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| 8-K - MOD-PAC CORP. 8-K - MOD PAC CORP | a50262109.htm |
Exhibit 99.1
MOD-PAC CORP. Reports First Quarter 2012 Financial Results
- Product sales were relatively unchanged at $13.7 million; First quarter custom folding carton sales soften marginally to $10.4 million
- First quarter gross margin lower due to higher paperboard costs and sales mix
- Awarded low-cost power through the Recharge New York program
BUFFALO, N.Y.--(BUSINESS WIRE)--May 2, 2012--MOD-PAC CORP. (NASDAQ: MPAC), a manufacturer of custom and stock paperboard packaging and provider of personalized print products, reported total revenue of $13.8 million for the first quarter of 2012, which ended March 31, 2012, compared with $13.9 million for the first quarter of 2011. The change in revenue reflects a 1.0% decline in custom folding carton sales.
Net loss for the first quarter of 2012 was $123 thousand, or ($0.04) per diluted share, compared with net income of $357 thousand, or $0.10 per diluted share, in the first quarter of 2011. Despite relatively flat sales, a change in product mix and higher paperboard costs had a negative effect on margins.
Daniel G. Keane, President and CEO, commented, “Our sales remained solid in the quarter. We added sales from a nice new custom folding carton customer, but experienced mixed levels of sales from many of our current accounts. Last year’s first quarter also benefited from a major rebranding campaign of one of our large customers.”
First Quarter 2012 Sales Solid
- Sales of custom folding cartons were down 1.0% to $10.4 million in the 2012 first quarter from $10.5 million in the prior year first quarter, primarily related to lower volume from one large customer and decreased graphic design charges partially offset by business from one new customer and increased sales from several large customers.
- Stock packaging sales increased 3.2%, or $83 thousand, to $2.7 million in the first quarter.
- Personalized print sales were $611,000 in the first quarter of 2012.
Higher Cost Paperboard Combined with Product and Customer Mix Measurably Impacted Margins
Gross profit for the 2012 first quarter was $1.8 million, or 12.9% of total revenue, compared with gross profit of $2.2 million, or 16.2% of total revenue, in the prior year period. Gross margin was negatively affected by product and customer mix, increased paperboard costs, and employee benefits.
David B. Lupp, Chief Operating Officer and Chief Financial Officer, added, “Paperboard costs were a large component of the margin compression this quarter, along with product and customer mix. We continue to pass along costs, where possible, and are starting to see signs that paperboard costs are stabilizing. We also continually address productivity enhancements to help offset the impact of inflation.”
Selling, general and administrative (SG&A) expense was up marginally to $1.9 million in the first quarter of 2012 from $1.8 million in the prior year period. The increase was a result of higher professional services costs for technology infrastructure. SG&A as a percent of total revenue was 13.8% and 13.1% in the first quarter of 2012 and 2011, respectively.
Earnings before interest, taxes, depreciation and amortization, and non-cash option expense (EBITDA) was $0.8 million in the first quarter of 2012 compared with $1.4 million in the 2011 first quarter. The Company believes that, when used in conjunction with GAAP measures, EBITDA, which is a non-GAAP measure, helps in the understanding of operating performance. (See the Reconciliation of Net (Loss) Income to EBITDA in the attached table.)
The prior-year first quarter also benefitted from $109 thousand in other income primarily related to a New York State development grant.
The Company’s effective tax rate for the first quarter of 2012 and 2011 was 29.7% and 26.2%, respectively.
Awarded Low-cost Power
On April 24, 2012, the Company was allocated 860 kilowatts of power through the Recharge New York Power Program of the New York Power Authority. The program is designed to retain and create jobs through allocations of low-cost power. Currently, the Company relies on a cogeneration facility for its electrical power.
Mr. Lupp, noted, “Our recent growth and plans to continue to take market share required us to evaluate the lowest cost option for increased power to meet our electrical requirements. The high maintenance requirements and limited capacity of our cogeneration facility led us to change our power source to meet growing demand for our products.”
Liquidity
Cash and cash equivalents were $0.9 million at March 31, 2012, down from the 2011 year-end balance of $3.9 million, reflecting higher inventory and increased capital expenditures during the quarter. Inventory was $7.8 million at March 31, 2012, up from $7.0 million at 2011 year-end mainly due to planned forward purchasing of raw materials.
Capital expenditures for the first quarter of 2012 were $2.3 million compared with $0.3 million in the first quarter of 2011. The increase in capital spending was due to $1.6 million associated with the purchase of a previously-owned, seven-color printing press and approximately $300 thousand for infrastructure improvements needed to reconnect to the public utility electric power grid.
Mr. Lupp noted, “We had the opportunity to purchase a seven-color printing press that will enhance our capabilities and provide us greater speed and capacity.”
The capital expenditure forecast for the full-year period was revised upwards to between $4.8 million and $5.2 million.
There were no shares repurchased by the Company during the first three months of 2012. MOD-PAC has authorization to repurchase up to 200,000 shares.
The Company has a $3.0 million secured line of credit of which $0.2 million was in use through a standby letter of credit and there was no balance drawn on the line at the end of the quarter.
Webcast and Conference Call
MOD-PAC will host a conference call and webcast today at 1:30 p.m. Eastern Time. During the conference call and webcast, management will review the financial and operating results for the period, followed by a question-and-answer session.
The conference call can be accessed by dialing (201) 689-8562. The listen-only audio webcast can be monitored at www.modpac.com.
The telephonic replay will be available from 4:30 p.m. ET the day of the call until Wednesday, May 9, 2012. To listen to the archived call, dial (858) 384-5517, and enter conference ID number 392772. Alternatively, the archive of the webcast will be available on the Company’s website at www.modpac.com. A transcript will also be posted to the website, once available.
About MOD-PAC CORP.
MOD-PAC CORP. is a high value-added, on-demand print services firm providing products and services in two product categories: folding cartons and personalized print. Within folding cartons, MOD-PAC provides CUSTOM FOLDING CARTONS for branded and private label consumer products in the food and food service, healthcare, medical and automotive industries. The Company also offers a line of STOCK PACKAGING primarily to the retail confectionary industry. MOD-PAC’s PERSONALIZED PRINT product line is a comprehensive offering for consumer and corporate social occasions.
MOD-PAC’s strategy for growth is to leverage its capabilities to innovate and aggressively integrate technology into its production operations providing cost-effective solutions for its customers. Applying its lean manufacturing processes, coupled with state-of-the-art printing technologies, MOD-PAC is able to address short-run, highly variable content needs of its customers with quick turn-around times relative to industry standards.
Additional information on MOD-PAC can be found at its website: http://www.modpac.com.
Safe Harbor Statement
This news release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. One can identify these forward-looking statements by the use of the words such as "expect," "anticipate," "plan," "may," "will," "estimate" or other similar expressions. Because such statements apply to future events, they are subject to risks and uncertainties that could cause the actual results to differ materially. Important factors, which could cause actual results to differ materially, include market events, competitive pressures, changes in technology, customers preferences and choices, success at entering new markets, the execution of its strategy, marketing and sales plans, the rate of growth of internet related sales, the effectiveness of agreements with print distributors and other factors which are described in MOD-PAC’s annual report on Form 10K on file with the Securities and Exchange Commission. The Company assumes no obligation to update forward-looking information in this press release whether to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial conditions or prospects, or otherwise.
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MOD-PAC CORP. |
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CONSOLIDATED STATEMENTS OF OPERATIONS |
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| (unaudited) | |||||||||||||||
| (in thousands except per share data) | |||||||||||||||
| Three months ended | |||||||||||||||
| 03/31/2012 | 04/02/2011 | ||||||||||||||
| Revenue | |||||||||||||||
| Product sales | $ | 13,689 | $ | 13,801 | |||||||||||
| Rental income | 112 | 110 | |||||||||||||
| Total Revenue | 13,801 | 13,911 | |||||||||||||
| Cost of products sold | 12,026 | 11,664 | |||||||||||||
| Gross profit | 1,775 | 2,247 | |||||||||||||
| Gross profit margin | 12.9 | % | 16.2 | % | |||||||||||
| Selling, general and administrative expense | 1,904 | 1,823 | |||||||||||||
| (Loss) Income from operations | (129 | ) | 424 | ||||||||||||
| Operating margin | (0.9 | %) | 3.0 | % | |||||||||||
| Interest expense, net | (47 | ) | (49 | ) | |||||||||||
| Other income, net | 1 | 109 | |||||||||||||
| (Loss) Income before taxes | (175 | ) | 484 | ||||||||||||
| Income tax (benefit) expense | (52 | ) | 127 | ||||||||||||
| Net (loss) income | $ | (123 | ) | $ | 357 | ||||||||||
| Basic (loss) income per share: | $ | (0.04 | ) | $ | 0.11 | ||||||||||
| Diluted (loss) income per share: | $ | (0.04 | ) | $ | 0.10 | ||||||||||
| Weighted average diluted shares outstanding | 3,208 | 3,454 | |||||||||||||
| MOD-PAC CORP. | |||||||||||||||||||||||
| PRODUCT LINE REVENUE DATA | |||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||
| ($, in thousands) | |||||||||||||||||||||||
| Three Months Ended | % | 2012 YTD | |||||||||||||||||||||
| 3/31/2012 | 4/2/2011 | change | % of Total | ||||||||||||||||||||
| FOLDING CARTONS | |||||||||||||||||||||||
| Custom folding cartons | $ | 10,380 | $ | 10,489 | -1.0 | % | 75.8 | % | |||||||||||||||
| Stock packaging | 2,698 | 2,615 | 3.2 | % | 19.7 | % | |||||||||||||||||
| Folding cartons subtotal | 13,078 | 13,104 | -0.2 | % | 95.5 | % | |||||||||||||||||
| PERSONALIZED PRINT | 611 | 697 | -12.3 | % | 4.5 | % | |||||||||||||||||
| Total product revenue | $ | 13,689 | $ | 13,801 | -0.8 | % | 100.0 | % | |||||||||||||||
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MOD-PAC CORP. CONSOLIDATED BALANCE SHEETS |
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| (dollars in thousands) | (Unaudited) | ||||||||||||||
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March 31, |
December 31, |
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| Current assets: | |||||||||||||||
| Cash and cash equivalents | $ | 856 | $ | 3,900 | |||||||||||
| Accounts receivable | 5,097 | 5,400 | |||||||||||||
| Allowance for doubtful accounts | (11 | ) | (20 | ) | |||||||||||
| Net accounts receivable | 5,086 | 5,380 | |||||||||||||
| Inventories | 7,785 | 7,023 | |||||||||||||
| Refundable income taxes | 88 | 219 | |||||||||||||
| Prepaid expenses | 706 | 506 | |||||||||||||
| Total current assets | 14,521 | 17,028 | |||||||||||||
| Property, plant and equipment, at cost: | |||||||||||||||
| Land | 1,192 | 1,192 | |||||||||||||
| Buildings and equipment | 12,870 | 12,789 | |||||||||||||
| Machinery and equipment | 50,570 | 50,566 | |||||||||||||
| Construction in progress | 2,397 | 168 | |||||||||||||
| 67,029 | 64,715 | ||||||||||||||
| Less accumulated depreciation | (51,845 | ) | (51,065 | ) | |||||||||||
| Net property, plant and equipment | 15,184 | 13,650 | |||||||||||||
| Deferred income taxes | 128 | - | |||||||||||||
| Other assets | 490 | 466 | |||||||||||||
| Total assets | $ | 30,323 | $ | 31,144 | |||||||||||
| Current liabilities: | |||||||||||||||
| Current maturities of long-term debt | $ | 87 | $ | 89 | |||||||||||
| Accounts payable | 2,196 | 2,151 | |||||||||||||
| Accrued expenses | 416 | 1,171 | |||||||||||||
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Total current liabilities |
2,699 | 3,411 | |||||||||||||
| Long-term debt | 1,800 | 1.820 | |||||||||||||
| Other liabilities | 27 | 27 | |||||||||||||
| Deferred income taxes | - | 87 | |||||||||||||
| Total liabilities | 4,526 | 5,345 | |||||||||||||
| Shareholders' equity: | |||||||||||||||
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Common stock, $.01 par value, authorized 20,000,000 |
36 | 36 | |||||||||||||
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Class B common stock, $.01 par value, authorized |
6 | 6 | |||||||||||||
| Additional paid-in capital | 3,892 | 3,771 | |||||||||||||
| Retained earnings | 29,873 | 29,996 | |||||||||||||
| 33,807 | 33,809 | ||||||||||||||
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Less treasury stock at cost, 998,809 shares in 2012 and |
(8,010 | ) | (8,010 | ) | |||||||||||
| Total shareholders' equity | 25,797 | 25,799 | |||||||||||||
| Total liabilities and shareholders' equity | $ | 30,323 | $ | 31,144 | |||||||||||
| MOD-PAC CORP. | ||||||||||||
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CONSOLIDATED STATEMENTS OF CASH FLOWS |
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| (unaudited) | ||||||||||||
| ($ in thousands) | ||||||||||||
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Three Months Ended |
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March 31, |
April 2, |
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| Cash flows from operating activities: | ||||||||||||
| Net (loss) income | $ | (123 | ) | $ | 357 | |||||||
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Adjustments to reconcile net (loss) income to net cash used in |
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| Depreciation and amortization | 784 | 724 | ||||||||||
| Adjustment to provision for doubtful accounts | (16 | ) | - | |||||||||
| Stock option compensation expense | 119 | 134 | ||||||||||
| Deferred income taxes | (215 | ) | 47 | |||||||||
| (Gain) Loss on disposal of assets | - | (13) | ||||||||||
| Cash flows from changes in operating assets and liabilities | ||||||||||||
| Accounts receivable | 310 | (923 | ) | |||||||||
| Inventories | (762 | ) | (1,828 | ) | ||||||||
| Prepaid expenses | (200 | ) | (106 | ) | ||||||||
| Accounts payable | 45 | 1,575 | ||||||||||
| Income taxes payable | 131 | 63 | ||||||||||
| Accrued expenses | (755 | ) | (476 | ) | ||||||||
| Net cash used in operating activities | (682 | ) | (446 | ) | ||||||||
| Cash flows from investing activities: | ||||||||||||
| Proceeds from the sale of assets | - | 13 | ||||||||||
| Change in other assets | (28 | ) | - | |||||||||
| Capital expenditures | (2,314 | ) | (320 | ) | ||||||||
| Net cash used in investing activities | (2,342 | ) | (307 | ) | ||||||||
| Cash flows from financing activities: | ||||||||||||
| Principal payments on long-term debt and capital leases | (22 | ) | (92 | ) | ||||||||
| Proceeds from issuance of stock | 2 | - | ||||||||||
| Net cash used in financing activities | (20) | (92 | ) | |||||||||
| Net change in cash and cash equivalents | (3,044 | ) | (845 | ) | ||||||||
| Cash and cash equivalents at beginning of year | 3,900 | 3,440 | ||||||||||
| Cash and cash equivalents at end of period | $ | 856 | $ | 2,595 | ||||||||
| MOD-PAC CORP. | ||||||||||
| Reconciliation between Net (Loss) Income and EBITDA | ||||||||||
| (in thousands) | Three Months Ended | |||||||||
| 3/31/2012 | 4/2/2011 | |||||||||
| Net (loss) income | $ | (123 | ) | $ | 357 | |||||
| Interest | 47 | 49 | ||||||||
| Taxes | (52 | ) | 127 | |||||||
| Depreciation and amortization | 784 | 724 | ||||||||
| Stock-based compensation | 119 | 134 | ||||||||
| EBITDA | $ | 775 | $ | 1,391 | ||||||
EBITDA is defined as consolidated net income before interest expense, income taxes, depreciation and amortization and option expense. EBITDA is not a measure determined in accordance with generally accepted accounting principles in the United States, commonly known as GAAP. Nevertheless, MOD-PAC believes that providing non-GAAP information such as EBITDA is important for investors and other readers of MOD-PAC's financial statements, as it is used as an analytical indicator by MOD-PAC's management. Because EBITDA is a non-GAAP measure and is thus susceptible to varying calculations, EBITDA, as presented, may not be directly comparable to other similarly titled measures used by other companies.
CONTACT:
Kei Advisors LLC
Deborah K. Pawlowski, 716.843.3908
Dpawlowski@keiadvisors.com