SOURCE: Schawk, Inc.

Schawk, Inc.

May 01, 2013 17:00 ET

Schawk Announces 2013 First Quarter Results

Gross Margin, Operating Income and Net Income Rise Compared to Last Year; Debt Reduced Versus Levels at Year-End 2012

DES PLAINES, IL--(Marketwired - May 1, 2013) - 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 first quarter 2013 results. Net income in the first quarter of 2013 was $1.5 million, or $0.06 per diluted share, versus a net loss of $1.6 million, or a loss of $0.06 per diluted share, in the first quarter of 2012.

Revenue declined by 1.5 percent during the first quarter of 2013 compared to the prior-year quarter. The company's largest client channel, consumer packaged goods (CPG), grew globally by 1.7 percent; however, this CPG growth was offset by declines in retail and advertising and entertainment accounts sales.

Operating income for the first quarter of 2013 was $2.0 million compared to an operating loss of $1.6 million for the same quarter last year. On a non-GAAP basis, adjusting for financial impacts relating to certain items further detailed in this release, 2013 first-quarter adjusted operating income was $4.7 million compared to $3.1 million in the prior-year period.

Adjusted net income was $2.3 million, or $0.09 per diluted share, for the first quarter of 2013 compared to $1.4 million, or $0.05 per diluted share, during the comparable prior-year period. Please refer to the tables at the end of this press release for a reconciliation of these non-GAAP measures.

Chief Executive Officer David A. Schawk commented, "During the first quarter of 2013, we saw continued growth with our consumer packaged goods clients within the Americas and Asia Pacific segments. However, declines in our Europe segment, largely driven by the challenging economic environment within that region, offset some of that growth. Our overall CPG growth in the quarter was offset by continued declines in promotional activity by retail and advertising and entertainment account clients, which are all within our Americas segment. Despite the nominal decline in quarter-over-quarter revenue and continued strategic investments to better align with client needs and improve opportunities for long-term revenue growth, operating income improved in the first quarter of 2013, primarily from the impact of cost reduction and capacity utilization actions implemented during 2012 and early 2013. Furthermore, we decreased our debt by approximately $9 million compared to the end of the fourth quarter of 2012, reflecting the continued strength of our cash flow and balance sheet."

Consolidated Results for the Quarter Ended March 31, 2013
Consolidated net sales in the first quarter of 2013 were $111.0 million compared to $112.8 million in the same period of 2012, a decline of approximately $1.8 million, or 1.5 percent. Year-over-year sales were negatively impacted by changes in foreign currency translation rates of approximately $0.3 million, as the U.S. dollar increased in value relative to the local currencies of certain of the company's non-U.S. subsidiaries.

Consumer packaged goods accounts sales during the first quarter of 2013 were $91.5 million, or 82.4 percent of total net sales, compared to $89.9 million in the same period of 2012, an increase of 1.7 percent, primarily due to higher product and brand development and deployment activity. Advertising and retail accounts sales in the first quarter of 2013 were $15.0 million, or 13.5 percent of total sales, a decrease of 13.4 percent, from $17.3 million during the prior-year quarter, primarily driven by continued reductions in client promotional activity. Entertainment accounts sales for the first quarter of 2013 were $4.5 million, or 4.1 percent of total sales, a decline of 18.0 percent from $5.5 million in the same period of 2012, driven by continued declines in print-related promotional activity.

Gross profit was $38.0 million for the first quarter of 2013, an increase of $1.0 million over the prior-year comparable quarter. Gross profit in the first quarter of 2013 as a percentage of sales increased to 34.2 percent from 32.8 percent in the prior-year period. The quarter-over-quarter increase in gross profit and gross profit percent was largely driven by cost reductions primarily related to sales declines within the company's retail and advertising business.

Selling, general and administrative (SG&A) expenses decreased approximately $0.6 million to $33.3 million during the first quarter of 2013 from $33.9 million in the prior-year comparable quarter. The decline in SG&A expenses in the first quarter of 2013 compared to 2012 is principally due to the company's cost reduction initiatives implemented during 2012.

Business and systems integration expenses were $2.7 million in the first quarter of 2013, compared to $3.2 million in the prior-year period, relating to the company's ongoing information technology and business process improvement initiative.

Acquisition integration and restructuring expenses decreased from $1.1 million in the first quarter of 2012 to $0.2 million in the first quarter of 2013, related to employee terminations and other associated costs which arose from the company's continued focus on consolidating, reducing and re-aligning its work force and operations. The actions taken during the first quarter of 2013 are expected to result in annualized savings of approximately $0.9 million, with approximately $0.8 million realized during 2013.

The company recorded a $0.2 million gain on foreign exchange exposures in the first quarter of 2013, compared to a loss of $0.5 million in the prior-year period. Net foreign exchange gains or losses relate primarily to currency exposure from intercompany debt obligations of the company's non-U.S. subsidiaries.

The company reported operating income of $2.0 million in the first quarter of 2013 compared to an operating loss of $1.6 million in the prior-year comparable quarter. The year-over-year increase was driven by higher gross profit coupled with reductions in acquisition integration and restructuring, business and systems integration and SG&A expenses. Non-GAAP adjusted operating income was $4.7 million for the first quarter of 2013 compared to $3.1 million in the prior-year comparable period.

For the first quarter of 2013, the company reported a tax benefit of $0.6 million compared to tax benefit of $0.8 million during the same period in 2012. The tax benefit in the first quarter of 2013 was principally driven by certain discrete tax adjustments.

Net income in the first quarter of 2013 was $1.5 million, or $0.06 per diluted share, compared to a net loss of $1.6 million, or a loss of $0.06 per diluted share, in same period of 2012. Non-GAAP adjusted net income was $2.3 million, or $0.09 per diluted share, for the first quarter of 2013 compared to $1.4 million, or $0.05 per diluted share, on a comparable basis for the prior-year period.

Management Adjusted EBITDA Performance
Management adjusted EBITDA for first quarter of 2013 was $9.6 million, which was comparable to the prior-year period. Please refer to the "Reconciliation of Non-GAAP Management Adjusted EBITDA" table attached at the end of this press release for a reconciliation of these measures.

Conference Call
Schawk invites you to join its first quarter 2013 earnings conference call on Thursday, May 2, 2013, at 9:00 a.m. Central time. To participate in the conference call, please dial 800-446-1671 or 847-413-3362 at least five minutes prior to the start time and ask for the Q1 2013 Schawk, Inc. conference call, or on the Internet, go to http://www.media-server.com/m/acs/3afa8c1bde50fe2326aea3dcdd187149. If you are unavailable to participate on the live call, a replay will be available through May 9 at 11:59 p.m. Central time. To access the replay, dial 888-843-7419 or 630-652-3042, enter conference ID 34706290, and follow the prompts. The replay will also be available on the Internet for 30 days at the following http://www.media-server.com/m/acs/3afa8c1bde50fe2326aea3dcdd187149.

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 26 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 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 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 may differ materially from those contained in the forward-looking statements because of factors, such as, among other things, the strength of the United States economy in general and, specifically, market conditions for the consumer products industry in the U.S. and abroad; the level of demand for the Company's services; unfavorable foreign exchange fluctuations; changes in or weak consumer confidence and consumer spending; loss of key management and operational personnel; the ability of the Company to implement its business strategy 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; the ability of the Company 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; the stability of state, federal and foreign tax laws; the ability of the Company to identify and capitalize on industry trends and technological advances in the imaging industry; higher than anticipated costs or lower than anticipated benefits associated with the Company's ongoing information technology and business process improvement initiative or unanticipated costs or difficulties associated with integrating acquired operations; higher than expected costs associated with compliance with legal and regulatory requirements; any impairment charges due to declines in the value of the Company's fixed and intangible assets, including goodwill; the stability of political conditions in foreign countries in which the Company has production capabilities; terrorist attacks and the U.S. response to such attacks; as well as other factors detailed in the Company's filings with the Securities and Exchange Commission. The Company can give no assurance that the assumptions upon which such forward-looking statements are based will prove to have been correct, and undue reliance should not be placed on such statements. The Company assumes no obligation to update publicly any of these statements in light of future events.

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 Form 10-K filed with the Securities and Exchange Commission.

For more information about Schawk, visit its website at http://www.schawk.com.

   
   
   
Schawk Inc.
Consolidated Statements of Comprehensive Income (Loss)
 
(Unaudited)  
(In thousands, except per share amounts)  
             
  Three Months Ended
March 31,
  Increase (Decrease)  
  2013   2012   Amount   Percent  
                 
Net sales $ 111,003   $ 112,750   $ (1,747 ) (1.5 )%
Cost of sales   73,052     75,750     (2,698 ) (3.6 )%
Gross profit   37,951     37,000     951   2.6 %
                       
Selling, general and administrative expenses  
 33,281
   
 33,862
   
(581
)
(1.7
)%
Business and systems integration expenses   2,658     3,170     (512 ) (16.2 )%
Acquisition integration and restructuring expenses  
247
   
1,084
   
(837
)
(77.2
)%
Impairment of long-lived assets   36     --     36   nm  
Foreign exchange (gain) loss   (242 )   470     (712 ) nm  
Operating income (loss)   1,971     (1,586 )   3,557   nm  
                       
Other income (expense)                      
  Interest income   26     16     10   62.5 %
  Interest expense   (1,095 )   (842 )   (253 ) 30.0 %
                       
Income (loss) before income taxes   902     (2,412 )   3,314   nm  
Income tax benefit   (553 )   (805 )   252   (31.3 )%
                       
Net income (loss) $ 1,455   $ (1,607 ) $ 3,062   nm  
                       
Earnings (loss) per share:                      
  Basic $ 0.06   $ (0.06 ) $ 0.12      
  Diluted $ 0.06   $ (0.06 ) $ 0.12      
                       
Weighted average number of common and common equivalent shares outstanding:                      
  Basic   26,154     25,767            
  Diluted   26,224     25,767            
                       
Net income (loss) $ 1,455   $ (1,607 )          
Foreign currency translation adjustments   (2,341 )   2,457            
                       
Comprehensive income (loss) $ (886 ) $ 850            
                       
nm = not meaningful                      
                       
                       
                       
Schawk, Inc.
 Consolidated Balance Sheets
 (In thousands, except share amounts)
 
    March 31,
2013
    December 31,
2012
 
    (Unaudited)        
Assets                
Current assets:                
  Cash and cash equivalents   $ 5,983     $ 9,651  
  Trade accounts receivable, less allowance for doubtful accountsof $2,286 at March 31, 2013 and $2,052 at December 31, 2012    
94,290
     
93,696
 
  Inventories     21,536       22,121  
  Prepaid expenses and other current assets     10,447       10,156  
  Income tax receivable     4,498       3,171  
  Deferred income taxes     227       235  
Total current assets     136,981       139,030  
                 
Property and equipment, net     65,646       65,491  
Goodwill, net     210,975       211,903  
Other intangible assets, net:                
  Customer relationships     27,512       29,010  
  Other     577       633  
Deferred income taxes     5,685       5,983  
Other assets     6,811       6,771  
                 
Total assets   $ 454,187     $ 458,821  
                 
Liabilities and stockholders' equity                
Current liabilities:                
  Trade accounts payable   $ 23,177     $ 18,137  
  Accrued expenses     59,513       57,080  
  Deferred income taxes     2,475       2,482  
  Income taxes payable     501       609  
  Current portion of long-term debt     3,904       4,262  
Total current liabilities     89,570       82,570  
                 
Long-term liabilities:                
  Long-term debt     69,875       78,724  
  Deferred income taxes     3,184       3,208  
  Other long-term liabilities     43,022       43,536  
Total long-term liabilities     116,081       125,468  
                 
Stockholders' equity:                
  Common stock, $0.008 par value, 40,000,000 shares authorized, 31,252,263 and 31,172,666 shares issued at March 31, 2013 and December 31, 2012, respectively, 26,161,107 and 26,113,544 shares outstanding at March 31, 2013 and December 31, 2012, respectively    
228
     
227
 
  Additional paid-in capital     210,741       209,556  
  Retained earnings     93,248       93,897  
  Accumulated comprehensive income, net     9,518       11,859  
  Treasury stock, at cost, 5,091,156 and 5,059,122 shares of common stock at March 31, 2013 and December 31, 2012, respectively    
(65,199
)    
(64,756
)
Total stockholders' equity     248,536       250,783  
                 
Total liabilities and stockholders' equity   $ 454,187     $ 458,821  
                 
                 
                 
Schawk Inc.
Segment Financial Data
 
(Unaudited)  
(In thousands)  
                         
    Three Months Ended
March 31,
 
 
 
 
Increase (Decrease)  
 
    2013     2012     Amount     Percent  
                         
Sales to clients:                              
Americas   $ 86,514     $ 86,346     $ 168     0.2 %
Europe     19,681       22,392       (2,711 )   (12.1 )%
Asia Pacific     9,706       8,120       1,586     19.5 %
Intersegment sales elimination     (4,898 )     (4,108 )     (790 )   (19.2 )%
                               
Net sales   $ 111,003     $ 112,750     $ (1,747 )   (1.5 )%
                               
Operating segment income (loss):                              
Americas   $ 12,093     $ 7,951     $ 4,142     52.1 %
Europe     (201 )     1,423       (1,624 )   nm  
Asia Pacific     347       114       233     nm  
Corporate     (10,268 )     (11,074 )     806     7.3 %
                               
Operating segment income (loss)   $ 1,971     $ (1,586 )   $ 3,557     nm  
                               
                               
                               
Schawk, Inc.
Reconciliation of Non-GAAP Measures to GAAP
(Unaudited)
(In thousands, except per share amounts)
 
    Three Months Ended
March 31,
 
    2013     2012  
             
Operating income (loss) - GAAP   $ 1,971     $ (1,586 )
Adjustments:                
  Acquisition integration and restructuring expenses     247       1,084  
  Business and systems integration expenses     2,658       3,170  
  Impairment of long-lived assets     36       --  
  Foreign currency (gain) loss     (242 )     470  
                 
Adjusted operating income - non GAAP   $ 4,670     $ 3,138  
                 
                 
Net income (loss) - GAAP   $ 1,455     $ (1,607 )
Adjustments - net of tax effects (1):                
  Acquisition integration and restructuring expenses     158       710  
  Business and systems integration expenses     1,641       1,926  
  Impairment of long-lived assets     32       --  
  Foreign currency (gain) loss     (174 )     368  
  Discrete tax adjustments     (834 )     --  
                 
Adjusted net income - non GAAP   $ 2,278     $ 1,397  
                 
                 
Earnings (loss) per diluted share - GAAP   $ 0.06     $ (0.06 )
Adjustments - net of tax effects (1):                
  Acquisition integration and restructuring expenses     0.01       0.03  
  Business and systems integration expenses     0.06       0.07  
  Impairment of long-lived assets     --       --  
  Foreign currency (gain) loss     (0.01 )     0.01  
  Discrete tax adjustments     (0.03 )     --  
                 
Adjusted earnings per diluted share - non GAAP   $ 0.09     $ 0.05  
                 
Weighted average common and common stock                
equivalents outstanding - GAAP (diluted)     26,224       25,767  
                 
(1) Adjustments have been tax-effected at the jurisdictions' statutory rates.                
                 
                 
                 
                 
Schawk, Inc.
Reconciliation of Non-GAAP Management Adjusted EBITDA
(Unaudited)
(In thousands)
 
    Three Months Ended
March 31,
    Twelve Months Ended
March 31,
 
    2013     2012     2013     2012  
                         
Net income (loss) - GAAP   $ 1,455     $ (1,607 )   $ (20,354 )   $ 16,215  
Interest expense     1,095       842       3,905       4,825  
Income tax benefit     (553 )     (805 )     (10,515 )     (800 )
Depreciation and amortization expense     4,447       4,655       18,709       18,384  
Impairment of long-lived assets     36       --       4,392       40  
Loss on sale of equipment     --       --       --       137  
Stock based compensation     416       1,832       1,713       3,459  
Adjusted EBITDA - non GAAP     6,896       4,917       (2,150 )     42,260  
Permitted add backs on debt covenants:                                
Proforma effect of acquisitions and asset sales     --       --       --       2,758  
Acquisition integration and restructuring expenses     --       --       181       207  
Business and systems integration expenses     2,658       --       10,000       --  
Multiemployer pension withdrawal expense     --       --       31,683       --  
Adjusted EBITDA for covenant compliance - non GAAP    
9,554
     
4,917
     
39,714
     
45,225
 
Acquisition integration and restructuring expenses     247       1,084       4,352       1,916  
Business and systems integration expenses     --       3,170       1,647       10,398  
Proforma effect of acquisitions and asset sales     --       --       --       (2,758 )
Multiemployer pension plan withdrawal (income) expense     --       --       (203 )     1,846  
Foreign exchange (gain) loss     (242 )     470       1,111       1,081  
Management adjusted EBITDA - non GAAP   $ 9,559     $ 9,641     $ 46,621     $ 57,708  
                                 
                                 

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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