MOD-PAC CORP. (NASDAQ: MPAC) (the “Company”), a manufacturer of
custom and stock paperboard packaging and provider of personalized
print products, today announced financial results for its fourth
quarter and year ended December 31, 2011.
In the fourth quarter of 2011, revenue increased $1.8 million,
or 13.7%, to $14.6 million from $12.8 million in the fourth quarter
of 2010. Each of the Company’s product lines contributed to the
revenue growth. Net income was $0.4 million, or $0.12 per diluted
share, compared with $0.2 million, or $0.07 per diluted share, in
the fourth quarter of 2010. The higher net income reflects positive
leverage from higher sales, offset by negative product mix and
continued raw material pricing pressures. The prior year fourth
quarter includes a $178 thousand, or $0.05 per diluted share,
charge for impaired asset write-downs.
Total revenue for 2011 was $56.2 million compared with $48.7
million in 2010, reflecting higher folding carton sales and
improved waste sales due to a recovery in the recycling market. Net
income increased 43.3% to $1.9 million, or $0.55 per diluted share,
in 2011 from $1.3 million, or $0.37 per diluted share, in 2010.
Higher revenue along with productivity and cost reduction
initiatives drove the net income increase.
Daniel G. Keane, President and CEO, commented, “As a result of
our continued implementation of our targeted sales strategy, we
delivered strong performance in 2011. This was primarily led by
growing business from existing customers and increased market-share
gains in our custom folding cartons line.”
Fourth Quarter 2011 Sales Review
- Sales of custom folding cartons were up
17.7% to $10.3 million in the 2011 fourth quarter from $8.7 million
in the prior year fourth quarter, mainly due to business from one
new customer, increased sales to two relatively new customers and
increased waste sales.
- Stock packaging sales increased 4.9%,
or $0.2 million, to $3.5 million in the fourth quarter, primarily
due to improved market conditions.
- Personalized print sales were $660,000
in the fourth quarter of 2011, up slightly from $621,000 in the
fourth quarter of 2010.
David B. Lupp, Chief Operating Officer and Chief Financial
Officer, noted, “We believe our consistent growth in folding
cartons is because we have executed an aggressive sales and
marketing plan to expand our penetration into the marketplace. This
coupled with the implementation of increasing efficiency and
sustainability in every area of our business, has shown through in
our operating performance and margins in 2011. However, in the
fourth quarter, our gross margin was negatively impacted by product
mix and higher raw materials costs. We have been working to offset
these impacts and believe that over time we can achieve greater
leverage on higher sales.”
Fourth Quarter Operating Results
Gross profit for the 2011 fourth quarter was $2.5 million, or
17.2% of total revenue, compared with gross profit of $2.2 million,
or 17.5% of total revenue, in the prior year period. The decrease
in gross margin was primarily attributable to product mix and
increased materials and repairs costs, partially offset by
operational leverage generated by increased product sales.
Selling, general and administrative (SG&A) expense was up
$0.2 million to $1.9 million in the fourth quarter of 2011 compared
with $1.7 million in the prior year period, but as a percent of
total revenue was unchanged both periods at 13.2%. The dollar
increase was a result of investments in the sales force and
increased commissions from folding carton sales.
In the fourth quarter of 2010, the Company recognized a $60
thousand expense for the write-down of impaired assets due to the
Company's rationalization of the specialty print and direct mail
product line and a $118 thousand expense for the write-down of a
software system.
Earnings before interest, asset impairment, taxes, depreciation
and amortization, and non-cash option expense (EBITDA) was $1.4
million in the fourth quarter of 2011 compared with $1.3 million in
the 2010 fourth quarter. The Company believes that, when used in
conjunction with GAAP measures, EBITDA, which is a non-GAAP
measure, helps in the understanding of operating performance. (See
the Reconciliation of Net Income to EBITDA in the attached
table.)
The Company’s effective tax rate for the fourth quarter of 2011
and 2010 was 23.1% and 16.7%, respectively.
2011 Review
Custom folding carton sales in 2011 increased $7.1 million, or
19.9%, to $42.8 million compared with $35.7 million for 2010, as
the Company has successfully won customers and gained additional
business from existing accounts, as well as benefited from higher
waste sales. Stock packaging sales increased $0.5 million, or 5.2%,
to $10.1 million over the corresponding period, while personalized
print sales were down $59 thousand to $2.9 million.
Gross profit increased to $10.3 million, or 18.3% of total
revenue, in 2011 from gross profit of $8.8 million, or 18.0% of
total revenue, in 2010. The improvement in margin was primarily due
to operating leverage and higher margin waste sales, partially
offset by increased materials, repairs and maintenance costs.
SG&A expense was $7.5 million, or 13.3% of total revenue,
compared with $7.1 million, or 14.5% of total revenue, in 2010.
Included in the 2010 results was the previously noted $178
thousand of expense associated with the write-down of impaired
assets.
EBITDA for 2011 was up 27.3% to $6.3 million compared with $4.9
million in 2010. (See the Reconciliation of Net Income to EBITDA in
the attached table.)
Liquidity
Cash and cash equivalents were $3.9 million at December 31,
2011, up from the 2010 year-end balance of $3.4 million. Higher net
income offset increased working capital requirements, particularly
with inventory, higher capital expenditures and the repurchase of
stock. The Company increased inventory to $7.0 million at December
31, 2011, from $5.2 million at 2010 year-end to continue to meet
demand and customer schedules as well as take advantage of
strategic buy-ahead opportunities.
Capital expenditures for 2011 were $2.3 million compared with
$1.8 in 2010. Infrastructure and productivity improvements and
other equipment upgrades made up the bulk of the 2011 expenditures.
Capital expenditures in 2012 are expected to be between $2.8
million to $3.2 million and will primarily be used for production
equipment and enhancements.
The Company did not repurchase shares in the 2011 fourth
quarter. For the full year, a total of 182,539 shares were
repurchased at an average price of $5.53. MOD-PAC has authorization
to repurchase up to 200,000 additional shares.
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 2011.
Outlook
Mr. Keane concluded, “We are continuing to make targeted
investments in our business to further advance our market position
and generate long-term growth in order to increase our
profitability. We remain aggressive on growing sales and continue
to look for opportunities to increase efficiencies and reduce
costs.”
Webcast and Conference Call
MOD-PAC will host a conference call and webcast on Friday,
February 17, 2012 at 11:00 a.m. Eastern Time. During the conference
call and webcast, management will review the financial and
operating results for the period, followed by a question-and-answer
session.
The conference call can be accessed by dialing (201) 689-8562.
The listen-only audio webcast can be monitored at www.modpac.com.
The telephonic replay will be available from 2:00 p.m. ET the
day of the call until Friday, February 24, 2012. To listen to the
archived call, dial (858) 384-5517, and enter conference ID number
386648. Alternatively, the archive of the webcast will be available
on the Company’s website at www.modpac.com. A transcript will also
be posted to the 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.
MOD-PAC CORP.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited) (in thousands except per
share data)
Three months ended Year ended
12/31/2011 12/31/2010 12/31/2011
12/31/2010 Revenue Product sales $ 14,446 $ 12,697 $ 55,777
$ 48,232 Rent 113 107 448
489 Total Revenue 14,559 12,804 56,225
48,721 Cost of products sold 12,053
10,559 45,943 39,964
Gross profit 2,506 2,245 10,282 8,757 Gross profit margin 17.2 %
17.5 % 18.3 % 18.0 % Selling, general and administrative expense
1,927 1,694 7,488 7,056 Net write-down (write-up) of impaired
assets -- 178 --
178 Income (Loss) from operations 579 373
2,794 1,523 Operating margin 4.0 % 2.9 % 5.0 % 3.1 % Interest
expense, net 47 47 192 195 Other (expense) income 1
(38 ) 146 45
Income (Loss) before taxes 533 288 2,748 1,373 Income tax expense
(benefit) 123 48 877
67
Net income (loss) $
410 $ 240 $
1,871 $ 1,306
Basic income (loss) per share: $ 0.13 $ 0.07 $ 0.57 $ 0.38 Diluted
income (loss) per share: $ 0.12 $ 0.07 $ 0.55 $ 0.37
Weighted average diluted shares outstanding 3,337 3,497 3,416 3,544
MOD-PAC CORP.
PRODUCT LINE
REVENUE DATA
(Unaudited) ($, in thousands)
Three
Months Ended % Twelve Months Ended
% 2011 % of 12/31/2011
12/31/2010 change 12/31/2011
12/31/2010 change Total
FOLDING CARTONS Custom folding cartons $
10,295 $ 8,747 17.7 % $ 42,822 $ 35,713 19.9 % 76.8 % Stock
packaging 3,491 3,329 4.9 %
10,077 9,582 5.2 % 18.1 %
Folding cartons
subtotal 13,786 12,076 14.2 %
52,899 45,295 16.8 % 94.9
% PERSONALIZED PRINT 660
621 6.3 % 2,878
2,937 -2.0 % 5.1
% Total product revenue $ 14,446
$ 12,697 13.8 % $
55,777 $ 48,232 15.6
% 100.0 % MOD-PAC CORP.
CONSOLIDATED
BALANCE SHEETS
(dollars in thousands) (Unaudited)
December
31, December 31, 2011 2010 Current assets:
Cash and cash equivalents $ 3,900 $ 3,440 Accounts receivable 5,400
5,003 Allowance for doubtful accounts (20 ) (96 ) Net
accounts receivable 5,380 4,907 Inventories 7,023 5,234 Refundable
income taxes 219 - Prepaid expenses 506 440
Total current assets 17,028 14,021 Property, plant
and equipment, at cost: Land 1,192 1,170 Buildings and equipment
12,789 12,460 Machinery and equipment 50,566 48,697 Construction in
progress 168 56 64,715 62,383 Less
accumulated depreciation (51,065 ) (48,114 ) Net
property, plant and equipment 13,650 14,269 Other assets 466
487
Total assets $ 31,144
$ 28,777 Current liabilities:
Current maturities of long-term debt $ 89 $ 110 Accounts payable
2,151 1,302 Accrued expenses 1,171 939 Income taxes payable
- 40 Total current liabilities 3,411 2,391
Long-term debt 1,820 1,958 Other liabilities 27 24 Deferred
income taxes 87 6
Total
liabilities 5,345 4,379
Shareholders' equity:
Common stock, $.01 par value, authorized
20,000,000 shares, issued 3,623,945 in 2011, 3,549,017 in 2010
36 35
Class B common stock, $.01 par value,
authorized 5,000,000 shares, issued 582,493 in 2011, 616,472 in
2010
6 6 Additional paid-in capital 3,771 3,232 Retained earnings
29,996 28,125 33,809 31,398 Less treasury
stock at cost, 998,809 shares in 2011 and 816,270 in 2010
(8,010 ) (7,000 )
Total shareholders' equity
25,799 24,398 Total
liabilities and shareholders' equity $ 31,144
$ 28,777 MOD-PAC CORP.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited) ($ in thousands) (Unaudited)
Year Ended
December 31, December 31, 2011
2010 Cash flows from operating activities: Net income
$ 1,871 $ 1,306 Adjustments to reconcile net loss to net cash
provided by operating activities: Depreciation and amortization
2,965 2,792 Adjustment to provision for doubtful accounts (13 ) (33
) Stock option compensation expense 379 399 Deferred income taxes
81 6 Net write-down of impaired assets - 178 (Gain) Loss on
disposal of assets (49 ) 12 Cash flows from changes in operating
assets and liabilities Accounts receivable (460 ) (53 ) Inventories
(1,789 ) (976 ) Prepaid expenses (66 ) (143 ) Other liabilities 3
(14 ) Accounts payable 850 (1,266 ) (Refundable) Payable income
taxes (259 ) 40 Accrued expenses 232 136
Net cash provided by operating activities
3,745 2,384
Cash flows from investing activities: Proceeds from the sale
of assets 49 134 Change in other assets (7 ) (16 ) Capital
expenditures (2,332 ) (1,789 )
Net cash
used in investing activities (2,276 )
(1,671 ) Cash flows from financing
activities: Principal payments on long-term debt and capital
leases (159 ) (426 ) Proceeds from issuance of stock 160 179
Purchase of treasury stock (1,010 ) (785 ) Deferred financing fees
- (21 )
Net cash used in financing
activities (1,009 ) (1,053
) Net change in cash and cash equivalents
460
(340 ) Cash and cash equivalents at beginning of year
3,440
3,780
Cash and cash equivalents at end of
period
$
3,900
$ 3,440 MOD-PAC CORP.
Reconciliation between Net Income and EBITDA
(in thousands)
Three Months Ended Year
Ended
12/31/2011
12/31/2010
12/31/2011
12/31/2010
Net Income $ 410 $ 240
$ 1,871 $ 1,306 Interest 47 47
192 195 Net write-down of impaired assets 0 178 0 178 Taxes 123 48
877 67 Depreciation and amortization 770 713 2,965 2,792
Stock-based compensation 42 52 379 399
EBITDA $
1,392 $ 1,278 $
6,284 $ 4,937
EBITDA is defined as consolidated net income
before interest expense, asset impairment, income taxes,
depreciation and amortization and option expense. 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 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 EBITDA is a non-GAAP
measure and is thus susceptible to varying calculations, EBITDA, as
presented, may not be directly comparable to other similarly titled
measures used by other companies.
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