MOD-PAC CORP. (NASDAQ: MPAC), (the “Company”) a manufacturer of
custom paper board packaging and provider of personalized print
products, today reported revenue of $13.9 million for the first
quarter of 2011, which ended April 2, 2011, an increase of 15.8%,
compared with revenue of $12.0 million in the first quarter of
2010, which ended April 3, 2010.
Net income for the first quarter of 2011 was $357,000, or $0.10
per diluted share, compared with net income of $20,000, or $0.01
per diluted share, in the first quarter of 2010. The improvement in
net income reflects increased product sales leveraged against a
lower cost structure and ongoing productivity enhancements and
efficiency gains.
Mr. Daniel G. Keane, President and CEO of MOD-PAC CORP,
commented, “Led by our market-share gains in custom folding cartons
and continued improvement in our stock packaging business line, we
delivered a solidly profitable quarter. Our sustained profitability
is clear evidence that our many initiatives to restructure and
refocus our business platform, together with an improving economy,
firmly puts us on the path to achieve our long-term growth and
profitability goals.”
First Quarter Sales Review: Strong Custom Folding Carton
Sales,
Stock Packaging Sales Continue Strengthening
- Sales of folding cartons, which include
custom folding cartons and stock packaging, were $13.1 million in
the first quarter of 2011, up 17.2% from $11.2 million in the first
quarter of 2010.
- Custom folding carton sales in the
first quarter of 2011 reached a record $10.5 million, up 20.9% from
$8.7 million in the first quarter of 2010, as the Company
experienced increased activity levels with several large existing
customers, while also winning business from one new large
account.
- Stock packaging sales of $2.6 million
in the first quarter of 2011 were up 4.5% from $2.5 million in the
first quarter of 2010. Improved market conditions had a favorable
impact on the stock packaging line.
- Personalized print sales were $697,000
in the first quarter of 2011, essentially flat with $703,000 in the
first quarter of 2010, mainly due to continued weakness in general
business conditions.
David B. Lupp, Chief Operating Officer and Chief Financial
Officer, noted, “We continue to focus resources on growing our
custom folding carton product line, and our sales and marketing
efforts have begun to gain traction, momentum that we believe is
sustainable as we move through the balance of the year. Leveraged
against higher sales, our lower cost structure allowed us to
generate significant margin improvements in the quarter.”
First Quarter Operating Results
Gross profit increased 25.1% to $2.25 million in the first
quarter of 2011 compared with $1.80 million in the 2010 first
quarter. Gross margin improved 130 basis points to 16.2% in the
first quarter of 2011, compared with 14.9% in the first quarter of
2010. The increase in gross profit and margin was primarily
attributable to operational leverage generated by increased product
sales and graphics billings, favorable product mix, and an increase
in waste revenue, offset partially by increased repairs expense and
pricing pressures.
Selling, general and administrative (SG&A) expenses were
$1.82 million, or 13.1% of revenue, in the first quarter of 2011,
compared with $1.78 million, or 14.8% of revenue, in the first
quarter of 2010. The slight increase in SG&A expense was
primarily driven by higher employee-related costs, offset partially
by lower professional service costs.
Adjusted earnings before interest, taxes, depreciation,
amortization, and non-cash option expense (Adjusted EBITDA) was
$1.39 million in the first quarter of 2011, compared with $906,000
in the first quarter of 2010. 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 to Adjusted
EBITDA in the attached table.)
The Company’s effective tax rate for the first quarter of 2011
was 26.2%. Tax expense for the three months ended April 2, 2011 was
recorded at a rate lower than customary mainly due to alternative
minimum tax credits.
Liquidity
Cash and cash equivalents were $2.6 million at the end of the
first quarter compared with $3.4 million at December 31, 2010. The
decrease in cash and cash equivalents during the first three months
of 2011 was primarily the result of capital expenditures, loan
repayments and an increase in working capital requirements,
including forward purchasing of inventory.
Capital expenditures, which were focused on productivity and
infrastructure improvements and equipment upgrades, were $0.3
million in the 2011 first quarter, relatively unchanged from the
prior year period. MOD-PAC expects capital expenditures in 2011 to
be approximately $1.5 million to $2.0 million. Depreciation and
amortization for the first three months of 2011 and 2010 was $0.7
million.
MOD-PAC has a $3.0 million secured line of credit of which $0.2
million was in use through a standby letter of credit and there was
no balance drawn on the line at the end of the quarter.
Outlook
Mr. Keane concluded, "Our vision is to be a North American
leader in innovating and delivering packaging solutions and
personalized print. We plan to use the strength of our balance
sheet and our refocused operating platform to build on the momentum
we have created in order to continue to grow our core product line
and generate progressively stronger results. Over the long-term,
our goals are to continue to grow custom folding carton revenue at
more than twice the pace of the industry, generate industry leading
operating margins, and maintain state-of the art production
facilities while generating strong free cash flow with little to no
debt.”
Webcast and Conference Call
The release of the financial results will be followed today by a
company-hosted teleconference at 1:30 p.m. 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 news 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.
MOD-PAC CORP. CONSOLIDATED INCOME STATEMENT
DATA (unaudited) (in thousands except per
share data)
Three months ended 4/2/2011
4/3/2010 Revenue Product sales $ 13,801 $ 11,884 Rent
110 132 Total revenue 13,911 12,016
Cost of products sold 11,664 10,220
Gross profit 2,247 1,796 Gross profit margin 16.2 % 14.9 %
Selling, general and administrative expense 1,823
1,777 Income from operations 424 19 Operating
profit margin 3.0 % 0.2 % Interest expense 49 53 Other income
(109 ) (64 ) Income before taxes 484 30 Income
tax expense 127 10
Net
income $ 357 $ 20
Basic earnings per share: $ 0.11 $ 0.01 Diluted
earnings per share: $ 0.10 $ 0.01 Weighted average diluted
shares outstanding 3,454 3,575
MOD-PAC
CORP. PRODUCT LINE REVENUE DATA (unaudited) ($, in
thousands)
Three Months Ended %
2011 YTD 4/2/2011 4/3/2010
change % of Total FOLDING CARTONS
Custom folding cartons $ 10,489 $ 8,679 20.9 % 76.0 % Stock
packaging 2,615 2,502 4.5 % 18.9 %
Folding cartons subtotal 13,104 11,181
17.2 % 94.9 % PRINT
SERVICES Personalized 697 703 -0.9 % 5.1 %
Total product revenue $
13,801 $ 11,884 16.1
% 100.0 %
MOD-PAC CORP.CONSOLIDATED BALANCE SHEET
(in thousands, except share data) (Unaudited)
April 2, 2011
December 31, 2010
Current assets: Cash and cash equivalents $ 2,595 $ 3,440
Accounts receivable 5,924 5,003 Allowance for doubtful accounts
(93 ) (96 ) Net accounts receivable 5,831 4,907
Inventories 7,062 5,234 Prepaid expenses 546
440 Total current assets 16,034 14,021 Property,
plant and equipment, at cost: Land 1,170 1,170 Buildings and
equipment 12,460 12,460 Machinery and equipment 48,875 48,697
Construction in progress 198 56 62,703
62,383 Less accumulated depreciation (48,835 )
(48,114 ) Net property, plant and equipment 13,868 14,269 Other
assets 484 487
Totals assets
$ 30,386 $ 28,777
Current liabilities: Current maturities of long-term debt $ 89 $
110 Accounts payable 2,877 1,302 Accrued expenses 463 939 Income
taxes payable 102 40
Total current liabilities
3,531 2,391 Long-term debt 1,887 1,958 Other liabilities 24
24 Deferred income taxes 54 6
Total
liabilities 5,496 4,379
Shareholders' equity:
Common stock, $.01 par value, authorized
20,000,000 shares, issued 3,555,625 in 2011, 3,549,017 in 2010
36 35
Class B common stock, $.01 par value,
authorized 5,000,000 shares, issued 609,864 in 2011, 616,472 in
2010
6 6 Additional paid-in capital 3,366 3,232 Retained earnings 28,482
28,125 Treasury stock at cost, 816,270 shares in 2011 and 2010
(7,000 ) (7,000 )
Total shareholders' equity
24,890 24,398
Total liabilities and shareholders' equity $
30,386 $ 28,777
MOD-PAC CORP.CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands) (Unaudited)
Three Months Ended
April 2, 2011
April 3, 2010
Cash flows from operating activities: Net income $ 357 $ 20
Adjustments to reconcile net income to net cash used in operating
activities: Depreciation and amortization 724 688 Provision for
doubtful accounts - (26 ) Stock option compensation expense 134 135
Deferred income taxes 47 - Gain on disposal of assets (13 ) (38 )
Cash flows from changes in operating assets and liabilities:
Accounts receivable (923 ) 172 Inventories (1,828 ) 168 Prepaid
expenses (106 ) (347 ) Other liabilities - (3 ) Accounts payable
1,575 (652 ) Income taxes payable 63 - Accrued expenses (476
) (272 ) Net cash used in operating activities
(446 ) (155 ) Cash flows from investing activities:
Proceeds from the sale of assets 13 123 Change in other assets - (5
) Capital expenditures (320 ) (263 ) Net cash
used in investing activities (307 ) (145 )
Cash flows from financing activities: Principal payments on
long-term debt (92 ) (150 ) Increase in restricted cash -
(225 ) Net cash used in financing activities
(92 ) (375 ) Net decrease in cash and cash
equivalents (845 ) (675 ) Cash and cash equivalents at
beginning of year 3,440 3,780
Cash and cash equivalents at end of period $ 2,595 $ 3,105
MOD-PAC CORP.
Reconciliation
between GAAP Net Income and Adjusted EBITDA
(in thousands)
Three Months Ended
4/2/2011 4/3/2010
GAAP Net Income $357 $20 Interest 49 53
Taxes 127 10 Depreciation and amortization 724 688 Stock-based
compensation 134 135
Adjusted EBITDA $1,391
$906
Adjusted EBITDA = earnings before
interest, taxes, depreciation and amortization, and non-cash stock
option expense.
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