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Courier Corporation Reports Second Quarter Results

Press release from the issuing company

NORTH CHELMSFORD, Mass.--April 15, 2004-- Courier Corporation, one of America's leading book manufacturers and specialty publishers, today announced results for the quarter ending March 27, 2004, the second quarter of the company's 2004 fiscal year. Courier reported income from continuing operations of $3.9 million, or $.47 per diluted share, substantially similar to the corresponding second-quarter results of $3.8 million or $.47 per diluted share last year. Sales from continuing operations were $49.7 million for the quarter, up 2% from second-quarter sales of $48.6 million in fiscal 2003. For the first six months of Courier's 2004 fiscal year, income from continuing operations was $7.8 million or $.95 per diluted share, up 3% from $7.5 million or $.93 per diluted share for the first half of fiscal 2003. Six-month sales for fiscal 2004 were $96.5 million, off 1% from $97.4 million in the first half of last year. Both the second-quarter and six-month results include results from Research & Education Association (REA) for the period since January 6, 2004, the date Courier acquired REA. Results from Courier Custom Publishing, which was sold by Courier in December 2002, were accounted for as a discontinued operation in fiscal 2003 and had no impact in fiscal 2004. "We worked hard throughout this quarter to overcome a slow January," said Courier Chairman and Chief Executive Officer James F. Conway III. "While we fell a bit short of our second-quarter targets, we were rewarded by a steady increase in orders, ending the quarter with healthy press loads indicating a stronger second half of the year. During the quarter, we gained market share with several book manufacturing customers, successfully integrated REA's operations into our specialty publishing segment, and made excellent progress in the installation of a major new four-color press at our Kendallville, Indiana plant. As expected, startup costs for the press of approximately $150,000 reduced our second-quarter earnings, but the press is now in operation, ahead of schedule and in time for the higher volumes we expect in the third and fourth quarters." Results by segment Book manufacturing sales for the second quarter of fiscal 2004 were $41.0 million, comparable to last year's second quarter. Second-quarter pretax income for the segment was $4.9 million, up 4% from a year earlier. For the first six months of fiscal 2004, book manufacturing sales were down 3% from fiscal 2003, while pretax income was up 3%. As a book manufacturer, Courier serves publishers in three markets: religious, education and specialty trade. Sales to the religious market were up 2% over both the second quarter and first six months of last year, helped by stronger religious trade sales in keeping with longer-term market trends. Sales to the education market were up 14% for the second quarter and 6% for the first half of the fiscal year. Sales to the elementary/high school market were particularly strong in the quarter, primarily as a result of gains in market share. Sales to the specialty trade market were down 20% from a strong second quarter in fiscal 2003, and off 14% through six months. One cause of the decline was slow sales of computer game books as a result of the maturing of current game platforms and the absence of new "blockbuster" games. In addition, reprint orders were very slow as the quarter began, but picked up as it progressed. "Strong education sales were a highlight of the second quarter in our book manufacturing segment," said Mr. Conway. "In a tough competitive environment, we gained significant share in the elementary and high school market. Our slower trade sales reflected cautious ordering by publishers as well as cyclical factors in the market for game books. Fortunately, we continued to improve our production efficiency, partially offsetting the impact of uncertainty in the market and related pricing pressure. And we continued to deliver outstanding service to our customers even as the pace of orders accelerated toward the end of the quarter. The combination of pricing, product mix, and start up costs related to our new press caused gross margin in the segment to decline from 28.2% to 26.8% of sales. But the press's arrival and successful installation bodes well for our ability to keep up with the higher volumes we foresee in the second half, and to deliver these higher volumes with greater efficiency than ever." With the acquisition of Research & Education Association (REA) on January 6, Courier's specialty publishing segment includes two businesses: REA and Dover Publications. Overall, the segment reported second-quarter sales of $10.1 million, up 12% from $9.1 million in last year's second quarter, with the increase attributable to sales at REA. The segment's pretax income was $1.1 million for the quarter, a decline of 10% from fiscal 2003's second-quarter figure of $1.2 million. These mixed results reflect cautious ordering by major bookstore chains served by Dover Publications, as well as timing issues related to Dover's direct marketing program. Sales to retailers, which account for 70% of all Dover sales, were down 4% in the quarter, with bookstore chains down 11%. At the same time, sales to crafts stores and other nontraditional outlets, while generally strong, were off against fiscal 2003 due to a large special order received in last year's second quarter. Dover direct-to-consumer sales grew by 8% over an outstanding quarter last year, while international sales were up 13% for the second quarter and 21% for the fiscal year to date. REA had second-quarter sales of $1.1 million and was neutral to income, in line with expectations. "The major news in our specialty publishing segment this quarter was our completion of the acquisition of Research & Education Association (REA), a publisher of highly regarded study guide books and software for users ranging from high school students to professionals in a variety of fields," said Mr. Conway. "REA's integration into Courier progressed smoothly, and we believe it extends the segment's capabilities in valuable ways. This spring REA became the first publisher to offer a study guide for the new SAT scheduled to be implemented throughout the United States in 2005. "Dover continued to grow its direct-to-consumer and international business, but faced a challenging quarter in domestic trade, with slower orders from some of the large bookseller chains," continued Mr. Conway. "We have been adjusting our consumer catalog mailing schedule, and we expect that the changes will drive significantly greater direct sales in the second half of the year and should lead to improved bookstore sales as well. We also continued to build our business through non-bookstore channels, where Dover's extraordinary variety of specialized content offers unique value. Overall, we expect Dover to return to double-digit sales growth in the third and fourth quarters." Outlook "While our second-quarter results were slightly below plan, we remain confident about reaching our full-year earnings goals," said Mr. Conway. "Trends have grown increasingly positive across virtually all of our operations, and we enter our third quarter with the healthiest order flow in recent memory. With growing share at several accounts and our new press adding to capacity just in time for this year's school textbook season, we look forward to substantially improved performance in the second half, with full-year earnings in line with earlier guidance. "For fiscal year 2004 as a whole, we expect Courier's sales from continuing operations to be in the range of $214 to $219 million, representing an increase of 6% to 8% over fiscal 2003 sales. And we expect earnings per diluted share from continuing operations to be in the range of $2.57 to $2.67, up approximately 8% to 13% from last year's comparable earnings of $2.37 per diluted share. By adhering to our proven formula of steady gains in internal efficiency, superior market focus and the best customer service in the industry, we believe we have excellent prospects for achieving Courier's eighth consecutive year of earnings growth."