MOD-PAC CORP. (NASDAQ: MPAC), a manufacturer of custom and stock
paper board packaging and personalized print products, today
reported revenue of $11.21 million in the second quarter of 2009,
which ended July 4, 2009, up from revenue of $11.06 million in the
2008 second quarter. Sales growth reflects the success the Company
is having in increasing market share of its custom folding carton
product line.
Net loss for the quarter was $3.72 million, or $1.09 per diluted
share compared with net loss of $0.54 million, or $0.16 per diluted
share, in the second quarter of 2008. On June 24, 2009, the Company
announced that it was rationalizing its product lines and exiting
the commercial print market. Additionally, in the second quarter of
2009, due to a change in management’s plan for the future use of
the building, the Company wrote-down the value of its Blasdell, NY
facility to its fair market value. Excluding onetime charges
associated with these strategic actions of $2.4 million, net loss
would have been $1.31 million, or $0.39 per diluted share. (See
reconciliation of GAAP net income and earnings per share to net
income and earnings per share excluding onetime charges in the
attached table.)
Second Quarter 2009 Sales Review: Custom folding
carton sales continue to grow
- Sales of folding cartons, which
include custom folding cartons and stock packaging, were up 9.9%,
or $0.85 million, to $9.46 million in the 2009 second quarter from
$8.61 million in the prior year second quarter.
- Custom folding carton sales
drove the product line increase. Custom folding carton sales were
up $0.95 million, more than offsetting the $0.10 million, or 6.1%,
decline in stock packaging. Stock packaging sales were $1.48
million in the 2009 second quarter. The second quarter tends to be
the weakest quarter in the year for stock packaging, which is
primarily sold to independent confectionery stores. This line was
significantly impacted by economic conditions.
- Print services, which included
specialty print and direct mail services as well as personalized
print, was also heavily affected by economic conditions. Print
services sales were down $0.73 million, or 31.3%, to $1.6 million
in the 2009 second quarter compared with the same period in
2008.
- Personalized print sales
declined $0.33 million to $0.86 million in the second quarter of
2009 compared with sales of $1.19 million in last year’s second
quarter.
- The Company has rationalized its
product lines and exited the commercial print market which the
specialty print and direct mail product line served. This product
line’s sales were $0.75 million in the 2009 second quarter, down
$0.40 million, or 35%, from last year’s second quarter sales of
$1.15 million. The commercial print industry has been especially
hard hit during the recession and is expected to face several years
of weakness before it recovers. In addition, the Company had not
achieved the results it had expected over the last few years in
this market.
Mr. Daniel G. Keane, President and CEO of MOD-PAC CORP.,
commented, “We continue to make solid headway in growing custom
folding carton sales despite recessionary headwinds. We had 13.4%
growth in this product line as a new customer continues to build
its order volume with us and existing customers also increased
demand which more than offset declines among those customers
impacted by the economy. The food and healthcare customers for whom
we provide custom packaging tend to be less impacted by downturns
in the economy. Our stock packaging and personalized print product
lines, however, have been measurably impacted by the economy.”
Second Quarter Operating Results: Impacted by onetime
charges associated with product line rationalization
Gross profit for the 2009 second quarter was $0.46 million, or
4.1% of sales, compared with gross profit of $1.28 million, or
11.6% of sales in the same period the prior year. Impacting gross
margin about 20 basis points was approximately $0.13 million of
inventory obsolescence and contract adjustments associated with the
product rationalization. Also causing gross margin to be lower than
the prior year period was lower recycled paperboard sales resulting
from a weak recycling market, as well as increased repairs and a
weaker sales mix.
Second quarter 2009 selling, general & administrative
expense (SG&A) was $1.96 million down from $2.08 million in the
2008 second quarter as cost discipline and reduced professional
fees more than offset $0.07 million in charges associated with the
product line rationalization. As a percent of revenue, SG&A
declined to 17.5% from 18.8% despite the onetime charges.
As required by generally accepted accounting principles, in the
second quarter of 2009 the Company recorded a full valuation
allowance on its net deferred tax asset due to the uncertainty with
respect to utilizing it in the future based on a past trend of
operating losses. As a result, the effective tax rate for the
second quarter of 2009 was 0% compared with an effective tax rate
of 33.2% in the second quarter of 2008.
Adjusted earnings before interest, taxes, depreciation,
amortization, non-cash option expense and the asset impairment
charge of $2.2 million (Adjusted EBITDA) was $(0.44) million in the
second quarter of 2009 compared with $0.34 million in the 2008
second quarter. The second quarter of 2009 was the first quarter of
negative Adjusted EBITDA after six consecutive quarters of positive
Adjusted EBITDA. The Company believes that, when used in
conjunction with GAAP measures, Adjusted EBITDA, which is a
non-GAAP measure, helps in the understanding of operating
performance. (See the reconciliation of Net Loss to Adjusted EBITDA
in the attached table.)
Mr. David B. Lupp, Chief Operating Officer and Chief Financial
Officer commented, “Our product line rationalization will result in
annualized improved operating results of approximately $0.9 million
to $1.2 million beginning in part in the third quarter this year.
As a result, our quarterly break-even level of revenue is reduced
to approximately the range of $12 to $13 million down from $13
million to $14 million. We’ve been successful despite the condition
of the economy to continue to add new custom folding carton
customers and gain more share of our existing customers.
“Our efforts have been offset by a variety of factors including
weaker product mix, lower recycled paperboard sales, higher
material costs and the increase in the cost of benefits.
Nonetheless, we have made significant headway over the last year to
align the business to capture the strength of our core competencies
and further develop our value proposition to customers and
prospects, tighten our cost structure and build our sales and
marketing capabilities.”
First Half 2009 Review: 17.8% expansion of custom
folding carton sales more than offsets other product line
declines
Sales for the first half of 2009 grew 3.8% to $23.28 million
compared with $22.42 million in the first half of 2008. Custom
folding carton sales grew measurably for the 2009 six-month period
to $16.48 million compared with $13.99 million in the first half of
2008, while stock packaging sales were down 11.3%, or $0.47
million, to $3.65 million. Print services sales were $3.15 million
in the first half of 2009 down 26.9%, or $1.16 million compared
with the first six months of 2008. Personalized print sales were
down $0.54 million, or 24.8%, to $1.63 million reflecting the
weakness in the economy. Specialty print and direct mail sales
declined $0.62 million, or 29.0%, to $1.52 million in the first
half of 2009.
Gross margin was 8.0% for the first half of 2009, down from
11.6% in the same period the prior year as gross profit declined to
$1.88 million from $2.63 million on higher sales. The decline was
driven by the same factors affecting the quarter.
SG&A expense was $3.96 million, or 16.8% of revenue in the
first six months of 2009 compared with $4.14 million, or 18.3% of
revenue, in the first six months of 2008. Lower depreciation
expense and wage related costs, as well as other cost reduction
measures, contributed to the reduction in year-over-year
expenses.
Liquidity
Cash and cash equivalents were $0.17 million at July 4, 2009, a
slight decrease from $0.20 million at December 31, 2008. Capital
expenditures in the second quarter of 2009 were $0.35 million
compared with $0.6 million in the same period the prior year.
System and efficiency investments and custom folding carton
equipment made up the bulk of the second quarter 2009 expenditures.
For the first half of 2009 capital expenditures were $0.70 million,
down from $1.27 million in the same period last year. Capital
expenditures are expected to be approximately $1.0 million in
fiscal year 2009. Depreciation and amortization for the second
quarter of 2009 was $0.96 million compared with $0.99 million in
the 2008 second quarter.
MOD-PAC has access to a $5.0 million committed line of credit
with a commercial bank, which expires in March 2010. The line of
credit balance at July 4, 2009 was $2.3 million, up from $1.0
million at December 31, 2008. An additional $0.2 million of the
line of credit was in use through standby letters of credit. The
increase was primarily the result of net losses, capital
expenditures and working capital requirements, partially offset by
non-cash impairment charges as well as depreciation and
amortization expense. The Company believes that cash and cash
equivalents and net cash provided by operating activities will be
sufficient to meet requirements in 2009.
There were no shares repurchased by the Company in the second
quarter of 2009. MOD-PAC has authorization to repurchase 75,885
shares.
Outlook
Mr. Keane concluded, “We’ve taken dramatic steps to improve our
business, focus our resources on custom folding cartons where we
have consistently had success over the history of the Company, and
develop our sales and marketing capabilities. We expect that our
future results will demonstrate the positive impact of these
efforts and that results will be further enhanced as the economy
improves and the leverage inherent in the business is fully
realized.”
Webcast and Conference
Call
The release of the financial results will be followed by a
company-hosted teleconference on Wednesday, August 5 at 10:00 a.m.
Eastern Time. During the teleconference, Daniel G. Keane, President
and Chief Executive Officer, and David B. Lupp, Chief Operating
Officer and Chief Financial Officer, will review the financial and
operating results for the period and discuss MOD-PAC CORP.’s
corporate strategy and outlook. A question-and-answer session will
follow.
The MOD-PAC conference call can be accessed the following
ways:
- The live webcast can be found at
http://www.modpac.com. Participants should go to the website 10 -
15 minutes prior to the scheduled conference in order to register
and download any necessary audio software.
- The teleconference can be
accessed by dialing (201) 689-8562 and requesting Conference ID
Number 328987 approximately 5 - 10 minutes prior to the call.
The archived webcast will be at http://www.modpac.com. A
transcript will also be posted once available. A replay can also be
heard by calling (201) 612-7415 and entering conference ID number
328987 and account number 3055. The telephonic replay will be
available from 1:00 p.m. Eastern Time the day of the teleconference
through 11:59 p.m. Eastern Time on August 12, 2009.
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.
Through its large, centralized facility, the Company has captured
significant economies of scale by channeling large numbers of
small-to-medium-sized orders through its operations due to its
rapid order change out skills. 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 press 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.
FINANCIAL TABLES FOLLOW.
MOD-PAC CORP.
CONSOLIDATED INCOME STATEMENT
DATA
(unaudited)
(in thousands except per share data)
Three months ended
Six months ended 7/4/2009
6/28/2008 7/4/2009
6/28/2008 Revenue Product sales $ 11,071 $ 10,952 $ 23,281 $
22,418 Rent 142 112 258
223 Total Revenue 11,213 11,064 23,539 22,641 Cost of
products sold 10,756 9,781
21,663 20,012 Gross profit 457 1,283 1,876
2,629
Gross profit margin
4.1% 11.6% 8.0% 11.6% Selling, general and administrative expense
1,960 2,084 3,958 4,140 Write-down of impaired assets 2,175
0 2,175 0 Loss
from operations (3,678) (801) (4,257) (1,511) Operating loss margin
-32.8% -7.2% -18.1% -6.7% Interest expense, net 67 73 130 125 Other
income 22 69 11
81 Loss before taxes (3,723) (805) (4,376) (1,555) Income
tax benefit 0 (267) (120)
(517)
Net loss $ (3,723)
$ (538) $ (4,256)
$ (1,038) Basic loss per share: $ (1.09) $
(0.16) $ (1.24) $ (0.30) Diluted loss per share: $ (1.09) $ (0.16)
$ (1.24) $ (0.30) Weighted average diluted shares
outstanding 3,430 3,430 3,430 3,438
MOD-PAC CORP.
PRODUCT LINE REVENUE DATA (unaudited) ($, in thousands)
Three Months Ended % Six
Months Ended %
2009 YTD% of
7/4/2009 6/28/2008
change 7/4/2009 6/28/2008
change
Total
FOLDING CARTONS Custom folding cartons $ 7,989
$ 7,043 13.4% $ 16,480 $ 13,994 17.8% 70.8% Stock packaging 1,475
1,570 -6.1% 3,649 4,114
-11.3% 15.7%
Folding cartons subtotal
9,464 8,613 9.9% 20,129 18,108
11.2% 86.5% PRINT SERVICES Specialty
print & direct mail 747 1,150 -35.0% 1,519 2,138 -29.0% 6.5%
Personalized 860 1,189 -27.7% 1,633
2,172 -24.8% 7.0%
Print services
subtotal 1,607 2,339 -31.3% 3,152
4,310 -26.9% 13.5%
Total product revenue $ 11,071
$ 10,952 1.1% $ 23,281
$ 22,418 3.8%
100.0% MOD-PAC CORP.
CONSOLIDATED BALANCE SHEET
DATA
(in thousands)
7/4/2009
12/31/2008 (unaudited)
ASSETS:
Cash and cash equivalents $ 166 $ 200 Trade accounts receivable:
Customers 4,844 4,920 Allowance for doubtful accounts (196 )
(170 ) Net trade accounts receivable 4,648
4,750 Inventories: Finished goods 2,505 2,671 Work in progress 433
238 Raw materials 1,255 1,404
4,193 4,313 Prepaid expenses 521
357
Total current assets 9,528
9,620 Property, plant and equipment, at cost 63,409
68,707 Less accumulated depreciation (47,028 )
(47,116 ) Net property, plant and equipment 16,381 21,591
Assets held for sale 1,928 - Other assets 1,324
1,340
Total assets $
29,161 $ 32,551
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Current maturities of long-term debt $ 174 $ 168 Accounts payable
2,805 3,222 Accrued expenses 580 581 Line of credit, current
2,300 -
Total current
liabilities 5,859 3,971 Line of credit,
long-term - 1,000 Long-term debt 2,325 2,413 Other liabilities 52
37 Deferred income taxes - 118 Shareholders' equity 20,925
25,012
Total liabilities and
shareholders' equity $ 29,161
$ 32,551 MOD-PAC CORP.
CONSOLIDATED STATEMENT OF CASH
FLOWS
(unaudited) (in thousands)
Six
Months Ended 7/4/2009
6/28/2008 Cash flows from operating
activities: Net loss $ (4,256 ) $ (1,038 ) Adjustments to
reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,869 1,990 Provision for doubtful
accounts 39 12 Stock option compensation expense 169 164 Deferred
income taxes (118 ) (519 ) Write-down of impaired assets 2,175 -
Loss (Gain) on disposal of assets 24 (54 ) Cash flow from change in
operating assets and liabilities: Accounts receivables 63 (254 )
Inventories 120 (336 ) Prepaid expenses (164 ) (77 ) Other
liabilities 15 (239 ) Accounts payable (417 ) 54 Accrued expenses
(1 ) (174 ) Net cash used in operating
activities $ (482 ) $ (471 )
Cash flows
from investing activities Proceeds from sale of assets $ 6 $
125 Change in other assets (74 ) (41 ) Capital expenditures
(702 ) (1,266 ) Net cash used in investing
activities $ (770 ) $ (1,182 )
Cash flows
from financing activities Principal payments on long-term debt
$ (82 ) $ (42 ) Increase in line of credit 1,300 1,300 Purchase of
treasury stock - (150 ) Deferred financing fees -
(5 ) Net cash provided by financing activities
$ 1,218 $ 1,683
Net
(decrease) increase in cash and cash equivalents (34 ) 30
Cash and cash equivalents at beginning of year 200
98
Cash and cash equivalents
at end of period $ 166 $ 128
MOD-PAC CORP. Reconciliation between GAAP Net Loss and
Adjusted EBITDA (in thousands)
Three Months Ended Six Months Ended
7/4/2009
6/28/2008
7/4/2009
6/28/2008 GAAP Net Loss
$ (3,723 ) $ (538 )
$ (4,256 ) $ (1,038 )
Interest 67 73 130 125 Write-down of impaired assets 2,175 0
2,175 0 Taxes 0 (267 ) (120 ) (517 ) Depreciation and amortization
955 992 1,869 1,990 Stock-based compensation 83 83 169 164
Adjusted
EBITDA $ (443 ) $
343 $ (33 )
$ 724
Adjusted EBITDA = earnings before
interest, asset impairment, taxes, depreciation
and amortization and non-cash option expense.
MOD-PAC CORP. Reconciliation between GAAP Net Loss
and Adjusted Net Loss
(in thousands)
Three Months Ended Six
Months Ended 7/4/2009
6/28/2008
7/4/2009
6/28/2008 GAAP Net Loss
$ (3,723 ) $ (538 ) $
(4,256 ) $ (1,038 )
Write-down of impaired assets (2,175 ) 0 (2,175 ) 0 Workforce
reduction (65 ) 0 (65 ) 0 Change in useful life of assets (40 ) 0
(40 ) 0 Other rationalization charges (134 ) 0
(134 ) 0 Total one-time charges (2,414 ) 0 (2,414 ) 0
Adjusted Net Loss $ (1,309 )
$ (538 ) $ (1,842 ) $
(1,038 ) MOD-PAC CORP.
Reconciliation between GAAP Diluted Earning per Share and
Adjusted Diluted Earnings Per Share
Three Months Ended Six Months
Ended 7/4/2009
6/28/2008 7/4/2009
6/28/2008 GAAP Diluted Loss Per
Share $ (1.09 ) $ (0.16 )
$ (1.24 ) $ (0.30 )
Write-down of impaired assets (0.63 ) 0 (0.63 ) 0 Workforce
reduction (0.02 ) 0 (0.02 ) 0 Change in useful life of assets (0.01
) 0 (0.01 ) 0 Other rationalization charges (0.04 ) 0
(0.04 ) 0 Total one-time charges (0.70 ) 0
(0.70 ) 0
Adjusted Diluted Loss Per Share $
(0.39 ) $ (0.16 ) $ (0.54
) $ (0.30 )
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