Net Income of $1.6 Million on Sales of $59 Million
Courier Corporation (Nasdaq: CRRC), one of America's leading book manufacturers and specialty publishers, today announced results for the quarter ended June 23, 2012, the third quarter of its 2012 fiscal year. Revenues were $58.9 million, down 5% from last year's third-quarter revenues of $61.9 million. Net income was $1.6 million or $.13 per diluted share, including severance costs of $235,000 in conjunction with the previously announced consolidation of one-color printing operations, versus a loss of $3.1 million or $.26 per diluted share in the third quarter of fiscal 2011, including a non-cash, pre-tax impairment charge of $8.6 million, or $.43 per diluted share. Excluding the impairment charge related to Research & Education Association (REA) in the wake of the Borders Group bankruptcy, adjusted net income for the third quarter of fiscal 2011 was $2.0 million or $.17 per diluted share.
For the first nine months of fiscal 2012, Courier revenues were $184.2 million, down slightly from $185.7 million in fiscal 2011. Net income for the year to date was $3.5 million or $.29 per diluted share, including pretax charges totaling $1.8 million related to severance and post-retirement benefit costs and a first-quarter pretax gain of $0.6 million from the sale of certain non-operating assets. For the first nine months of fiscal 2011, the company's net loss was $6.3 million or $.52 per diluted share, including second-quarter restructuring costs and a bad-debt provision related to Borders as well as the third-quarter impairment charge. Excluding those items for both periods, adjusted net income for the first nine months of fiscal 2012 was $4.2 million or $.35 per diluted share, compared to $4.0 million or $.34 per diluted share for the first nine months of fiscal 2011. Details for these items can be found in the tables at the end of this release.
Third-quarter results in Courier's book manufacturing segment were affected by a shift in ordering patterns in the education market, with textbook publishers tightening their inventory management in the current economy by reducing print quantities and timing book production to the start of each semester. As a result, while education sales picked up as the quarter progressed, revenues were down from the previous year. In Courier's specialty book publishing segment, sales were lower at two of its three businesses, but the continued streamlining of publishing operations enabled the segment to narrow its losses from the prior year.
"The sluggish economy continued to be a thorn in the side of many of our customers, and we felt it too," said Courier Chairman and Chief Executive Officer James F. Conway III. "Yet our relationships with key customers are stronger than ever. While the traditional textbook ordering cycle has been pushed back closer to the start of the school year, we are working closely with customers to help them succeed, and we closed the quarter with a healthy run rate. Meanwhile, our specialty book publishing businesses continued to work through the effects of the past year's channel turbulence with a sharper product focus, helped by an increasing ability to deliver award-winning content in both print and e-book form.
"Under our previously announced stock repurchase program, we purchased approximately 445,000 shares in the third quarter, for a total of $4.8 million. Since the start of the fiscal year, our strong cash flow has also enabled us to bring our debt down by $2.5 million. Given this performance and our solid financial condition, our Board of Directors has once again approved a regular quarterly dividend of $.21 per share. We head into our fourth quarter with every expectation of a strong close to the fiscal year in keeping with seasonal trends."
Book manufacturing: adjusting to changes in seasonal textbook cycle
Courier's book manufacturing segment had third-quarter sales of $52.4 million, down from $55.0 million for the same period last year. For fiscal 2012 to date, book manufacturing sales were $163.9 million, up slightly from $163.6 million in fiscal 2011.
As previously mentioned, the results for fiscal 2012 included restructuring costs for severance and post-retirement benefits, while last year's second-quarter results included plant closing costs. Excluding these restructuring costs, the segment's third-quarter operating income was $4.2 million, versus $5.1 million a year ago. On a year-to-date basis, operating income was $11.7 million, up 4% from $11.3 million for the first nine months of last year. Gross profit for the first nine months of fiscal 2012, again excluding restructuring costs, was $32.1 million or 19.6% of sales, compared to $31.9 million or 19.5% of sales last year. The modest year-to-date improvement in gross profit margins, achieved despite a highly competitive pricing environment and reduced recycling income, reflects improved operating efficiencies created by last year's technology investments and the further consolidation of the company's one-color printing operations.
The book manufacturing segment focuses on three markets: education, religious, and specialty trade. Sales to the education market were down 12% in the quarter and down 3% for the year to date, with publishers managing inventories tightly and taking advantage of available capacity. Sales to the religious market were down 3% from fiscal 2011 in the third quarter; through the first nine months religious sales were even with last year, but sales to the company's largest religious customer were up 2%. Sales to the specialty trade market were up 1% in the quarter and up 6% for the year to date, reflecting increased orders at Courier Digital Solutions and a return to more traditional ordering patterns as the marketplace continues to assimilate the loss of Borders.
"Our third quarter illustrated the continuing shift in the textbook market's seasonal ordering cycle," said Mr. Conway. "Between the uncertain economy and the budget crunch in state governments, many textbook publishers have chosen to reduce print quantities, time their orders closer to the start of the school year and, where appropriate, order separately for each semester. Fortunately, our efficient combination of digital and offset facilities has enabled us to respond effectively, and we are ready for the strong fourth quarter we foresee.
"While sales to the religious market were down modestly, we have often experienced sizable quarter-to-quarter fluctuations in that market, a situation compounded by this third quarter's unusually early close on June 23. On a year-to-date basis, we remain even with last year in the religious market as a whole, and sales to our largest customer are up. Our customer relationships remain excellent in both the religious and education markets, and we look forward to long-term growth in both."
Publishing: operating efficiencies help trim losses
Courier's specialty publishing segment includes three businesses: Dover Publications, a niche publisher with thousands of titles in dozens of specialty trade markets; Creative Homeowner, which publishes books on home design, decorating, landscaping and gardening; and Research & Education Association (REA), a publisher of test preparation books and study guides.
Third-quarter revenues for the segment were $9.1 million, down 8% from $9.9 million in last year's third quarter. The segment's operating loss for the quarter was $975,000, compared to a loss of $1.2 million last year. For fiscal 2012 to date, segment sales were $28.2 million, versus $30.8 million for the first nine months of last year. The segment's operating loss through nine months was $3.9 million, unchanged from last year.
Of Courier's three publishing businesses, REA alone was profitable during the quarter, with sales up 2% from a year earlier despite the absence of Borders, which had been one of REA's largest customers prior to the chain's closing. At Dover, sales were off 2% but careful attention to costs enabled the business to trim its operating loss by more than 20%. Creative Homeowner, with sales down 31% in a challenging retail environment, lost $227,000.
Successes during the quarter included the beta-site launch of DoverPictura.com, Dover's new online image store, the availability of a growing range of e-book titles on popular platforms and a very strong spring for REA's Crash Course series and other AP test preparation titles.
"Our publishing segment continued to deal with channel challenges and a sluggish consumer economy," said Mr. Conway. "Faced with this environment, we continued to take out costs wherever we could without compromising our ability to deliver top-drawer content such as Creative Homeowner's Backyard Homesteading, which recently won a Gold Medal in the 2012 Independent Publisher Book Awards.
"At the same time, we continued to move forward on the digital front. DoverPictura beta-site customers can now browse through more than a hundred thousand compelling images, and readers everywhere can access a growing array of Dover, REA and Creative Homeowner titles in e-book form through our relationships with Apple, Amazon and Google, and our new agreement with Barnes & Noble."
"We enter our busiest part of the year well equipped to take advantage of our opportunities within today's challenging economic environment," said Mr. Conway. "We continue to expand the range of services we provide for our largest customers, and we continue to attract new customers with our state-of-the-art digital inkjet capabilities. Our four-color digital and offset plants are running more efficiently than ever, thanks to years of steady investment in technology and a highly professional, customer-focused workforce. And our publishing businesses are adapting to a changing retail environment with exciting strategies coupled to the core content strengths our readers expect.
"We expect full-year capital expenditures to be between $8 million and $10 million, versus $16 million in fiscal 2011. We also continue to benefit from the consolidation of one-color printing capacity and other cost-reduction measures taken over the last year in both of our business segments. And we look forward to a productive summer focused on meeting textbook publishers' needs for standard and customized versions in a shortened timeframe.
"In line with our past practice, today's guidance, including comparisons to prior performance, excludes impairment and restructuring charges. It also excludes this year's non-recurring items related to severance and post-retirement benefit costs and the gain from the sale of non-operating assets, as well as the Borders receivable write-off in last year's second quarter.
"We expect fourth-quarter sales of between $80 million and $85 million, leading to total fiscal 2012 sales of between $264 million and $269 million, an increase over fiscal 2011 of between 2% and 4% (which includes the benefit of a 53-week year in fiscal 2012). We expect fourth-quarter earnings per diluted share of between $.40 and $.55, versus $.55 in last year's fourth quarter. And for fiscal 2012 as a whole, we expect earnings per diluted share of between $.75 and $.90, which compares with our fiscal 2011 earnings of $.89 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 2012, we expect EBITDA to be between $39 million and $42 million, compared to $39 million in fiscal 2011, excluding last year's impairment and restructuring charges and this year's severance and post-retirement benefit costs and the gain from the sale of non-operating assets.
"Factors not incorporated into our guidance include the possibility of future impairment or restructuring charges."