Checkpoint Systems, Inc. (NYSE: CKP) today reported financial
results for the second quarter ended June 29, 2008. Net revenues
for the second quarter of 2008 were $236.2 million, an increase of
20.7%, compared to net revenues of $195.7 million in the second
quarter of 2007. Net earnings from continuing operations for the
second quarter were $14.4 million, or $0.36 per diluted share,
compared to net earnings from continuing operations of $14.6
million, or $0.36 per diluted share, in the second quarter of 2007.
Non-GAAP net earnings from continuing operations excluding
restructuring expense and the impact of a change in valuation
allowance for the second quarter of 2008 were $11.6 million, or
$0.29 per diluted share. Non-GAAP net earnings from continuing
operations excluding restructuring expense were $14.8 million, or
$0.36 per diluted share, in the second quarter of 2007. Net
earnings for the second quarter of 2008 were $14.4 million, or
$0.36 per diluted share, compared to net earnings of $15.1 million,
or $0.37 per diluted share, in the second quarter of 2007. Net
revenues for the first six months of 2008 were $445.8 million, an
increase of 21.5%, compared to net revenues of $366.9 million for
the first six months of 2007. Net earnings from continuing
operations for the first six months of 2008 were $19.2 million, or
$0.47 per diluted share, compared to net earnings from continuing
operations of $19.5 million, or $0.48 per diluted share, in the
first six months of 2007. Non-GAAP net earnings from continuing
operations excluding restructuring expense, a deferred compensation
expense adjustment, and a valuation allowance adjustment for the
first six months of 2008 were $18.0 million, or $0.44 per diluted
share. Non-GAAP net earnings from continuing operations excluding
restructuring expense were $20.0 million, or $0.50 per diluted
share, for the first six months of 2007. Net earnings for the first
six months of 2008 were $19.2 million, or $0.47 per diluted share,
compared to net earnings of $20.1 million, or $0.50 per diluted
share, in the first six months of 2007. Net revenues in the second
quarter of 2008 reflected organic growth of 0.8% primarily due to
the CheckNet� business, acquisition growth of 10.3% primarily from
the Alpha, SIDEP and Asialco businesses, and foreign currency
effects of 9.6%. �We are pleased with our top-line second quarter
performance given this weak global economic environment,� said Rob
van der Merwe, President and Chief Executive Officer of Checkpoint.
�We are particularly pleased with the organic growth in our
CheckNet� business. Additionally, we experienced the strong
sequential growth we anticipated from Alpha, and our Evolve family
of RF and RFID-enabled products continued to exceed our
expectations. For the second half of the year we expect this
growth, particularly the historically strong second half
performance of Alpha, to continue on an accelerating basis and
contribute significant improvement to the bottom-line compared to
the first half of this year.� �The decline in second quarter gross
margins when compared to the same period in 2007 resulted from
increasing raw material and energy costs across our business lines
and production issues that are being addressed. Although we were
not pleased with the impact of the production issues to our
quarterly earnings, we believe these are now largely behind us,�
continued Mr. van der Merwe. The Company is announcing a
manufacturing and supply chain restructuring program designed to
accelerate profitable growth in Checkpoint�s CheckNet� business and
to support incremental improvements in its EAS Hardware and Labels
businesses. Through this program, the Company expects to incur
total after-tax restructuring charges in 2008 of approximately $5
million, or $0.12 per diluted share. Implementation of this plan is
expected to be complete in 2010 and to result in annualized cost
savings of approximately $6 million. Through the first six months
of 2008, the Company has incurred total charges relating to this
program of $0.5 million, or $0.01 per diluted share. In addition to
the restructuring charges, implementation of this program is
expected to require operating expenditures of approximately $0.04
to $0.06 per diluted share in the second half of 2008 and includes
actions to expand capacity. Commenting on the restructuring
program, Mr. van der Merwe stated, �Checkpoint has developed a
strong global organization that provides a solid foundation for us
to execute on our plans for profitable growth. We expect that this
restructuring program will enhance our ability to grow by creating
a more streamlined organization and expanding capacity while
maintaining the advantages of our global reach.� Commenting on the
Company�s developing strategy, Mr. van der Merwe stated,
�Supporting our customers with products and solutions that
anticipate and address their changing needs is a key focus for the
Company. Our Evolve RF and RFID-enabled product line continues to
be well received by our customers and is gaining traction in the
marketplace. The addition of OATSystems puts key aspects of
Checkpoint�s developing strategy for RFID EAS in place as the
combination of Checkpoint and OATSystems uniquely positions us as a
one-stop-shop for solutions that enable retailers and their supply
chains to gain deeper inventory visibility, further reducing shrink
and increasing bottom-line profits by enhancing on-shelf
merchandise availability for consumers.� Selected financial
highlights for the second quarter of 2008 are detailed below: Gross
profit was $97.9 million, or 41.5% of revenue, compared to $83.0
million, or 42.4% of revenue, for the second quarter of 2007.
Operating income was $13.2 million for the second quarter of 2008,
compared to $18.7 million in 2007. Non-GAAP operating income
excluding restructuring expense for the second quarter of 2008 was
$16.3 million, or 6.9% of revenue. Non-GAAP operating income
excluding restructuring expense for the second quarter of 2007 was
$19.0 million, or 9.7% of revenue. (See accompanying
�Reconciliation of GAAP to Non-GAAP Measures�.) Our effective tax
rate for the second quarter of 2008 was negative 8.4% as compared
to 26.1% for the second quarter of 2007. The second quarter
effective tax rate was impacted by a $4.8 million benefit relating
to the release of a valuation allowance as a result of strategic
decisions related to foreign operations in the second quarter and
the related impact on assumptions of future taxable income. Net
earnings for the second quarter of 2008 were $14.4 million, or
$0.36 per diluted share, compared to net earnings of $15.1 million,
or $0.37 per diluted share, for the second quarter of 2007. Net
earnings for the second quarter of 2007 included $0.5 million, or
$0.01 per diluted share, of income from discontinued operations due
to post closing adjustments from the 2006 sale of the barcode
systems business. Non-GAAP net earnings from continuing operations
excluding restructuring expense and the valuation allowance
adjustment for the second quarter of 2008 were $11.6 million, or
$0.29 per diluted share. Non-GAAP net earnings from continuing
operations excluding restructuring expense for the second quarter
of 2007 were $14.8 million, or $0.36 per diluted share. (See
accompanying �Reconciliation of GAAP to Non-GAAP Measures�.) Cash
flow from operations was $25.4 million for the second quarter of
2008 compared to $14.0 million for the second quarter of 2007. At
June 29, 2008, cash and cash equivalents were $95.5 million,
working capital was $275.9 million and long-term debt was $143.9
million. Capital expenditures for the quarter were $5.2 million.
During the second quarter of 2008, the Company repurchased 1.3
million shares of its common stock at an average cost of $25.31,
spending a total of $33.6 million. This completed the repurchase of
shares under the company�s repurchase authorization that was put in
place during the fourth quarter of 2006. Mr. van der Merwe
concluded, �Looking forward, we continue to be in a strong position
to grow our business. Our recent acquisitions are enabling us to
expand our offering of new products that meet the evolving needs of
our customers. We are already seeing the positive impact of the
Alpha product line and our new Evolve platform and expect both to
contribute to our expected strong performance for second half 2008.
We are managing our business globally, and we continue to carefully
manage costs to mitigate the effects of challenging economic
conditions on our business, all the while taking actions required
to improve Checkpoint operations and competiveness.� Outlook for
2008 Based on an assessment of current market conditions and the
assumption that market conditions will not change significantly for
the remainder of the year, Checkpoint updated its guidance for its
2008 full year financial results. This guidance includes the
expected contributions of previously announced acquisitions: Net
revenues, at current exchange rates, are expected to be in the
range of $970 million to $990 million. Non-GAAP diluted net
earnings per share from continuing operations for the full year
2008, excluding restructuring and other unusual items, are expected
to be: � Range of Non-GAAP Diluted Net Earnings Per Share � Outlook
before including the impact of the OATSystems acquisition and the
restructuring program $1.62 to $1.70 � Dilutive impact of the
OATSystems acquisition ($0.10) to ($0.08) � Impact of operational
expenses associated with the implementation of the restructuring
program � ($0.06) to ($0.04) � Outlook after including the impact
of the OATSystems acquisition and the restructuring program � $1.46
to $1.58 An annualized tax rate of approximately 24%. Free cash
flow (cash flow from operations less capital expenditures) is
expected to be in the range of $45 million to $55 million,
excluding the impact of future restructuring charges. This guidance
does not include the impact of unusual charges, such as additional
restructuring charges, that the Company may incur during the year,
and assumes a continuation of current exchange rates. Checkpoint
Systems will host a conference call today, August 5, 2008, at 10:00
AM Eastern Time, to discuss its 2008 second quarter results. The
conference call will be simultaneously broadcast live over the
Internet. Listeners may access the live webcast at the Company�s
homepage, www.checkpointsystems.com, by clicking on the �Conference
Calls� link or entering the �Investors� section of this site.
Please allow 15 minutes prior to the call to visit the site and
download and install any necessary audio software. The webcast will
be archived at the Company�s homepage beginning approximately 90
minutes after the call ends until the next quarterly conference
call. Checkpoint Systems, Inc. Checkpoint Systems, Inc. is the
leading supplier of retail shrink management solutions.
Checkpoint's global team helps retailers - and their suppliers -
reduce theft, increase inventory visibility and provide consumers
with greater merchandise availability through the company's rapidly
evolving RF technology, expanding shrink management offerings and
Check-Net labeling solutions. Checkpoint has more than one million
RF devices installed in stores today and has secured more than 100
billion products. Scaling cost efficiently, Checkpoint's solutions
provide increased revenues and profits to a fast-growing community
of successful retailers and a superior experience for their
consumers. Listed on the NYSE (NYSE:CKP), Checkpoint operates in
every major geographic market and employs more than 3,900 people
worldwide. For more information, visit www.checkpointsystems.com.
Caution Regarding Forward-Looking Statements This press release
includes information that constitutes forward-looking statements.
Forward-looking statements often address our expected future
business and financial performance, and often contain words such as
�expect,� �anticipate,� �intend,� �plan,� believe,� �seek,� or
�will.� By their nature, forward-looking statements address matters
that are subject to risks and uncertainties. Any such
forward-looking statements may involve risk and uncertainties that
could cause actual results to differ materially from any future
results encompassed within the forward-looking statements. Factors
that could cause or contribute to such differences include: our
ability to integrate the acquisition of the Alpha S3 business and
to achieve our financial and operational goals for Alpha S3;
changes in international business conditions; foreign currency
exchange rate and interest rate fluctuations; lower than
anticipated demand by retailers and other customers for our
products; slower commitments of retail customers to chain-wide
installations and/or source tagging adoption or expansion; possible
increases in per unit product manufacturing costs due to less than
full utilization of manufacturing capacity as a result of slowing
economic conditions or other factors; our ability to provide and
market innovative and cost-effective products; the development of
new competitive technologies; our ability to maintain our
intellectual property; competitive pricing pressures causing profit
erosion; the availability and pricing of component parts and raw
materials; possible increases in the payment time for receivables
as a result of economic conditions or other market factors; changes
in regulations or standards applicable to our products; the ability
to implement cost reduction in field service, sales, and general
and administrative expense, and our manufacturing and supply chain
operations without significantly impacting revenue and profits; our
ability to maintain effective internal control over financial
reporting; and additional matters disclosed in our Securities and
Exchange Commission filings. We do not undertake to update our
forward-looking statements, except as required by applicable
securities laws. Checkpoint Systems, Inc. Consolidated Statements
of Operations (Thousands except per share amounts) (unaudited) �
Quarter (13 Weeks Ended) Six Months (26 Weeks Ended) June 29, July
1, June 29, July 1, � � � 2008 � � 2007 � � 2008 � � 2007 � � Net
revenues $ 236,200 $ 195,702 $ 445,820 $ 366,904 Cost of revenues �
� 138,259 � � 112,707 � � 261,400 � � 213,630 � Gross profit 97,941
82,995 184,420 153,274 � Selling, general, and administrative
expenses 75,943 59,947 149,830 119,748 Research and development
5,739 4,060 10,970 8,048 Restructuring Expense � � 3,021 � � 329 �
� 4,000 � � 654 � Operating income 13,238 18,659 19,620 24,824 �
Interest income 657 1,210 1,298 2,392 Interest expense 1,192 270
2,486 601 Other gain (loss), net � � 558 � � 131 � � (606 ) � (393
) � Earnings from operations before income taxes and minority
interest 13,261 19,730 17,826 26,222 � Income taxes (1,112 ) 5,158
(1,221 ) 6,745 Minority interest � � 17 � � (2 ) � (107 ) � (63 ) �
Earnings from continuing operations 14, 356 14,574 19,154 19,540
Earnings from discontinued operations, net of tax � � ? � � 523 � �
? � � 523 � Net earnings � $ 14,356 � $ 15,097 � $ 19,154 � $
20,063 � Basic Earning per Share: Earnings from continuing
operations $ 0.36 $ 0.37 $ 0.48 $ 0.49 Earnings from discontinued
operations, net of tax � � ? � � 0.01 � � ? � � 0.02 � Basic
earnings per share � $ 0.36 � $ 0.38 � $ 0.48 � $ 0.51 � Diluted
Earnings per Share: Earnings from continuing operations $ 0.36 $
0.36 $ 0.47 $ 0.48 Earnings from discontinued operations, net of
tax � � ? � � 0.01 � � ? � � 0.02 � Diluted earnings per share � $
0.36 � $ 0.37 � $ 0.47 � $ 0.50 Checkpoint Systems, Inc. Summary
Consolidated Balance Sheet (Thousands) � � � June 29, December 30,
2008 2007 (unaudited) � Cash and Cash Equivalents $ 95,485 $
118,271 Working Capital $ 275,876 $ 282,095 Current Assets $
478,397 $ 506,910 Total Debt $ 143,902 $ 95,512 Shareholders'
Equity $ 596,286 $ 588,328 Total Assets $ 1,068,703 $ 1,031,044
Reconciliation of Non-GAAP Financial Measures in Accordance with
SEC Regulation G Checkpoint Systems, Inc. reports financial results
in accordance with U.S. GAAP and herein provides some Non-GAAP
measures. These Non-GAAP measures are not in accordance with, nor
are they a substitute for, GAAP measures. These Non-GAAP measures
are intended to supplement the Company's presentation of its
financial results that are prepared in accordance with GAAP. The
Company uses the Non-GAAP measures presented to evaluate and manage
the Company's operations internally. The Company is also providing
this information to assist investors in performing additional
financial analysis that is consistent with financial models
developed by research analysts who follow the Company. Set forth
below is a reconciliation of the Non-GAAP financial measures used
in this release to the most directly comparable measures based on
GAAP. Checkpoint Systems, Inc. Reconciliation of GAAP to Non-GAAP
Financial Measures (Thousands) (unaudited) � Quarter (13 Weeks
Ended) Six Months (26 Weeks Ended) Reconciliation of GAAP to
Non-GAAP Operating Income: � June 29, 2008 � July 1, 2007 � June
29, 2008 � July 1, 2007 � Net revenues � $ 236,200 � $ 195,702 � $
445,820 � $ 366,904 � GAAP operating income 13,238 18,659 19,620
24,824 � Non-GAAP adjustments: � Restructuring expense 3,021 329
4,000 654 � Deferred compensation expense adjustment � ? � ? �
1,381 � ? � Adjusted Non-GAAP operating income � $ 16,259 � $
18,988 � $ 25,001 � $ 25,478 � GAAP operating margin 5.6 % 9.5 %
4.4 % 6.8 % Adjusted Non-GAAP operating margin 6.9 % 9.7 % 5.6 %
6.9 % Checkpoint Systems, Inc. Reconciliation of GAAP to Non-GAAP
Financial Measures continued (Thousands except per share amounts)
(unaudited) � � Quarter (13 Weeks Ended) Six Months (26 Weeks
Ended) Reconciliation of GAAP to Non-GAAP Earnings from Continuing
Operations: � June 29,2008 � � July 1, 2007 � � June 29, 2008 � �
July 1,2007 � � � Earnings from continuing operations, as reported
� $ 14,356 � � $ 14,574 � $ 19,154 � � $ 19,540 � Non-GAAP
adjustments: � Restructuring expense, net of tax 2,076 246 2,785
507 � Deferred compensation expense adjustment, net of tax ? ? 849
? � Valuation allowance adjustment � � (4,812 ) � � ? � � (4,812 )
� � ? � Adjusted net earnings � $ 11,620 � � $ 14,820 � $ 17,976 �
� $ 20,047 � Reported diluted shares 40,274 40,704 40,630 40,464 �
Adjusted diluted shares 40,274 40,704 40,630 40,464 � Reported net
earnings per share � diluted $ 0.36 $ 0.36 $ 0.47 $ 0.48 � Adjusted
net earnings per share � diluted $ 0.29 $ 0.36 $ 0.44 $ 0.50
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