Published: August 03, 2011
Schawk Announces 2011 Second-Quarter Results
Company Reports GAAP Net Income and EPS of $4.0 Million and $0.15, Respectively
Schawk, Inc. (NYSE: SGK), a leading provider of brand development and deployment services, enabling companies of all sizes to connect their brands with consumers, reported second-quarter 2011 results. Net income in the second quarter of 2011 was $4.0 million, or $0.15 per diluted share, versus $15.8 million, or $0.61 per diluted share, in the second quarter of 2010.
On a non-GAAP basis, adjusting for certain financial impacts further detailed in this earnings release, Adjusted net income was $6.9 million, or $0.26 per diluted share, in the second quarter of 2011 compared to $10.4 million, or $0.40 per diluted share, during the prior-year comparable period.
President and Chief Executive Officer David A. Schawk, commented, "Our second quarter 2011 results reflected decreased activity with our advertising and retail clients primarily due to stronger retail promotional activity in the prior-year comparable period. In addition, during the first six months of 2011 some consumer packaged goods clients remained cautious given elevated commodity prices and sustained economic uncertainty domestically and internationally."
Mr. Schawk added, "However, we see opportunities in this challenging economy from three key industry trends: emerging markets, digital markets, and demand for integrated services. During the second quarter, we expanded or reached agreements to expand our business with certain key global clients as they pushed into developing and emerging markets and sought to take advantage of our full portfolio of integrated services, including our digital marketing capabilities which were enhanced through our acquisitions in 2010. This increased client activity is particularly evident in our European segment where sales have increased over 18% for the quarter and over 9% for the first six months of 2011 compared to the prior-year periods. Furthermore, we continue to believe that existing and prospective clients are seeing the value of our integrated service offering and global capabilities, particularly as they look for ways to differentiate themselves from their competition."
Consolidated Results for Second Quarter Ended June 30, 2011
Consolidated net sales in the second quarter of 2011 were $113.3 million compared to $117.8 million in the same period of 2010, a decrease of approximately $4.5 million, or 3.8 percent, principally driven by a decline in Advertising and retail account sales. Included in the quarter-over-quarter sales decline was an increase of $3.3 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.
Consumer packaged goods (CPG) accounts sales in the second quarter of 2011 were $87.1 million, or 76.8 percent of total sales, compared to $86.4 million in the same period of 2010, an increase of 0.8 percent. The increase over the prior-year quarter was primarily driven by slightly higher product and brand activity by the Company's CPG clients. Advertising and retail accounts sales of $19.0 million, or 16.8 percent of total sales, in the second quarter of 2011 decreased 18.8 percent, from $23.4 million in the prior-year period. Included in the decline in Advertising and retail accounts sales is a $1.3 million decline in revenue related to the previously disclosed loss of a non-core, retail client at the end of the second quarter of 2010 with the balance of the decline driven primarily by lower promotional activity compared to the prior-year period. Entertainment accounts sales declined $0.8 million to $7.2 million, or 6.4 percent of total sales, for the second quarter of 2011 compared to $8.0 million in the same period of 2010.
Gross profit was $41.9 million in the second quarter of 2011, a decrease of $4.9 million from the second quarter of 2010. Second-quarter 2011 gross profit as a percentage of sales decreased to 37.0 percent from 39.7 percent in the 2010 second-quarter period. The decline in gross profit percent was largely driven by the reduced operating leverage resulting from the lower period-over-period revenue.
Selling, general and administrative (SG&A) expenses decreased approximately $0.4 million to $30.0 million in the second quarter of 2011 from $30.4 million in the second quarter of 2010 principally driven by lower revenue year over year.
During the second quarter of 2011, the Company reported business and systems integration expenses of $2.1 million compared to $0.2 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 $0.5 million in the second quarter of 2010 to $0.7 million in the second quarter of 2011. The charges in the 2011 second 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 $0.9 million, with approximately $0.6 million to be realized during 2011.
Additionally, the Company recorded expense of $1.8 million during the quarter as a result of its decision to terminate participation in a union supplemental retirement and disability fund in California.
The Company reported operating income of $7.0 million in the 2011 second quarter compared to $16.0 million in the second quarter of 2010. The decrease in operating income compared to the prior-year period was primarily the result of the decrease in gross margin driven by lower revenue coupled with increased business and systems integration expenses and pension withdrawal expenses.
The Company reported income tax expense of $1.8 million for the second quarter of 2011 compared to an income tax benefit of $1.6 million in the second quarter of 2010. The increase in tax expense over the prior-year period was primarily due to discrete period tax benefits from the release of uncertain tax positions in the second quarter of 2010.
Net income in the second quarter of 2011 was $4.0 million, or $0.15 per diluted share, compared to $15.8 million, or $0.61 per diluted share, in the second quarter of 2010. Excluding the after-tax effects of certain financial impacts detailed within the non-GAAP tables at the end of this earnings release, second-quarter 2011 Adjusted net income was $6.9 million, or $0.26 per diluted share, compared to $10.4 million, or $0.40 per diluted share, on a comparable basis for the prior-year period.
Adjusted EBITDA and Management Adjusted EBITDA Performance
Adjusted EBITDA for the second quarter of 2011 was $12.1 million compared to $21.0 million for the second quarter of 2010. Management adjusted EBITDA for the second quarter of 2011 was $17.0 million compared to $21.4 million for the second 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 second-quarter 2011 earnings conference call on Thursday, August 4, 2011, at 9:00 a.m. Central time. To participate in the conference call, please dial 800-259-0251or 617-614-3671 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=4159865. If you are unavailable to participate on the live call, a replay will be available through August 11 at 11:59 p.m. Central time. To access the replay, dial 888-286-8010 or 617-801-6888, enter conference ID 49017471, 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=4159865.
About Schawk, Inc.
Schawk, Inc. is a leading provider of brand development and deployment services, enabling companies of all sizes to connect their brands with consumers. With a global footprint of operations in 19 countries, Schawk helps companies create compelling and consistent brand experiences by providing integrated strategic, creative and executional services across brand touchpoints. Founded in 1953, Schawk is trusted by many of the world's leading organizations to help them achieve global brand consistency. For more information about Schawk, visit http://www.schawk.com.
Non-GAAP Financial Measures
In addition to the presentation of Adjusted EBITDA and Management adjusted EBITDA in this release, the Company has presented certain other non-GAAP measures in the attachment entitled "Reconciliation of Non-GAAP measures to GAAP." Management believes that the presentation of non-GAAP measures provides investors with greater transparency and supplemental data relating to the Company's financial condition and results of operations and provides more consistent insight into the performance of the Company's core operations from period to period by showing the effects of certain non-operating items. These non-GAAP measures are reconciled to the closest GAAP measures on the schedules attached to this earnings release. The non-GAAP measures should not be viewed as alternatives to GAAP and may not be consistent with similar measures provided by other companies.
Safe Harbor Statement
Certain statements in this earnings release are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby. These statements are made based upon current expectations and beliefs that are subject to risk and uncertainty. Actual results might differ materially from those contained in the forward-looking statements because of factors, such as, among other things, our ability to maintain an effective system of disclosure and internal controls and the discovery of any future control deficiencies or weaknesses, which may require substantial costs and resources to rectify; higher than expected costs, or unanticipated difficulties associated with, integrating acquired operations; higher than expected costs associated with compliance with legal and regulatory requirements; higher-than-anticipated costs or lower-than-anticipated benefits associated with the Company's ongoing information technology and business process improvement initiative; the strength of the United States economy in general and, specifically, market conditions for the consumer products industry; the level of demand for Schawk's services; changes in or weak consumer confidence and consumer spending; unfavorable foreign exchange rate fluctuations; loss of key management and operational personnel; our ability to implement our growth strategy, rebranding initiatives and cost reduction plans and to realize anticipated cost savings; the ability of the Company to comply with the financial covenants contained in its debt agreements and obtain waivers or amendments in the event of non-compliance with such covenants; the stability of state, federal and foreign tax laws; our continued ability to identify and exploit industry trends and exploit technological advances in the imaging industry; the stability of political conditions in foreign countries in which we have production capabilities; terrorist attacks and the U.S. response to such attacks; as well as other factors detailed in Schawk, Inc.'s filings with the Securities and Exchange Commission.
The discussion of the Company's financial results within this earnings release should be read and considered in context of the Company's most recent annual Form 10-K filing with the Securities and Exchange Commission.
For more information about Schawk, visit its website at http://www.schawk.com.
Schawk Inc.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
June 30, Increase (Decrease)
-------------------- -------------------
2011 2010 Amount Percent
--------- --------- --------- --------
Net sales $ 113,329 $ 117,840 $ (4,511) (3.8)%
Cost of sales 71,412 71,016 396 0.6%
--------- --------- ---------
Gross profit 41,917 46,824 (4,907) (10.5)%
Selling, general and
administrative expenses 29,998 30,420 (422) (1.4)%
Business and systems integration
expenses 2,149 184 1,965 nm
Multiemployer pension withdrawal
expense 1,846 -- 1,846 nm
Acquisition integration and
restructuring expenses 691 502 189 37.6%
Foreign exchange loss (gain) 207 (267) 474 nm
--------- --------- ---------
Operating income 7,026 15,985 (8,959) (56.0)%
Other income (expense)
Interest income 21 8 13 nm
Interest expense (1,273) (1,771) 498 (28.1)%
--------- --------- ---------
Income before income taxes 5,774 14,222 (8,448) (59.4)%
Income tax provision 1,812 (1,583) 3,395 nm
--------- --------- ---------
Net income $ 3,962 $ 15,805 $ (11,843) (74.9)%
========= ========= =========
Earnings per share:
Basic $ 0.15 $ 0.62 $ (0.47)
Diluted $ 0.15 $ 0.61 $ (0.46)
Weighted average number of
common and common equivalent
shares outstanding:
Basic 25,901 25,400
Diluted 26,276 25,884
nm = not meaningful
Schawk Inc.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
Six Months Ended
June 30, Increase (Decrease)
-------------------- -------------------
2011 2010 Amount Percent
--------- --------- --------- --------
Net sales $ 220,563 $ 229,548 $ (8,985) (3.9)%
Cost of sales 139,894 140,849 (955) (0.7)%
--------- --------- ---------
Gross profit 80,669 88,699 (8,030) (9.1)%
Selling, general and
administrative expenses 61,030 62,944 (1,914) (3.0)%
Business and systems integration
expenses 3,388 294 3,094 nm
Multiemployer pension withdrawal
expense 1,846 -- 1,846 nm
Acquisition integration and
restructuring expenses 1,122 721 401 55.6%
Foreign exchange loss 708 1,550 (842) (54.3)%
Impairment of long-lived assets -- 680 (680) nm
--------- --------- ---------
Operating income 12,575 22,510 (9,935) (44.1)%
Other income (expense)
Interest income 39 16 23 nm
Interest expense (2,560) (3,759) 1,199 (31.9)%
--------- --------- ---------
Income before income taxes 10,054 18,767 (8,713) (46.4)%
Income tax provision 3,303 442 2,861 nm
--------- --------- ---------
Net income $ 6,751 $ 18,325 $ (11,574) (63.2)%
========= ========= =========
Earnings per share:
Basic $ 0.26 $ 0.72 $ (0.46)
Diluted $ 0.26 $ 0.71 $ (0.45)
Weighted average number of
common and common equivalent
shares outstanding:
Basic 25,859 25,292
Diluted 26,264 25,731
nm = not meaningful
Schawk, Inc.
Consolidated Balance Sheets
(In thousands, except share amounts)
June 30, December 31,
2011 2010
----------- ------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 10,704 $ 36,889
Trade accounts receivable, less allowance for
doubtful accounts of $1,348 at June 30, 2011
and $1,525 at December 31, 2010 88,071 95,207
Inventories 20,910 18,250
Prepaid expenses and other current assets 9,220 9,356
Income tax receivable 3,344 2,943
Deferred income taxes 476 347
----------- ------------
Total current assets 132,725 162,992
Property and equipment, net 51,361 48,684
Goodwill, net 194,473 193,626
Other intangible assets, net:
Customer relationships 34,944 36,461
Other 581 817
Deferred income taxes 1,333 868
Other assets 5,746 6,411
----------- ------------
Total assets $ 421,163 $ 449,859
=========== ============
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 17,408 $ 21,930
Accrued expenses 53,370 64,007
Deferred income taxes 3,263 3,260
Income taxes 427 1,038
Current portion of long-term debt 20,757 29,587
----------- ------------
Total current liabilities 95,225 119,822
----------- ------------
Long-term liabilities:
Long-term debt 27,920 37,080
Deferred income taxes 9,242 9,135
Other long-term liabilities 17,516 19,696
----------- ------------
Total long-term liabilities 54,678 65,911
----------- ------------
Stockholders' equity:
Common stock, $0.008 par value, 40,000,000
shares authorized, 30,672,370 and 30,506,252
shares issued at June 30, 2011 and December
31, 2010, respectively, 25,874,822 and
25,761,334 shares outstanding at June 30, 2011
and December 31, 2010, respectively 225 224
Additional paid-in capital 202,362 200,205
Retained earnings 115,865 113,258
Accumulated comprehensive income, net 14,480 11,247
Treasury stock, at cost, 4,797,548 and
4,744,918 shares of common stock at June 30,
2011 and December 31, 2010, respectively (61,672) (60,808)
----------- ------------
Total stockholders' equity 271,260 264,126
----------- ------------
Total liabilities and stockholders' equity $ 421,163 $ 449,859
=========== ============
Schawk Inc.
Segment Financial data
(Unaudited)
(In thousands)
Three Months Ended
June 30, Increase (Decrease)
-------------------- -------------------
2011 2010 Amount Percent
--------- --------- --------- --------
Sales to external clients:
North America $ 96,664 $ 104,318 $ (7,654) (7.3)%
Europe 17,743 15,001 2,742 18.3%
Asia Pacific 8,748 8,240 508 6.2%
Intercompany sales elimination (9,826) (9,719) (107) 1.1%
--------- --------- ---------
Sales to external clients $ 113,329 $ 117,840 $ (4,511) (3.8)%
========= ========= =========
Operating segment income (loss):
North America $ 13,361 $ 19,255 $ (5,894) (30.6)%
Europe 882 815 67 8.2%
Asia Pacific 1,378 1,776 (398) (22.4)%
Corporate (8,595) (5,861) (2,734) (46.6)%
--------- --------- ---------
Operating segment income $ 7,026 $ 15,985 $ (8,959) (56.0)%
========= ========= =========
Six Months Ended
June 30, Increase (Decrease)
-------------------- -------------------
2011 2010 Amount Percent
--------- --------- --------- --------
Sales to external clients:
North America $ 189,049 $ 200,636 $ (11,587) (5.8)%
Europe 35,335 32,375 2,960 9.1%
Asia Pacific 15,401 15,062 339 2.3%
Intercompany sales elimination (19,222) (18,525) (697) 3.8%
--------- --------- ---------
Sales to external clients $ 220,563 $ 229,548 $ (8,985) (3.9)%
========= ========= =========
Operating segment income (loss):
North America $ 25,447 $ 33,279 $ (7,832) (23.5)%
Europe 3,003 1,363 1,640 120.3%
Asia Pacific 1,408 2,655 (1,247) (47.0)%
Corporate (17,283) (14,787) (2,496) (16.9)%
--------- --------- ---------
Operating segment income $ 12,575 $ 22,510 $ (9,935) (44.1)%
========= ========= =========
Schawk, Inc.
Reconciliation of Non-GAAP measures to GAAP
(Unaudited)
(In Thousands, Except Share Amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2011 2010 2011 2010
--------- --------- --------- ---------
Income before income taxes - GAAP $ 5,774 $ 14,222 $ 10,054 $ 18,767
Adjustments:
Acquisition integration and
restructuring expenses 691 502 1,122 721
Business and systems integration
expenses 2,149 184 3,388 294
Impairment of long-lived assets
(1) -- -- -- 680
Multiemployer pension withdrawal
expense 1,846 -- 1,846 --
Foreign currency loss (gain) 207 (267) 708 1,550
--------- --------- --------- ---------
Adjusted income before income tax
- non GAAP 10,667 14,641 17,118 22,012
Adjusted income tax provision -
non GAAP 3,721 4,227 5,972 7,130
--------- --------- --------- ---------
Adjusted net income - non GAAP $ 6,946 $ 10,414 $ 11,146 $ 14,882
========= ========= ========= =========
Weighted average common and common
stock equivalents outstanding -
GAAP (diluted) 26,276 25,884 26,264 25,731
========= ========= ========= =========
Earnings per diluted share - GAAP $ 0.15 $ 0.61 $ 0.26 $ 0.71
Adjustments - net of tax effects:
Acquisition integration and
restructuring expenses 0.02 0.01 0.03 0.02
Business and systems integration
expenses 0.05 0.01 0.08 0.01
Impairment of long-lived assets -- -- -- 0.02
Multiemployer pension withdrawal
expense 0.04 -- 0.04 --
Foreign currency loss (gain) -- (0.01) 0.01 0.04
Effective settlement of certain
income tax audits -- (0.22) -- (0.22)
--------- --------- --------- ---------
Adjusted earnings per diluted
share - non GAAP $ 0.26 $ 0.40 $ 0.42 $ 0.58
========= ========= ========= =========
Income tax provision - GAAP $ 1,812 $ (1,583) $ 3,303 $ 442
Adjustments: (2)
Acquisition integration and
restructuring expenses 257 178 398 259
Business and systems integration
expenses 853 73 1,345 117
Impairment of long-lived assets -- -- -- 270
Multiemployer pension withdrawal
expense 733 -- 733 --
Foreign currency loss (gain) 66 (71) 193 412
Effective settlement of certain
income tax audits -- 5,630 -- 5,630
--------- --------- --------- ---------
Adjusted income tax provision -
non GAAP $ 3,721 $ 4,227 $ 5,972 $ 7,130
========= ========= ========= =========
(1) Please see the Company's discussion related to certain insurance
recoveries in its June 30, 2011 Form 10-Q.
(2) Adjustments have been tax-effected at the jurisdictions' statutory
rates.
Schawk, Inc.
Reconciliation of Non-GAAP EBITDA and Management Adjusted EBITDA
(Unaudited)
(In Thousands)
Three Months Six Months Trailing 12
Ended Ended Months
June 30, June 30, Ended June 30,
--------------- --------------- ----------------
2011 2010 2011 2010 2011 2010
------- ------- ------- ------- ------- -------
Net income - GAAP $ 3,962 $15,805 $ 6,751 $18,325 $20,846 $35,350
Interest expense 1,273 1,771 2,560 3,759 6,002 9,067
Income tax expense
(benefit) 1,812 (1,583) 3,303 442 12,845 6,429
------- ------- ------- ------- ------- -------
Adjusted Income - non
GAAP 7,047 15,993 12,614 22,526 39,693 50,846
Depreciation and
amortization expense 4,454 4,406 8,782 8,900 17,493 18,045
Impairment of long-lived
assets -- -- -- 680 8 1,985
Non-cash restructuring
charges -- -- -- -- -- 133
Stock based compensation 599 584 1,070 1,041 1,915 1,899
------- ------- ------- ------- ------- -------
Adjusted EBITDA - non
GAAP 12,100 20,983 22,466 33,147 59,109 72,908
Permitted add backs on
debt covenants:
Loss on sale of property
and equipment -- -- -- -- -- 71
Proforma effect of
acquisitions and asset
sales -- 254 -- 686 418 686
Acquisition integration
and restructuring
expenses 159 -- 239 -- 239 758
------- ------- ------- ------- ------- -------
Adjusted EBITDA for
covenant compliance -
non GAAP 12,259 21,237 22,705 33,833 59,766 74,423
Acquisition integration
and restructuring
expenses 532 502 883 721 2,136 3,970
Business and systems
integration expenses 2,149 184 3,388 294 4,658 294
Proforma effect of
acquisitions and asset
sales -- (254) -- (686) (418) (686)
Multiemployer pension
plan withdrawal expense 1,846 -- 1,846 -- 1,646 1,800
Indemnity settlement
income -- -- -- -- -- (4,986)
Foreign exchange (gain)
loss 207 (267) 708 1,550 1,464 1,454
Remediation and related
expenses -- -- -- -- -- 1,138
------- ------- ------- ------- ------- -------
Management adjusted
EBITDA - non GAAP $16,993 $21,402 $29,530 $35,712 $69,252 $77,407
======= ======= ======= ======= ======= =======
Use of Non-GAAP Adjusted EBITDA, Adjusted EBITDA for covenant compliance, and Management adjusted EBITDA
Adjusted EBITDA, as presented within this release, is defined as earnings before interest, income taxes, depreciation and amortization, and other certain non-cash items. Adjusted EBITDA for covenant compliance, as defined in the Company's current debt agreements, is defined as Adjusted EBITDA excluding certain items, including items that are generally considered non-operating, as permitted under the Company's current revolving credit facility, and is used by management to gauge its ongoing compliance with the Company's principal debt covenants, as well as pricing on its revolving credit facility. Management adjusted EBITDA is used to evaluate the core operating activities of the Company from period to period. None of the measures presented above represent cash flows from operations as defined by generally accepted accounting principles, should not be considered as an alternative to net income or cash flow from operations as an indicator of our operating performance, and are not indicative of cash available to fund all cash flow needs. These measures also may be inconsistent with similar measures presented by other companies or EBITDA as defined under guidance from the Securities and Exchange Commission.
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