MOD-PAC CORP. (NASDAQ: MPAC) (the “Company”), a manufacturer of
custom and stock paper board packaging and personalized print
products, today reported total revenue of $12.38 million in the
third quarter of 2010, which ended October 2, 2010, a decrease of
1.6% from total revenue of $12.59 million in the 2009 third
quarter.
Net income for the third quarter was $1.0 million, or $0.28 per
diluted share, relatively flat compared with net income of $1.0
million, or $0.29 per diluted share, in the prior year period. The
third quarter of 2009 was positively impacted by $367 thousand in
one-time items comprised of a $263 thousand fair value adjustment
of impaired Specialty Print and Direct Mail (“SPDM”) assets and a
$104 thousand gain on the sale of SPDM assets. Excluding those
benefits, third quarter 2009 adjusted net income would have been
$0.64 million, or $0.18 per diluted share. (See reconciliation of
net income (loss) and earnings (loss) per share to adjusted net
income (loss) and earnings (loss) per share in the attached
tables.) The increase in net income over the adjusted prior year
period was largely the result of the improved operating leverage
from productivity and cost reduction measures that were implemented
since last year’s third quarter.
Mr. Daniel G. Keane, President and CEO of MOD-PAC CORP.,
commented, “We executed well this quarter, by continuing to
prudently manage our costs which helped drive our gross margin
expansion, and the 55% year-over-year increase in net income, net
of adjusted items. While demand for our custom folding carton
business tempered a bit this past quarter, we have achieved market
share gains in 2010 and we are working hard to build on that
momentum.”
Third Quarter 2010 Sales Review
- Sales of folding cartons, which include
custom folding cartons and stock packaging, were down 1.2%, or $137
thousand, to $11.51 million in the 2010 third quarter from $11.65
million in the prior year third quarter.
- Custom folding carton sales in the
third quarter of 2010 were $9.25 million compared with $9.41
million in the third quarter of 2009, as demand from existing
custom folding carton accounts were down slightly
year-over-year.
- Stock packaging sales increased 0.9% to
$2.26 million in the 2010 third quarter.
- Print services sales, which are now
comprised solely of personalized print, were $0.76 million in the
third quarter of 2010, down 5.3% from $0.80 million in the third
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.
Margin expansion reflects continued focus on cost
control
Gross profit for the 2010 third quarter increased 9.0% to $2.74
million, or 22.1% of total revenue, compared with gross profit of
$2.52 million, or 20.0% of total revenue, in the same period the
prior year. The improvement in gross profit and 210 basis point
margin expansion was largely driven by productivity enhancements,
lower utility costs, and a recovery in the recycling market.
Selling, general and administrative (SG&A) expense was down
7.4% to $1.71 million, or 13.8% of total revenue, in the third
quarter of 2010 when compared with $1.84 million, or 14.6% of total
revenue, in the same period the prior year. Lower labor costs due
to reduced administrative headcount from streamlining functions
combined with tight cost control and lower commission expense drove
the decrease.
Adjusted earnings before interest, asset impairment, taxes,
depreciation and amortization, and non-cash option expense
(Adjusted EBITDA) was $1.82 million in the third quarter of 2010,
up 20.1%, or $0.30 million, from $1.51 million in the 2009 third
quarter and up 94.4%, or $0.88 million, from $0.94 million in the
trailing second quarter. 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 third quarter of 2010
was 0.4% as a result of federal and state minimum taxes. The
Company has approximately $0.1 million in net operating loss carry
forwards that can be applied to future income.
Mr. David B. Lupp, Chief Operating Officer and Chief Financial
Officer commented, “The performance we achieved in the third
quarter was a direct result of the successful implementation of our
strategies. Looking ahead, we expect our improved operating
leverage and the benefits of our cost reduction initiatives to
contribute to our financial performance. Our focus remains on
growing our top line, driven primarily by market share gains in
folding cartons.”
Liquidity
Cash and cash equivalents were $2.24 million at October 2, 2010,
a significant increase from $0.32 million at October 3, 2009, but
down from the 2009 year-end balance of $3.78 million. The decrease
through the first nine months of 2010 was primarily the result of
capital expenditures, increased working capital requirements,
particularly with inventory, a reduction in long-term debt and the
repurchase of stock.
The Company increased inventory $1.11 million, or 26.0%, to
$5.37 million at October 2, 2010, from $4.26 million at 2009
year-end in order to continue to meet demand and customer schedules
as supplier lead times have increased.
Capital expenditures in the third quarter and first nine months
of 2010 were $0.28 million and $1.24 million, respectively,
compared with $0.14 million and $0.84 million in the corresponding
periods of the prior year. Infrastructure improvements and custom
folding carton equipment made up the bulk of the year-to-date 2010
expenditures. Fiscal year 2010 capital expenditures are expected to
be between $1.6 million to $1.8 million.
The Company repurchased 53,970 shares in the third quarter of
2010 at an average price of $4.23. MOD-PAC has authorization to
repurchase up to an additional 196,532 shares.
Depreciation and amortization for the first nine months of 2010
was $2.08 million compared with $2.53 million during the prior year
period. The decline was a result of the product line
rationalization, as most assets associated with that line were sold
in the latter part of fiscal 2009.
MOD-PAC has access to a $3.0 million revolving credit facility
with a commercial bank. At the end of the third quarter, only $0.2
million of the line was in use through standby letters of credit.
The Company believes its cash on hand and the cash it generates
from operations will be sufficient for its working capital and
capital spending requirements in 2010.
Nine-Month Review
Total revenue for the nine months of 2010 was $35.92 million,
down slightly from the nine months of 2009 despite the $1.52
million in sales related to the rationalized product line in last
year’s first nine months. Excluding that, total revenue for the
nine months of 2010 grew $1.31 million, or 3.8%, over the
corresponding period of 2009 reflecting improved folding carton
sales.
Custom folding carton sales were up $1.08 million, or 4.2%, to
$26.97 million for the 2010 nine-month period compared with $25.89
million in the nine months of 2009, as the Company has successfully
increased its market share from existing customers. Stock packaging
sales increased 6.2%, or $0.37 million, to $6.25 million over the
same corresponding period, while personalized print sales were down
$116 thousand, or 4.8%, to $2.32 million reflecting the weakness in
the economy.
Gross profit and margin increased in the first nine months of
2010, to $6.51 million, and 18.1%, respectively, on relatively flat
sales primarily due to the rationalization and other productivity
enhancements.
SG&A expense was $5.36 million, or 14.9% of total revenue,
in the first nine months of 2010 compared with $5.80 million, or
16.1% of total revenue, in the first nine months of 2009. The lower
SG&A for the period was primarily due to lower labor costs and
other efficiency enhancements implemented during the period.
Included in the first nine months of 2009, was $1.81 million of
expense that was associated with the write-down of impaired assets
in the second quarter of 2009 due to the Company's rationalization
of the specialty print and direct mail product line.
For the nine-month period, Adjusted EBITDA increased 146.7% to
$3.66 million in 2010 compared with $1.48 million in 2009. (See the
Reconciliation of Net Income (Loss) to Adjusted EBITDA in the
attached table.)
Webcast and Conference Call
MOD-PAC CORP. will host a conference call and webcast at 10:00
a.m. ET on Wednesday, November 3, 2010. During the call, 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 conference call can be accessed by dialing (201) 689-8562
and entering conference ID number 359334. The listen-only audio
webcast can be monitored at www.modpac.com. To listen to the
archived call, dial (858) 384-5517, and enter conference ID number
359334. The telephonic replay will be available from 1:00 p.m. ET
the day of the call until 11:59 p.m. ET on Wednesday, November 10,
2010. A transcript will also be posted to the Company’s Web site,
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.
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
STATEMENTS OF OPERATIONS
(unaudited) (in thousands except per
share data)
Three months ended Nine months ended
10/2/2010 10/3/2009 10/2/2010
10/3/2009 Revenue Product sales $ 12,267 $ 12,446 $ 35,535 $
35,727 Rent 113 141 382
399 Total Revenue 12,380 12,587 35,917
36,126 Cost of products sold 9,638
10,071 29,405 31,732
Gross profit 2,742 2,516 6,512 4,394 Gross profit margin 22.1 %
20.0 % 18.1 % 12.2 % Selling, general and administrative expense
1,705 1,841 5,362 5,799 Net (write-up) write-down of impaired
assets 0 (367 ) 0
1,808 Income (Loss) from operations 1,037 1,042 1,150
(3,213 ) Operating margin 8.4 % 8.3 % 3.2 % -8.9 % Interest
expense, net (44 ) (64 ) (148 ) (194 ) Other income 11
33 83 43
Income (Loss) before taxes 1,004 1,011 1,085 (3,364 ) Income
tax expense (benefit) 4 0
19 (118 )
Net income (loss) $
1,000 $ 1,011 $
1,066 $ (3,246 )
Basic income (loss) per share: $ 0.29 $ 0.29 $ 0.31 $ (0.95 )
Diluted income (loss) per share: $ 0.28 $ 0.29 $ 0.30 $ (0.95 )
Weighted average diluted shares outstanding 3,529 3,470
3,559 3,430
MOD-PAC CORP. PRODUCT LINE REVENUE
DATA (unaudited) ($ in thousands)
Three Months Ended % Nine Months
Ended % 2010 YTD % of 10/2/2010
10/3/2009 change 10/2/2010
10/3/2009 change Total
FOLDING CARTONS Custom folding cartons $ 9,251 $
9,408 -1.7 % $ 26,966 $ 25,888 4.2 % 75.9 % Stock packaging
2,259 2,239 0.9 % 6,253
5,888 6.2 % 17.6 %
Folding cartons subtotal
11,510 11,647 -1.2 % 33,219
31,776 4.5 % 93.5 %
PRINT SERVICES Specialty print & direct mail 0 0 N/A 0
1,519 -100 % 0 % Personalized 757 799
-5.3 % 2,316 2,432 -4.8 % 6.5 %
Print services subtotal 757 799 -5.3
% 2,316 3,951 -41.4 % 6.5
%
Total product revenue $
12,267 $ 12,446 -1.4
% $ 35,535 $ 35,727
-0.5 % 100.0 % MOD-PAC
CORP.
CONSOLIDATED
BALANCE SHEETS
(dollars in thousands) (Unaudited)
October 2, 2010 December 31, 2009 Current assets:
Cash and cash equivalents $ 2,237 $ 3,780 Accounts
receivable 5,833 4,975 Allowance for doubtful accounts (108
) (155 ) Net accounts receivable 5,725 4,820 Inventories
5,367 4,258 Prepaid expenses 527 297
Total current assets 13,856 13,155 Property, plant and
equipment, at cost: Land 1,170 1,170 Buildings and equipment 12,406
12,389 Machinery and equipment 48,235 49,129 Construction in
progress 193 990 62,004 63,678 Less
accumulated depreciation (47,409 ) (48,262 ) Net
property, plant and equipment 14,595 15,416 Assets held for sale 63
171 Other assets 479 459
Total
assets $ 28,993 $ 29,201
Current liabilities: Current maturities of long-term
debt $ 108 $ 202 Accounts payable 1,614 2,567 Accrued expenses
779 803 Total current liabilities 2,501
3,572 Long-term debt 1,986 2,292 Other liabilities 25
38
Total liabilities
4,512 5,902 Shareholders'
equity: Common stock, $.01 par value, authorized 20,000,000 shares,
issued 3,462,392 in 2010, 3,453,863 in 2009 35 35
Class B common stock, $.01 par value,
authorized 5,000,000 shares, issued 619,856 in 2010, 628,385 in
2009
6 6 Additional paid-in capital 3,002 2,654 Retained earnings
27,885 26,819 30,928 29,514 Less treasury
stock at cost, 704,668 shares in 2010 and 650,698 in 2009
(6,447 ) (6,215 )
Total shareholders' equity
24,481 23,299 Total
liabilities and shareholders' equity $ 28,993
$ 29,201 MOD-PAC CORP.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited) ($ in thousands)
Nine Months Ended
10/2/2010 10/3/2009 Cash flows from
operating activities: Net Income (loss) $ 1,066 $ (3,246 )
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 2,079 2,531 Provision for doubtful
accounts (29 ) 45 Stock option compensation expense 347 210
Deferred income taxes - (118 ) Net write-down of impaired assets -
1,808 (Gain) Loss on disposal of assets (34 ) 24 Cash flow from
change in operating assets and liabilities: Accounts receivables
(875 ) (752 ) Inventories (1,109 ) 195 Prepaid expenses (230 ) (49
) Other liabilities (13 ) 15 Accounts payable (952 ) (320 ) Accrued
expenses (24 ) 148 Net cash provided by
operating activities $ 226 $ 491
Cash flows from investing activities Proceeds from sale of
assets $ 131 $ 212
Proceeds from the cash surrender value of
officers’ life insurance
- 857 Change in other assets (5 ) (78 ) Capital expenditures
(1,242 ) (841 ) Net cash (used in) provided by
investing activities $ (1,116 ) $ 150
Cash
flows from financing activities Principal payments on long-term
debt $ (400 ) $ (126 ) Deferred financing fees (21 ) - Purchase of
treasury stock (232 ) - Decrease in line of credit -
(400 ) Net cash used in financing activities $ (653 )
$ (526 )
Net (decrease) increase in cash and cash
equivalents (1,543 ) 115 Cash and cash equivalents at
beginning of year 3,780 200
Cash and cash equivalents at end of period $ 2,237
$ 315
MOD-PAC CORP. Reconciliation
between Net Income (Loss) and Adjusted EBITDA
(in thousands)
Three Months Ended Nine
Months Ended 10/2/2010
10/3/2009 10/2/2010
10/3/2009 Net Income (Loss)
$ 1,000 $ 1,011 $ 1,066
$ (3,246 ) Interest 44 63 148 194 Net
(write-up) write-down of impaired assets 0 (367 ) 0 1,808 Gain on
Disposal of Assets Held for Sale 0 104 0 104 Taxes 4 0 19 (118 )
Depreciation and amortization 705 662 2,079 2,531 Stock-based
compensation 65 41 347 210
Adjusted EBITDA $
1,818 $ 1,514 $
3,659 $ 1,483 Adjusted
EBITDA = earnings before interest, asset impairment, taxes,
depreciation and amortization and non-cash option expense.
MOD-PAC CORP. Reconciliation between Net Income (Loss)
and Adjusted Net Income (Loss) (in
thousands)
Three Months Ended Nine Months Ended
10/2/2010 10/3/2009
10/2/2010 10/3/2009
Net Income (Loss) $ 1,000 $
1,011 $ 1,066 $ (3,246 )
Net (write-up) write-down of impaired assets 0 (367 ) 0
1,808 Workforce reduction charges 0 0 0 65 Change in useful life of
assets 0 0 0 40 Other rationalization charges 0 0
0 134 Total one-time charges 0 (367 ) 0
2,047
Adjusted Net Income (Loss) $
1,000 $ 644 $
1,066 $ (1,199 )
MOD-PAC CORP. Reconciliation between Diluted Earnings
(Loss) Per Share and Adjusted Diluted Earnings (Loss) Per Share
(in thousands)
Three Months
Ended Nine Months Ended 10/2/2010
10/3/2009 10/2/2010
10/3/2009 Diluted Earnings (Loss) Per
Share $ 0.28 $ 0.29 $
0.30 $ (0.95 ) Net (write-up)
write-down of impaired assets 0 (0.11 ) 0 0.53 Workforce reduction
charges 0 0 0 0.02 Change in useful life of assets 0 0 0 0.01 Other
rationalization charges 0 0 0
0.04 Total one-time charges 0 (0.11 ) 0 0.60
Adjusted
Diluted Earnings (Loss) Per Share $ 0.28
$ 0.18 $ 0.30
$ (0.35 )
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