: education, religion, and specialty trade. Sales to the education market were $28 million in the first quarter, up 14% from a year earlier, primarily due to increased sales of college textbooks, but with gains at the elementary and high school level as well. Sales to the religious market were up 14% to $19 million in the quarter, with sales to Courier’s largest religious customer up 8%, with some of the increase related to the timing of orders. Sales to this customer have often varied widely from quarter to quarter within a long-term pattern of single-digit growth. Sales to the specialty trade market were up 12% to $17 million, largely reflecting increased demand for digital printing and four-color books.

“All our manufacturing facilities performed well this quarter,” said Mr. Conway. “We had a significant rise in four-color work, helped by higher volumes in specialty trade as well as in textbooks. With the recovering economy and the move to Common Core curricula in most states, we are hopeful that the growth in elementary and high school textbook sales over the last two quarters will continue as the year progresses. In addition, we had a strong quarter in the religious market, as we continued to provide our long-time customer with manufacturing and distribution services that bring scriptures into more than 100 countries. And we continue to be excited about the growth opportunities represented by our investments in FastPencil and our developing partnerships in Brazil.”

Publishing reports improved results

Courier’s publishing segment includes three businesses: Dover Publications, a 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 Creative Homeowner, which publishes books and plans on home design, decorating, landscaping and gardening.

First-quarter revenues for the segment were $9.1 million, even with last year’s first quarter, with sales up at Dover but lower at our other two publishing companies. The segment’s operating loss for the quarter was $600,000, versus $1.1 million for the first quarter of fiscal 2013, largely driven by improvements at Dover, which broke even in the quarter.

“Dover’s performance continues to improve,” said Mr. Conway. “Sales were up in the quarter, helped by the availability of titles in ebook form as well as the growing popularity of our Creative Haven line of adult coloring books and a strong showing by Tudor Roses, a Calla Edition Original celebrating hand-knitted designs inspired by history. However, REA and Creative Homeowner continued to suffer from the loss of many of their traditional bricks-and-mortar sales channels. During the quarter we took action to reduce overhead at REA and focus new product investment on key test preparation markets such as AP, CLEP and GED.

“A positive sign was the segment’s increase in online sales. Ebooks, now approaching 5,000 titles, accounted for part of this growth, but print sales through online retailers were also up. Our in-house digital print resources continue to prove their value as we bring more and more out-of-print titles back into circulation at quantities that would have been unsustainable with offset production alone.”

Outlook

“With a solid quarter behind us and increasing signs of economic recovery, we are well positioned for the year ahead in our major markets,” said Mr.Conway. “We continue to reap the benefits of our disciplined investments in technology and service. Yet even as we add to those investments in order to expand our opportunities, we still face intense pressure on print pricing. As a result, while we expect revenues to continue to outpace the overall U.S. education market and maintain their historic growth rate with our largest religious customer, we expect growth in net income to be constrained by those continuing factors, even as EBITDA rises.

“As in the past, we expect our performance in fiscal 2014 to follow a seasonal pattern, with the larger portion of our earnings coming in the second half.

“Overall, we expect fiscal 2014 sales of between $280 million and $295 million, compared to $275 million in fiscal 2013. We expect earnings per diluted share of between $.70 and $1.00, which compares with our fiscal 2013 earnings of $.98 per diluted share.

“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 fiscal 2014, we expect EBITDA to be between $41 million and $46 million, compared to $42 million in fiscal 2013.

Factors not incorporated into this guidance include the possibility of future impairment or restructuring charges.