MOD-PAC CORP. (Nasdaq: MPAC), a manufacturer of custom paper
board packaging and provider of personalized print products, today
reported revenue of $12.0 million for the first quarter of 2010,
which ended April 3, 2010, a decline of 2.5% compared with revenue
of $12.3 million in the first quarter of 2009. In June of 2009,
MOD-PAC exited the commercial print market and rationalized the
Company’s specialty print and direct mail product line. Excluding
last year’s specialty print and direct mail sales, total revenue in
the first quarter of 2010 grew $0.5 million, or 4.0%, compared with
the 2009 first quarter. Growth in the folding cartons business of
nearly 5% offset a $0.8 million decline in print services
sales.
Net income for the first quarter of 2010 was $20,000, or $0.01
per diluted share, compared with net loss of $533,000, or $0.16 per
diluted share, in the first quarter of 2009. The improvement in net
income reflects the effectiveness of the product line
rationalization, which eliminated unprofitable businesses, combined
with ongoing productivity enhancements and cost reductions.
“Our folding cartons business remains strong,” commented Mr.
Daniel G. Keane, President and CEO of MOD-PAC CORP. “During the
first quarter, increased demand in the custom folding cartons
product line led to a growth in our market share from existing
customers with high volume requirements. In addition, we are seeing
a rebound in our stock packaging market, as the economy begins to
strengthen and our customers have worked off their
inventories.”
Core Product Lines Expand with Increasing On Time Delivery
and Value Added Services
- Sales of folding cartons, which
include custom folding cartons and stock packaging, were $11.2
million in the first quarter of 2010, up 4.8% from $10.7 million in
the first quarter of 2009.
- Custom folding carton sales in
the first quarter of 2010 were $8.7 million, up 2.2% from $8.5
million in the first quarter of 2009 as the Company captured a
greater share of existing customer requirements.
- Stock packaging sales of $2.5
million in the first quarter of 2010 rebounded 15.1% from $2.2
million in the first quarter of 2009. The stock packaging line had
been impacted by economic conditions over the past year and is
showing renewed strength.
- Print services sales, which are
now comprised solely of personalized print, were $703,000 in the
first quarter of 2010, down 54.5% from $1.5 million in the first
quarter of 2009. Of the decline, $772,000 was related to sales in
the prior year’s first quarter for specialty print and direct
mail.
- Personalized print sales were
$703,000 for the first quarter of 2010, down 9.1% from $773,000 in
the first quarter of 2009. The decrease was primarily because of
weak buying patterns by customers for personal and corporate
celebration-type events due to the economic environment.
David B. Lupp, Chief Operating Officer and Chief Financial
Officer, noted, “We are making a concerted effort to provide our
customers with highly reliable delivery dates that surpass their
expectations and readily beat out the competition. In addition, for
customers that find themselves in a challenging position, we have
developed a rapid response solution to help them meet their
customers’ requirements. This value added service is also
appropriately priced for the significant convenience it
offers.”
Expanded operating leverage; Continued efforts to create
greater efficiencies and drive earnings power
Gross profit increased 26.5% to $1.8 million in the first
quarter of 2010, compared with $1.4 million in the 2009 first
quarter. Gross margin improved 340 basis points to 14.9% in the
first quarter of 2010, compared with 11.5% in the first quarter of
2009. The increase in gross profit and margin was attributable to
improved operational leverage and savings realized from the
Company’s product line rationalization and productivity
improvements, coupled with lower utility costs resulting from more
favorable fuel costs and an improvement in the recycling
market.
Selling, general and administrative (SG&A) expenses were
down 11.1% to $1.8 million, or 14.8 % of revenue, in the first
quarter of 2010, compared with $2.0 million, or 16.2% of revenue,
in the first quarter of 2009. The decrease in SG&A expense was
driven by the Company’s fiscal discipline and strict cost
management, as well as by the rationalization of the specialty
print and direct mail product line.
Adjusted earnings before interest, taxes, depreciation,
amortization, and non-cash option expense (Adjusted EBITDA) was
$906,000 in the first quarter of 2010, compared with $409,000 in
the first quarter of 2009, reflecting the leverage obtained from
improving the Company’s cost structure. 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 Income (Loss) to
Adjusted EBITDA in the attached table.)
The Company’s effective tax rate for the first quarter of 2010
was 33.3%. Tax expense for the three months ended April 3, 2010
related solely to federal and state minimum taxes. The Company has
approximately $0.57 million in net operating loss carry forwards
that can be applied to future income.
Liquidity
Cash and cash equivalents were $3.11 million at April 3, 2010,
compared with $3.78 million at December 31, 2009. The decrease in
cash and cash equivalents during the first three months of 2010 was
primarily the result of capital expenditures, pay-down of an
equipment loan, increase in restricted cash and working capital
requirements, partially offset by proceeds from the sale of
equipment.
Capital expenditures in the first quarter of 2010 were $263,000,
compared with $345,000 in the same period the prior year. Capital
spending continued to be focused on equipment and system
improvements. Fiscal year 2010 capital expenditures are expected to
be between approximately $1.6 million to $1.8 million. Depreciation
and amortization for the first three months of 2010 was $688,000,
compared with $914,000 in the first quarter of 2009.
MOD-PAC had access to a $5.0 million committed line of credit
with a commercial bank, which expired in March 2010. The Company
has a commitment to secure a new line of credit agreement. MOD-PAC
believes its cash on hand and the cash it generates from operations
is sufficient for its working capital and capital spending
requirements throughout 2010.
There were no shares repurchased by the Company during the first
three months of 2010. MOD-PAC has authorization to repurchase
75,885 shares.
Outlook
Mr. Keane concluded, "We have made solid progress and will work
to maintain our momentum into the future. With the changes that we
have made to the organization, we have focused our resources on our
core products, and will continue to evolve our value propositions
to enable us to be leaders in the markets we serve, and to operate
a flexible business model that generates operating leverage. Our
objective in 2010 is to continually improve our productivity and
maintain our cost discipline, as we refine and focus our sales and
marketing efforts.”
Webcast and Conference Call
The release of the financial results will be followed today by a
company-hosted teleconference at 1:30 pm ET. 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. 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 348535 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 account number 3055 and
conference ID number 348535. The telephonic replay will be
available from 4:30 p.m. ET the day of the teleconference until
11:59 p.m. ET on May 11, 2010.
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 4/3/2010
4/4/2009 Revenue Product sales $ 11,884 $ 12,210 Rent
132 116 Total revenue 12,016
12,326 Cost of products sold 10,220
10,906 Gross profit 1,796 1,420 Gross profit margin
14.9 % 11.5 % Selling, general and administrative expense
1,777 1,999 Income (loss) from
operations 19 (579 ) Operating profit (loss) margin 0.2 % -4.7 %
Interest expense 53 63 Other (income) expense (64 )
11 Income (loss) before taxes 30 (653 ) Income
tax expense (benefit) 10 (120 )
Net income (loss) $ 20
$ (533 ) Basic earnings (loss) per
share: $ 0.01 $ (0.16 ) Diluted earnings (loss) per share: $ 0.01 $
(0.16 ) Weighted average diluted shares outstanding 3,575
3,430
MOD-PAC
CORP. PRODUCT LINE REVENUE DATA (unaudited) ($, in
thousands)
Three Months Ended % 2010
YTD 4/3/2010 4/4/2009 change
% of Total FOLDING CARTONS Custom
folding cartons $ 8,679 $ 8,491 2.2 % 73.0 % Stock packaging
2,502 2,174 15.1 % 21.1 %
Folding cartons
subtotal 11,181 10,665 4.8 %
94.1 % PRINT SERVICES Personalized 703
773 -9.1 % 5.9 % Specialty print and direct mail 0
772 -100.0 % 0.0 %
Print services subtotal
703 1,545 -54.5 % 5.9 %
Total product
revenue $ 11,884 $ 12,210
-2.7 % 100.0 %
MOD-PAC CORP.
CONSOLIDATED BALANCE
SHEET
(dollars in thousands) (Unaudited)
April 3,
2010
December31, 2009
Current assets: Cash and cash equivalents $ 3,105 $ 3,780
Restricted cash 225 - Accounts receivable 4,795 4,975
Allowance for doubtful accounts (121 ) (155 ) Net
accounts receivable 4,674 4,820 Inventories 4,090 4,258 Prepaid
expenses 644 297 Total current assets
12,738 13,155 Property, plant and equipment, at cost: Land
1,170 1,170 Buildings and equipment 12,406 12,389 Machinery and
equipment 49,815 49,129 Construction in progress 278
990 63,669 63,678 Less accumulated depreciation
(48,663 ) (48,262 ) Net property, plant and equipment
15,006 15,416 Assets held for sale 75 171 Other assets 460
459
Totals assets $
28,279 $ 29,201 Current
liabilities: Current maturities of long-term debt $ 168 $ 202
Accounts payable 1,915 2,567 Accrued expenses 531
803 Total current liabilities 2,614 3,572
Long-term debt 2,176 2,292 Other liabilities 35
38
Total liabilities 4,825
5,902 Shareholders' equity:
Common stock, $.01 par value, authorized 20,000,000 shares, issued
3,457,549 in 2010, 3,453,863 in 2009 35 35 Class B common stock,
$.01 par value, authorized 5,000,000 shares, issued 624,699 in
2010, 628,385 in 2009 6 6 Additional paid-in capital 2,789 2,654
Retained earnings 26,839 26,819 29,669
29,514 Less treasury stock at cost, 650,698 shares in 2010 and 2009
(6,215 ) (6,215 )
Total shareholders' equity
23,454 23,299
Total liabilities and shareholders' equity $
28,279 $ 29,201
MOD-PAC CORP.
CONSOLIDATED STATEMENT OF CASH
FLOWS
(in thousands) (Unaudited)
Three Months Ended
April 3, 2010 April 4, 2009 Cash flows from operating
activities: Net income (loss) $ 20 $ (533 )
Adjustments to reconcile net
income (loss) to net cash used inoperating activities:
Depreciation and amortization 688 914 Provision for doubtful
accounts (26 ) (5 ) Stock option compensation expense 135 85
Deferred income taxes - (118 ) (Gain) loss on disposal of assets
(38 ) 24 Cash flows from changes in operating assets and
liabilities: Accounts receivable 172 (108 ) Inventories 168 (26 )
Prepaid expenses (347 ) (190 ) Other liabilities (3 ) 1 Accounts
payable (652 ) (680 ) Accrued expenses (272 ) (80 )
Net cash used in operating activities (155 )
(716 ) Cash flows from investing activities: Proceeds from
the sale of assets 123 6 Change in other assets (5 ) (69 ) Capital
expenditures (263 ) (345 ) Net cash used in
investing activities (145 ) (408 ) Cash flows
from financing activities: Principal payments on long-term debt
(150 ) (41 ) Increase in restricted cash (225 ) - Increase in line
of credit - 1,100 Net cash (used
in) provided by financing activities (375 ) 1,059
Net decrease in cash and cash equivalents (675 ) (65
) Cash and cash equivalents at beginning of year
3,780 200 Cash and cash equivalents at
end of period $ 3,105 $ 135
MOD-PAC
CORP. Reconciliation between GAAP Net Loss and Adjusted
EBITDA (in thousands)
Three
Months Ended 4/3/2010
4/4/2009 GAAP Net Income (Loss)
$ 20 ($533 ) Interest 53 63
Taxes 10 (120 ) Depreciation and amortization 688 914 Stock-based
compensation 135 85
Adjusted EBITDA $ 906
$ 409
Adjusted EBITDA = earnings before
interest, taxes, depreciationand amortization, and non-cash stock
option expense.
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