MOD-PAC CORP. (NASDAQ: MPAC), a manufacturer of custom paper
board packaging and provider of personalized print products, today
reported its results for the three and nine months ended October 1,
2011.
In the third quarter of 2011, revenue increased by 16.0% to
$14.4 million compared with revenue of $12.4 million in the third
quarter of 2010.
Net income for the third quarter of 2011 was $0.6 million, or
$0.18 per diluted share, compared with $1.0 million, or $0.28 per
diluted share, in the third quarter of 2010. The change in net
income was the result of both higher raw material costs that
impacted the Company’s gross margin and a lower effective tax rate
in the 2010 third quarter due to the utilization of available net
operating loss carry-forward for which a valuation allowance was
previously recorded.
Daniel G. Keane, President and CEO of MOD-PAC CORP., commented,
“Our sales and marketing efforts are making solid strides in
capturing market share. Customers are seeing the value in our
focus, expertise, and flexibility. We see further opportunity in
the custom folding carton market, where we have now recorded three
straight quarterly sales records, and we believe we are well
positioned for continued success going forward.”
Third-Quarter Sales Review: Custom Folding Carton Sales up
21.1%; Stock Packaging Sales Build on Improved Market
Conditions
- Sales of folding cartons were $11.2
million in the third quarter of 2011, up 21.1% from $9.3 million in
the third quarter of 2010, mainly due to increased business from
several large existing customers, business from two new customers,
and increased waste sales due to improved market conditions,
partially offset by decreased business with some existing
customers.
- Stock packaging sales were $2.3 million
in the third quarter of 2011, up 2.7% from the third quarter of
2010, primarily due to improved market conditions.
- Personalized print sales were $725,000
in the third quarter of 2011, down 4.2% from $757,000 in the third
quarter of 2010, primarily due to continued weakness in this
market.
David B. Lupp, Chief Operating Officer and Chief Financial
Officer, noted, “We believe our consistent growth in folding
cartons is because we have executed well on a very targeted sales
and marketing plan to expand our penetration into the private-label
industry where our flexibility with change outs and short runs are
highly valued by our customers. The effort has increased our
exposure, and therefore our opportunity, among the many prospects
in this marketplace. We are also targeting other product
manufacturers that have a wide variety of customers and products
that would also benefit from our capabilities.”
Margins Negatively Impacted by Raw Material Costs
Gross profit increased 3.1% to $2.83 million in the third
quarter of 2011, compared with $2.74 million in the 2010 third
quarter. Third quarter 2011 gross margin decreased 240 basis points
to 19.7% from the prior-year period. The decrease in gross margin
was primarily attributable to increased paperboard, repairs, and
supplies costs, partially offset by operational leverage generated
by increased product sales.
Mr. Lupp noted, “We have implemented efficient and sustainable
improvements in every area of our business, which are demonstrated
in our strong operating performance. A combination of product mix
and increased material costs affected margins; however, we believe
we have been successful in somewhat limiting the impact of rising
costs and believe margins can still benefit from the leverage of
increased sales.”
Selling, general and administrative (SG&A) expenses were
$1.79 million, or 12.5% of revenue, in the third quarter of 2011,
compared with $1.71 million, or 13.8% of revenue, in the third
quarter of 2010. The slight increase in SG&A expense was
primarily driven by higher selling commissions. 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
$1.85 million in the third quarter of 2011 compared with $1.82
million in the third 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 third quarter of 2011
was 36.9%. The effective tax rate for the three months ended Oct 2,
2010 was 0.4% due to the use of the available net operating loss
carry-forward credits previously mentioned, for which a valuation
allowance was recorded.
Year to Date 2011 Review
Total revenue for the first nine months of 2011 was $41.7
million, a 16.0% increase from $35.9 million in the first nine
months of 2010. Sales of custom folding cartons were $32.5 million
in the first nine months of 2011, up $5.6 million, or 20.6%, from
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, partially offset by decreased business with some
existing customers. Stock packaging sales rose 5.3% to $6.6 million
in the first nine months of 2011, primarily due to improved market
conditions, while personalized print sales were down 4.2% to $2.2
million on continued weakness in this market.
Gross profit in the first nine months of 2011 was $7.8 million,
up 19.4% from $6.5 million in the prior-year period. The gross
profit margin improved 60 basis points to 18.7% in the first nine
months of 2011 from the corresponding 2010 period, primarily a
result of the operating leverage generated by increased product
sales.
SG&A expense was $5.6 million in the first nine months of
2011, or 13.3% of total revenue, compared with $5.4 million, or
14.9% of total revenue in the prior year period.
Adjusted EBITDA increased $1.2 million, or 33.8%, to $4.9
million for the first nine months of 2011 compared with $3.7
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 $2.2 million at the end of the
third quarter, down from $3.4 million in December 31, 2010. Higher
net income helped to offset higher capital expenditures, increased
working capital requirements, particularly with inventory, and the
repurchase of stock, which resulted in reduced cash balances.
Capital expenditures for the first nine months of 2011 were $1.9
million compared with $1.2 million last year. Infrastructure and
productivity improvements and equipment upgrade investments made up
the bulk of the year-to-date 2011 expenditures. MOD-PAC expects
capital expenditures in 2011 will be approximately $2.0 million to
$2.5 million. Depreciation and amortization for the first nine
months of 2011 and 2010 were $2.2 million and $2.1 million,
respectively.
The Company repurchased 182,539 shares in the third quarter of
2011 at an average price of $5.53. MOD-PAC has authorization to
repurchase 200,000 shares as of October 1, 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, “Our innovative methods, leveraged with our
cost-efficient manufacturing process, have us well-prepared to
capture further market share in our core businesses. Our goal is to
grow this product line at a rate greater than the industry as a
whole, which tends to reflect the trends of GDP.”
Webcast and Conference Call
The release of the financial results will be followed today by a
company-hosted conference call and webcast at 4:30 p.m. ET, in
which management will review the financial and operating results
for the period. A question-and-answer session will follow.
The MOD-PAC CORP. conference call can be accessed by dialing
(201) 689-8562. 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 380573. The telephonic
replay will be available from 7:30 p.m. ET the day of the call
until 11:59 p.m. ET on Wednesday, November 9, 2011. A transcript
will also be posted to the Company’s website, 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 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 Nine months
ended 10/1/2011
10/2/2010 10/1/2011
10/2/2010 Revenue Product sales $ 14,249 $
12,267 $ 41,331 $ 35,535 Rent 111 113
335 382 Total Revenue
14,360 12,380 41,666 35,917 Cost of products sold 11,532
9,638 33,890
29,405 Gross profit 2,828 2,742 7,776 6,512
Gross profit margin
19.7%
22.1%
18.7%
18.1%
Selling, general and administrative expense 1,790
1,705 5,561 5,362
Income from operations 1,038 1,037 2,215 1,150 Operating
margin
7.2%
8.4%
5.3%
3.2%
Interest expense, net 48 44 145 148 Other income 0
(11 ) (145 ) (83 ) Income before
taxes 990 1,004 2,215 1,085 Income tax expense 365
4 754 19
Net income $ 625 $
1,000 $ 1,461 $
1,066 Basic income per share: $ 0.19 $ 0.29 $
0.44 $ 0.31 Diluted income per share: $ 0.18 $ 0.28 $ 0.42 $ 0.30
Weighted average diluted shares outstanding 3,392 3,529
3,442 3,559
MOD-PAC CORP.
PRODUCT LINE
REVENUE DATA
(Unaudited) ($, in thousands)
Three Months Ended
% Nine Months Ended % 2011 YTD %
of 10/1/2011
10/2/2010 change
10/1/2011 10/2/2010
change Total FOLDING CARTONS
Custom folding cartons $ 11,205 $ 9,251
21.1 % $ 32,527
$ 26,966
20.6 % 78.7 % Stock packaging 2,319
2,259 2.7 % 6,586 6,253
5.3 % 15.9 %
Folding cartons subtotal 13,524
11,510 17.5 % 39,113 33,219
17.7 % 94.6 % PERSONALIZED
PRINT 725 757
-4.2 % 2,218
2,316 -4.2 % 5.4 %
Total product revenue $ 14,249
$ 12,267 16.2 % $
41,331 $ 35,535
16.3 % 100.0 %
MOD-PAC CORP.
CONSOLIDATED
BALANCE SHEET
(in thousands, except share data) (Unaudited)
October 1,
December 31,
2011
2010
Current assets: Cash and cash equivalents $ 2,207 $ 3,440
Accounts receivable 6,001 5,003 Allowance for doubtful accounts
(61 ) (96 ) Net accounts receivable 5,940 4,907
Inventories 7,584 5,234 Prepaid expenses 368
440 Total current assets 16,099 14,021 Property, plant and
equipment, at cost: Land 1,170 1,170 Buildings and improvements
12,460 12,460 Machinery and equipment 49,555 48,697 Construction in
progress 1,108 56 64,293 62,383 Less
accumulated depreciation (50,301 ) (48,114 ) Net
property, plant and equipment 13,992 14,269 Other assets 469
487
Total assets $ 30,560
$ 28,777 Current liabilities:
Current maturities of long-term debt $ 91 $ 110 Accounts payable
2,248 1,302 Accrued expenses 1,008 939 Income taxes payable
90 40 Total current liabilities 3,437 2,391
Long-term debt 1,841 1,958 Other liabilities 26 24 Deferred income
taxes 63 6
Total liabilities
5,367 4,379
Shareholders' equity: Common stock, $.01 par value, authorized
20,000,000 shares, issued 3,570,016 in 2011, 3,549,017 in 2010 36
35 Class B common stock, $.01 par value, authorized 5,000,000
shares, issued 599,073 in 2011, 616,472 in 2010 6 6 Additional
paid-in capital 3,575 3,232 Retained earnings 29,586 28,125
Treasury stock at cost, 998,809 shares in 2011 and 816,270 in 2010
(8,010 ) (7,000 )
Total shareholders' equity
25,193 24,398
Total liabilities and shareholders' equity $
30,560 $ 28,777
MOD-PAC CORP.
CONSOLIDATED
STATEMENT OF CASH FLOWS
(in thousands) (Unaudited)
Nine Months
Ended
October 1,
October 2,
2011
2010
Cash flows from operating activities: Net income $ 1,461 $ 1,066
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 2,198 2,079
Provision for doubtful accounts (12 ) (29 ) Stock option
compensation expense 337 347 Deferred income taxes 57 - Gain on
disposal of assets (49 ) (34 ) Cash flows from changes in operating
assets and liabilities: Accounts receivable (1,019 ) (875 )
Inventories (2,350 ) (1,109 ) Prepaid expenses 72 (230 ) Other
liabilities 2 (13 ) Accounts payable 946 (952 ) Income taxes
payable 50 - Accrued expenses 69 (24 ) Net
cash provided by operating activities 1,762
226 Cash flows from investing activities: Proceeds
from the sale of assets 49 131 Change in other assets 8 (5 )
Capital expenditures (1,912 ) (1,242 ) Net cash used
in investing activities (1,855 ) (1,116 ) Cash
flows from financing activities: Principal payments on long-term
debt (136 ) (400 ) Proceeds from the issuance of stock 6 - Purchase
of stock for treasury (1,010 ) (232 ) Deferred financing fees
- (21 ) Net cash used in financing activities
(1,140 ) (653 ) Net decrease in
cash and cash equivalents (1,233 ) (1,543 ) Cash and cash
equivalents at beginning of year 3,440 3,780
Cash and cash equivalents at end of period $ 2,207 $
2,237
MOD-PAC CORP.
Reconciliation
between GAAP Net Income and Adjusted EBITDA
(in thousands)
Three Months Ended Nine Months Ended
10/1/2011 10/2/2010
10/1/2011
10/2/2010 GAAP Net Income
$ 625 $ 1000 $ 1,461
$ 1,066 Interest 48 44 145 148 Taxes 365 4 754
19 Depreciation and amortization 741 705 2,198 2,079 Stock-based
compensation 66 65 337 347
Adjusted
EBITDA $ 1,845 $
1,818 $ 4,895
$ 3,659
Adjusted EBITDA is defined as consolidated net income before
interest expense, income taxes, depreciation and amortization and
option expense. Adjusted EBITDA is not a measure determined in
accordance with generally accepted accounting principles in the
United States, commonly known as GAAP. Nevertheless, MOD-PAC
believes that providing non-GAAP information such as Adjusted
EBITDA is important for investors and other readers of MOD-PAC's
financial statements, as it is used as an analytical indicator by
MOD-PAC's management. Because Adjusted EBITDA is a non-GAAP measure
and is thus susceptible to varying calculations, Adjusted EBITDA,
as presented, may not be directly comparable to other similarly
titled measures used by other companies.
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