Courier Reports Solid Third Quarter

Courier Corporation announced results for the quarter ended June 29, 2013, the third quarter of its 2013 fiscal year. Revenues were $64.1 million, up 9% from last year’s third-quarter revenues of $58.9 million. Net income for the quarter was $1.7 million or $.15 per diluted share, up from $1.6 million or $.13 per diluted share in last year’s third quarter.

For the first nine months of fiscal 2013, Courier revenues were $190.7 million, up 4% from $184.2 million in fiscal 2012. Net income for the year to date was $4.4 million or $.39 per diluted share, versus $3.5 million or $.29 per diluted share for the first nine months of last year, which included first-quarter charges related to severance and post-retirement benefits and a gain from asset sales; excluding those items, net income for the first nine months of fiscal 2012 was $4.2 million or $.35 per diluted share.

In Courier’s book manufacturing segment, third-quarter sales were up in all three of its principal markets, with the largest gains in the education market, led by increased sales of customized textbooks at the college and university levels. Sales to the religious market were also up in keeping with long-term trends, while trade sales rose on increases in both digital and four-color books. In Courier’s publishing segment, sales were down slightly, but the segment’s operating losses narrowed for both the quarter and the year to date.

“The second half of our fiscal year is typically much stronger than the first half, and so far we are on track to repeat that pattern in fiscal 2013,” said Courier chairman and CEO James F. Conway III. “As a book manufacturer and content management partner, we had a very good quarter as we continued to capitalize on growing demand for customized college textbooks. At the same time, we continued to expand our share of work on behalf of our largest religious customer in support of its long-term program of international Scripture distribution. In our publishing segment, while overall sales were down slightly, we continued to trim the segment’s operating losses, helped by healthy growth in ebook sales.

“We head into our fourth quarter with a strong order flow for both our digital and offset manufacturing facilities. Our new digital plant in Kendallville, Indiana ramped up smoothly in time for the peak season in the education market, and is now working hard alongside its offset counterpart to handle virtually any combination of product formats and run lengths. Anticipating further growth, we are preparing our Kendallville facility for the addition of a second digital press. Meanwhile, our integration of our April acquisition of FastPencil, a provider of self-publishing and workflow solutions, is proceeding according to plan.

Book manufacturing: digital + offset combination powers gains
Courier’s book manufacturing segment had third-quarter sales of $58.1 million, up 11% from $52.4 million in the same period last year. For fiscal 2013 to date, book manufacturing sales were $171.5 million, up 5% from $163.9 million in the first nine months of fiscal 2012. The segment’s third-quarter operating income was $4.2 million, versus $4.0 million a year ago. On a year-to-date basis, operating income was $11.1 million, up from $10.5 million for the same period last year, which included the first-quarter items mentioned above. Gross profit for the third quarter was $11.9 million or 20.4% of sales, versus $10.2 million or 19.5% of sales last year. Gross profit for the first nine months of fiscal 2013 was $33.3 million, compared to $31.9 million in fiscal 2012, and as%age of sales was 19.4% in both periods. The margin improvement in the third quarter reflected a favorable sales mix and increased capacity utilization, which more than offset the effects of a competitive pricing environment and reduced recycling income.

The book manufacturing segment focuses on three markets: education, religious, and specialty trade. Sales to the education market were up 18% in the quarter and up 9% for the year to date, with the largest proportion of sales at the college and university levels. Sales to the religious market were up 7% in the third quarter and up 4% for the first nine months of the year, driven by growth in sales to our largest religious customer. Sales to the specialty trade market were up 4% in the third quarter, but down 1% for the first nine months of the fiscal year. Sales at Courier Digital Solutions continued to account for a growing percentage of total book manufacturing sales in both education and specialty trade.

“It was a great quarter in the education market,” said Mr. Conway. “The ongoing shift toward customized versions of college textbooks continues to fuel growth at our two digital facilities, and we had good utilization in our offset print facilities as well. Meanwhile, demand for four-color digital has also increased across many specialty trade categories as publishers work to manage inventory and obsolescence costs. Our combination of digital and offset print, content management and distribution expertise makes us a versatile, economical partner to publishers of all sizes, and our new strategic relationship with Ingram Content Group gives our customers even more options for efficient print distribution and fulfillment. All these factors played into our decision to order a second HP T-410 wide-body digital inkjet press for our Kendallville plant, with the installation expected to be completed in October.”

Courier’s publishing segment includes three businesses: Dover Publications, a publisher of thousands of titles in dozens of specialty trade markets; Creative Homeowner, a publisher of 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 $8.8 million, down 3% from $9.1 million in last year’s third quarter. The segment’s operating loss for the quarter was $889,000, versus a loss of $975,000 last year. For fiscal 2013 to date, segment sales were $27.3 million, versus $28.2 million for the first nine months of last year. The segment’s operating loss through nine months was $2.4 million, versus a loss of $3.9 million for the corresponding period last year.

Within the segment, third-quarter and year-to-date sales were both up modestly at Dover, helped by growing ebook sales and higher sales to large retailers, but down at REA and Creative Homeowner. Creative Homeowner, with its reduced cost structure, was slightly profitable during the quarter despite the sales decline.

“Our publishing segment continues to adapt to a challenging book retail environment,” said Mr. Conway. “Through careful management, we are steadily chipping away at the operating losses that have troubled the segment in the soft economy of the last few years. Part of this process includes narrowing Creative Homeowner’s focus to concentrate on products with predictable, positive cash flow. At the same time, Dover continues to press forward with ebooks and other new titles suited to today’s consumers, as well as the use of an expanded range of channels to reach them. Ebook sales for the year to date have passed the million-dollar mark, and on the print side, Dover’s Creative Haven adult coloring book line continues to grow and attract new fans each month.”

“We start our fourth quarter exceptionally well positioned to serve our customers in today’s economy,” said Mr. Conway. “We have carved out a distinctive profile as a complete, state-of-the-art resource for publishers in all of our principal markets, with capabilities tailored to their evolving content, process and distribution needs. Our ability to deliver customized versions in any quantity continues to help us grow share in the education and trade markets, while our expanding role on behalf of our largest religious customer is enabling it to reach more people in more countries than ever.

“We continue to expect our performance in fiscal 2013 to reflect our customary seasonal pattern, with the largest portion of our earnings coming in our fourth quarter. With our digital capacity in Kendallville already squeezed, we are moving quickly to install a second HP T-410 digital inkjet press alongside the first one, to begin production in the first quarter of fiscal 2014. The total cost of this digital expansion will be approximately $12 million, of which we will be paying approximately half in the current fiscal year and half next year.

“As a result, we now expect capital expenditures, which were $10 million in fiscal 2012, to total between $23 million and $25 million in fiscal 2013, with approximately $20 million dedicated to expanding our digital capabilities.

“In line with our past practice, today’s guidance, including comparisons to prior performance, excludes impairment and restructuring charges. Overall, we expect fiscal 2013 sales of between $269 million and $278 million, an increase of between 3% and 6% over the 53-week period of fiscal 2012. We also expect earnings per diluted share of between $.80 and $1.00, which compares with our fiscal 2012 earnings of $.91 per diluted share, excluding restructuring charges.

“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 2013, we expect EBITDA to be between $40 million and $44 million, compared to $42 million in fiscal 2012, excluding restructuring charges.”