MOD-PAC CORP. (NASDAQ: MPAC), (the “Company”) a manufacturer of
custom paper board packaging and provider of personalized print
products, today reported its results for the three and six months
ended July 2, 2011.
In the second quarter of 2011, revenue increased by 16.3% to
$13.4 million compared with revenue of $11.5 million in the second
quarter of 2010, which ended July 3, 2010.
Net income for the second quarter of 2011 was $479,000, or $0.14
per diluted share, compared with net income of $46,000, or $0.01
per diluted share, in the second quarter of 2010. The improvement
in net income was the result of 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, “Our continued growth in sales and strengthening margins
were the direct result of our many initiatives to expand our top
line by deepening relationships with existing customers, winning
new business, and improvements to our operating efficiency through
productivity enhancements.”
Second-Quarter Sales Review: Custom Folding Carton Sales up
19.9%;Stock Packaging Sales Build on Improved Market
Conditions
- Sales of folding cartons, which include
custom folding cartons and stock packaging, were $12.5 million in
the second quarter of 2011, up 18.6% from $10.5 million in the
second quarter of 2010.
- For the second consecutive quarter,
custom folding carton sales reached a record, advancing to $10.8
million in the second quarter of 2011, up 19.9% from $9.0 million
in the second quarter of 2010, mainly due to increased business
from several large existing customers, business from three new
customers, and increased waste sales due to improved market
conditions, offset partially by decreased business with several
existing customers.
- Stock packaging sales of $1.7 million
in the second quarter of 2011 were up 10.7% from $1.5 million in
the second quarter of 2010. Improved market conditions had a
favorable impact on the stock packaging line.
- Personalized print sales were $796,000
in the second quarter of 2011, down 7.0% from $856,000 in the
second quarter of 2010, primarily due to continued weakness in this
market.
David B. Lupp, Chief Operating Officer and Chief Financial
Officer, noted, “We continue to focus on ways to grow our top line,
and we have invested in the expansion of our sales and marketing
efforts. Those activities, together with improved economic
conditions and our longstanding growth initiatives, helped us
generate our second consecutive quarter of record custom folding
carton sales.”
Operating Leverage Demonstrated in Margin Expansion
Gross profit increased 36.8% to $2.70 million in the second
quarter of 2011, compared with $1.97 million in the 2010 second
quarter. Gross margin improved 310 basis points to 20.2% in the
second quarter of 2011, compared with 17.1% in the second quarter
of 2010. The increase in gross profit and margin was primarily
attributable to operational leverage generated by increased product
sales, favorable product mix, an increase in waste revenue due to
improved market conditions, and decreased rental expense, offset
partially by increased repairs expense, raw material cost, and
supplies costs.
Selling, general and administrative (SG&A) expenses were
$1.95 million, or 14.5% of revenue, in the second quarter of 2011,
compared with $1.88 million, or 16.3% of revenue, in the second
quarter of 2010. The slight increase in SG&A expense was
primarily driven by higher employee-related costs, offset partially
by lower costs for professional services. Disciplined cost
management has kept SG&A growth well below the rate of growth
in sales.
Adjusted earnings before interest, taxes, depreciation,
amortization, and non-cash option expense (Adjusted EBITDA) was
$1.66 million in the second quarter of 2011, compared with $935,000
in the second 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 second quarter of 2011
was 35.4%. The effective tax rate for the three months ended July
3, 2010 was 8.0% as a result of federal and state minimum
taxes.
First Half 2011 Review
Total revenue for the first half of 2011 was $27.31 million, a
16.0% increase from $23.5 million in the first six months of 2010.
Sales of custom folding cartons were $21.3 million in the first
half of 2011, up 20.4% compared with $17.7 million in the
prior-year period, mainly due to increased business from several
large existing customers, business from three new customers, and
increased waste sales due to improved market conditions, offset
partially by decreased business with several existing customers.
Stock packaging sales rose 6.8% to $4.27 million in the first six
months of 2011, primarily due to improved market conditions, while
personalized print sales were down 4.2% to $1.49 million on
continued weakness in this market.
Gross profit in the first six months of 2011 was $4.95 million,
up 31.3% from $3.77 million in the prior-year period. The gross
profit margin improved to 18.1% in the first half of 2011 from
16.0% in the corresponding 2010 period, primarily a result of the
operating leverage gained from productivity and efficiency
improvements.
SG&A expense was $3.77 million in the first half of 2011, or
13.8% of total revenue, compared with $3.66 million in the first
half of 2010, or 15.5% of total revenue.
Adjusted EBITDA for the first six months of 2011 was $3.05
million, compared with $1.84 million in the prior-year period. (See
the Reconciliation of Net Income to Adjusted EBITDA in the attached
table.)
Strong Balance Sheet and Liquidity
Cash and cash equivalents were $3.4 million at the end of the
second quarter, unchanged from December 31, 2010.
Capital expenditures, which were focused on productivity and
infrastructure improvements and equipment upgrades, were $0.6
million in the 2011 second quarter. MOD-PAC expects capital
expenditures in 2011 will be approximately $2.0 million to $2.5
million, an increase from its earlier range of $1.5 million to $2.0
million, as the Company continues to invest in productivity and
efficiency upgrades. Depreciation and amortization in the second
quarters of 2011 and 2010 was $0.7 million.
Under its current share repurchase program authorized in May
2011, the Company can purchase up to 200,000 shares. It has made no
purchases under the current plan or in the first half of 2011.
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, “We have stepped up our sales and marketing
activities over the last year and are focused on growing our custom
folding carton line which is the core of our business. We believe
because of our specialized expertise at short-run and highly
variable print, we can grow at twice the industry average. Stronger
sales, leveraged against lower costs and operational improvements,
have produced the margin and profitability gains that we have
generated during the last two years. Looking ahead, we are
confident that we can continue to grow our business by targeting
customers that value our quality, speed, and value-based
pricing.”
Webcast and Conference Call
The release of the financial results will be followed today by a
company-hosted teleconference at 10:30 a.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.
- 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
(858) 384-5517, and entering replay pin number 375498. The
telephonic replay will be available from 1:30 p.m. ET the day of
the teleconference until 11:59 p.m. ET on August 10, 2011.
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.
FINANCIAL TABLES FOLLOW.
MOD-PAC CORP.
CONSOLIDATED
INCOME STATEMENT DATA
(Unaudited)
(in thousands except per share
data)
Three months ended Six months ended
7/2/2011 7/3/2010
7/2/2011 7/3/2010
Revenue Product sales $ 13,281 $ 11,384 $ 27,082 $ 23,268
Rent 114 137 224
269 Total Revenue 13,395 11,521
27,306 23,537 Cost of products sold 10,694
9,547 22,358
19,768 Gross profit 2,701 1,974 4,948 3,769 Gross
profit margin 20.2 % 17.1 % 18.1 % 16.0 % Selling, general and
administrative expense 1,948
1,880 3,771 3,657
Income from operations 753 94 1,177 112 Operating margin 5.6 % 0.8
% 4.3 % 0.5 % Interest expense, net 48 52 97 104 Other income
(36 ) (8 ) (145 )
(72 ) Income before taxes 741 50 1,225 80 Income tax expense
262 4 389
14
Net income $
479 $ 46 $
836 $ 66
Basic income per share: $ 0.14 $ 0.01 $ 0.25 $ 0.02 Diluted income
per share: $ 0.14 $ 0.01 $ 0.24 $ 0.02 Weighted average
diluted shares outstanding 3,482 3,575 3,468 3,575
MOD-PAC CORP. PRODUCT LINE REVENUE DATA (Unaudited)
($, in thousands)
Three Months Ended
% Six Months Ended %
2011 YTD % of
7/2/2011 7/3/2010
change 7/2/2011
7/3/2010 change
Total
FOLDING CARTONS Custom folding cartons $
10,833 $ 9,036 19.9 % $ 21,322 $ 17,715 20.4 % 78.7 % Stock
packaging 1,652 1,492
10.7 % 4,267 3,994 6.8 %
15.8 %
Folding cartons subtotal 12,485 10,528
18.6 % 25,589 21,709 17.9
% 94.5 % PERSONALIZED PRINT
796
856
-7.0 % 1,493
1,559 -4.2 %
5.5 % Total product revenue $
13,281 $ 11,384
16.7 % $ 27,082 $
23,268 16.4 % 100.0
%
MOD-PAC CORP.
CONSOLIDATED
BALANCE SHEET
(in thousands, except share data)
(Unaudited)
July 2,
2011 Dec 31, 2010 Current assets: Cash and cash
equivalents $ 3,438 $ 3,440 Accounts receivable 5,677 5,003
Allowance for doubtful accounts (62 ) (96 ) Net
accounts receivable 5,615 4,907 Refundable income taxes 82
Inventories 6,063 5,234 Prepaid expenses 469 440
Total current assets 15,667 14,021 Property, plant and
equipment, at cost: Land 1,170 1,170 Buildings and equipment 12,460
12,460 Machinery and equipment 49,103 48,697 Construction in
progress 612 56 63,345 62,383 Less accumulated
depreciation (49,563 ) (48,114 ) Net property, plant
and equipment 13,782 14,269 Other assets 472
487
Totals assets $ 29,921 $
28,777 Current liabilities: Current maturities of
long-term debt $ 91 $ 110 Accounts payable 1,599 1,302 Accrued
expenses 781 939 Income taxes payable - 40 Total
current liabilities 2,471 2,391 Long-term debt 1,863 1,958
Other liabilities 26 24 Deferred income taxes 48 6
Total liabilities 4,408 4,379
Shareholders' equity: Common stock, $.01 par value,
authorized 20,000,000 shares, issued 3,561,521 in 2011, 3,549,017
in 2010 36 35 Class B common stock, $.01 par value, authorized
5,000,000 shares, issued 607,568 in 2011, 616,472 in 2010 6 6
Additional paid-in capital 3,510 3,232 Retained earnings 28,961
28,125 Treasury stock at cost, 816,270 shares in 2011 and 2010
(7,000 ) (7,000 )
Total shareholders' equity
25,513 24,398 Total liabilities and
shareholders' equity $ 29,921 $
28,777
MOD-PAC CORP.
CONSOLIDATED
STATEMENT OF CASH FLOWS
(dollars in thousands)
(Unaudited)
Six Months Ended
July 2, 2011 July 3, 2010 Cash flows
from operating activities: Net income $ 836 $ 66 Adjustments to
reconcile net income to net cash used in operating activities:
Depreciation and amortization 1,454 1,374 Provision for doubtful
accounts (11 ) (34 ) Stock option compensation expense 271 282
Deferred income taxes 42 - Gain on disposal of assets (49 ) (33 )
Cash flows from changes in operating assets and liabilities:
Accounts receivable (697 ) (162 ) Inventories (828 ) 10 Prepaid
expenses (29 ) (321 ) Other liabilities 2 (12 ) Accounts payable
299 (638 )
Refundable income taxes
(122 ) - Accrued expenses (158 ) (212 )
Net cash provided by operating
activities
1,010 320 Cash flows from investing
activities: Proceeds from the sale of assets 49 131 Change in other
assets 9 (5 ) Capital expenditures (962 ) (965 )
Net cash used in investing activities (904 )
(839 ) Cash flows from financing activities: Principal
payments on long-term debt (114 ) (371 )
Proceeds from the issuance of stock
6 - Deferred financing costs -
(17 ) Net cash used in financing activities (108 )
(388 ) Net decrease in cash and cash
equivalents (2 ) (907 ) Cash and cash equivalents at
beginning of year 3,440 3,780 Cash and cash
equivalents at end of period $ 3,438 $ 2,873
MOD-PAC
CORP. Reconciliation between GAAP Net Income and Adjusted
EBITDA (in
thousands)
Three Months Ended Six Months Ended
7/2/2011
7/3/2010
7/2/2011
7/3/2010
GAAP Net Income $ 479 $ 46 $ 836
$ 66 Interest 48 52 97 104 Taxes 262 4 389 14
Depreciation and amortization 730 686 1,454 1,374 Stock-based
compensation 137 147 271 282
Adjusted
EBITDA $ 1,656 $ 935
$ 3,047 $ 1,840 Adjusted
EBITDA = earnings before interest, taxes, depreciation and
amortization and non-cash option expense.
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