Checkpoint Systems, Inc. (NYSE: CKP) today reported financial
results for the third quarter ended September 28, 2008. Net
revenues for the third quarter of 2008 were $234.0 million compared
to net revenues of $204.6 million in the third quarter of 2007, an
increase of 14.4%. Net earnings from continuing operations for the
third quarter were $12.8 million, or $0.32 per diluted share,
compared to net earnings from continuing operations of $14.3
million, or $0.35 per diluted share, in the third quarter of 2007.
Non-GAAP net earnings from continuing operations for the third
quarter of 2008, excluding restructuring expense, litigation
settlement expense and an after-tax gain from the sale of the
Company�s subsidiary in the Czech Republic, were $12.6 million, or
$0.32 per diluted share. Non-GAAP net earnings from continuing
operations excluding restructuring expense were $14.4 million, or
$0.35 per diluted share, in the third quarter of 2007. Net revenues
for the first nine months of 2008 were $679.8 million compared to
net revenues of $571.5 million in the first nine months of 2007, an
increase of 19.0%. Net earnings from continuing operations for the
first nine months of 2008 were $31.9 million, or $0.79 per diluted
share, compared to net earnings from continuing operations of $33.9
million, or $0.84 per diluted share, in the first nine months of
2007. Non-GAAP net earnings from continuing operations for the
first nine months of 2008, excluding restructuring expense,
litigation settlement expense, an after-tax gain from the sale of
the Company�s subsidiary in the Czech Republic, a deferred
compensation expense adjustment, and a valuation allowance
adjustment were $30.6 million, or $0.76 per diluted share. Non-GAAP
net earnings from continuing operations excluding restructuring
expense were $34.4 million, or $0.85 per diluted share, in the
first nine months of 2007. Net earnings for the first nine months
of 2008 were $31.9 million, or $0.79 per diluted share, compared to
net earnings of $34.4 million, or $0.85 per diluted share, in the
first nine months of 2007. Net revenues for the third quarter of
2008 reflected an organic decline of 5.3%, primarily due to
softness in demand within the EAS labels, Europe CheckNet� and U.S.
CCTV businesses. Acquisition growth was 14.4%, primarily due to the
Alpha business and its seasonally strong quarter. Foreign currency
effects of 5.2% in the quarter were not yet fully impacted by the
more recent strengthening dollar. �Given the challenges that the
slowdown in the global economy presents to us, we are generally
pleased with our performance during the third quarter,� said Rob
van der Merwe, President and Chief Executive Officer of Checkpoint
Systems. �Our top-line results continue to be driven by solid
performance within our CheckNet� business in the U.S. and Alpha
product sales. Alpha revenue increased by almost thirty percent
from the second quarter of 2008 and continues to meet our
expectations. We are also very encouraged by the strong market
response for our recently introduced Evolve� line of RF and
RFID-enabled products. Although the Evolve� line represents a
relatively small percent of our overall sales, this product line
has shown a seven-fold increase in sales from the second quarter.
We now have exceeded 1,000 installations with over 150 customers
across the U.S. and Europe. However, these encouraging results were
somewhat offset by soft demand in EAS labels, our Europe CheckNet�
business and our U.S. CCTV business.� �Gross margins for the
quarter were approximately level with the year ago period as we
faced lingering production issues and a shift in product mix that
had an impact on capacity utilization. Despite these issues and the
headwinds in the economy, we achieved higher gross margins this
quarter than we achieved in the second quarter of this year,�
continued Mr. van der Merwe. In August 2008, the Company announced
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. Following additional analysis of its CheckNet�
business, the Company now expects this program to result in total
after-tax restructuring charges of approximately $3 million, or
$0.07 per diluted share, of which $2 million, or $0.04 per diluted
share, is anticipated to be incurred in 2008. The Company continues
to expect implementation of this program to be complete in 2010 and
to result in annualized cost savings of approximately $6 million.
Through the first nine months of 2008, the Company has incurred
total charges relating to this program of $0.7 million, or $0.02
per diluted share. In addition to the restructuring charges, the
Company now expects costs to expand capacity that are associated
with this program to be approximately $0.03 per diluted share in
2008. �Moving forward, Checkpoint is taking the necessary steps to
effectively operate through the current difficult economic
environment while also continuing to manage its business for
long-term growth,� added Mr. van der Merwe. �We continue to be
focused on providing customers with innovative products that will
be valuable in addressing shrink, which is particularly important
during a difficult economic environment. We are also moving forward
with initiatives to reduce costs and improve working capital to
mitigate the effects of the economy on our business.� Mr. van der
Merwe concluded, �As we move into the fourth quarter, we expect
that the challenges of this economic environment will continue.
However, we anticipate that sales of Alpha products will remain
strong as this business enters its seasonally strongest period, and
that our U.S. CheckNet� business will continue to take market
share. Our guidance for the year reflects the cautiousness dictated
by the slowed economy while also reflecting the positive momentum
we are seeing in several of our businesses.� Selected financial
highlights for the third quarter of 2008 are detailed below: Gross
profit was $97.6 million, or 41.7% of revenue, compared to $85.6
million, or 41.9% of revenue, for the third quarter of 2007.
Operating income was $18.1 million for the third quarter of 2008,
compared to $18.4 million in 2007. Non-GAAP operating income
excluding restructuring expense, litigation settlement expense and
a gain from the sale of the Czech Republic subsidiary for the third
quarter of 2008 was $18.5 million, or 7.9% of revenue. Non-GAAP
operating income excluding restructuring expense for the third
quarter of 2007 was $18.4 million, or 9.0% of revenue. (See
accompanying �Reconciliation of GAAP to Non-GAAP Measures.�) Our
effective tax rate for the third quarter of 2008 was 19.0% as
compared to 27.7% for the third quarter of 2007. Net earnings for
the third quarter of 2008 were $12.8 million, or $0.32 per diluted
share, compared to net earnings of $14.3 million, or $0.35 per
diluted share, for the third quarter of 2007. Non-GAAP net earnings
from continuing operations excluding restructuring expense,
litigation settlement expense and an after-tax gain from the sale
of the Czech Republic subsidiary were $12.6 million, or $0.32 per
diluted share, for the third quarter of 2008. Non-GAAP net earnings
from continuing operations excluding restructuring expense for the
third quarter of 2007 were $14.4 million, or $0.35 per diluted
share. (See accompanying �Reconciliation of GAAP to Non-GAAP
Measures.�) Cash flow from operations was $5.6 million for the
third quarter of 2008 compared to $4.7 million for the third
quarter of 2007. At September 28, 2008, cash and cash equivalents
were $93.3 million, working capital was $285.9 million and
long-term debt was $141.4 million. Capital expenditures for the
quarter were $3.3 million. 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 $920
million to $935 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 $1.21 to
$1.27. This includes the dilutive impact of the June 2008
acquisition of OATSystems and the impact of operational expenses
associated with the restructuring program we announced in August
2008. An annualized tax rate of approximately 22%. Free cash flow
(cash flow from operations less capital expenditures) is expected
to be in the range of $40 million to $45 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, November 5, 2008, at
10:00 AM Eastern Time, to discuss its 2008 third 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) Nine Months (39 Weeks Ended) September 28,
� September 30, � September 28, � September 30, � � � 2008 � � �
2007 � � � 2008 � � � 2007 � � Net revenues $ 233,995 $ 204,589 $
679,815 $ 571,493 Cost of revenues � � 136,364 � � � 118,941 � � �
397,764 � � � 332,571 � � Gross profit 97,631 85,648 282,051
238,922 � Selling, general, and administrative expenses 73,865
62,091 223,695 181,839 Research and development 5,297 5,128 16,267
13,176 Restructuring expense 848 31 4,848 685 Litigation settlement
467 ? 467 ? Other operating income � � 968 � � � ? � � � 968 � � �
? � � Operating income 18,122 18,398 37,742 43,222 � Interest
income 677 1,688 1,975 4,080 Interest expense 1,522 367 4,008 968
Other (loss) gain, net � � (1,512 ) � � 66 � � � (2,118 ) � � (327
) � Earnings from operations before income taxes and minority
interest 15,765 19,785 33,591 46,007 � Income taxes 2,999 5,484
1,778 12,229 Minority interest � � (10 ) � � (46 ) � � (117 ) � �
(109 ) � Earnings from continuing operations 12,776 14,347 31,930
33,887 Earnings from discontinued operations, net of tax � � ? � �
� (9 ) � � ? � � � 514 � � Net earnings � $ 12,776 � � $ 14,338 � �
$ 31,930 � � $ 34,401 � � Basic Earning per Share: Earnings from
continuing operations $ 0.33 $ 0.36 $ 0.81 $ 0.85 Earnings from
discontinued operations, net of tax � � ? � � � ? � � � ? � � �
0.01 � � Basic earnings per share � $ 0.33 � � $ 0.36 � � $ 0.81 �
� $ 0. 86 � � Diluted Earnings per Share: Earnings from continuing
operations $ 0.32 $ 0.35 $ 0.79 $ 0.84 Earnings from discontinued
operations, net of tax � � ? � � � ? � � � ? � � � 0.01 � � Diluted
earnings per share � $ 0.32 � � $ 0.35 � � $ 0.79 � � $ 0.85 � � �
Checkpoint Systems, Inc. Summary Consolidated Balance Sheet
(Thousands) � � September 28, December 30, 2008 2007 (unaudited) �
Cash and Cash Equivalents $ 93,294 $ 118,271 Working Capital $
285,938 $ 282,095 Current Assets $ 477,456 $ 506,910 Total Debt $
141,411 $ 95,512 Shareholders' Equity $ 588,122 $ 588,328 Total
Assets $ 1,043,374 $ 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) Nine Months (39
Weeks Ended) Reconciliation of GAAP to Non-GAAP Operating Income: �
September 28, 2008 � � September 30, 2007 � September 28, 2008 � �
September 30, 2007 � � � Net revenues � $ 233,995 � � $ 204,589 � $
679,815 � � $ 571,493 � � GAAP operating income 18,122 18,398
37,742 43,222 � Non-GAAP adjustments: � Restructuring expense 848
31 4,848 685 � Litigation settlement 467 ? 467 ? � Other operating
income (968 ) ? (968 ) ? � Deferred compensation expense adjustment
� � ? � � � ? � � 1,381 � � � ? � � Adjusted Non-GAAP operating
income � $ 18,469 � � $ 18,429 � $ 43,470 � � $ 43,907 � � GAAP
operating margin 7.7 % 9.0 % 5.6 % 7.6 % Adjusted Non-GAAP
operating margin 7.9 % 9.0 % 6.4 % 7.7 % � � � Checkpoint Systems,
Inc. Reconciliation of GAAP to Non-GAAP Financial Measures
continued (Thousands except per share amounts) (unaudited) �
Quarter (13 Weeks Ended) Nine Months (39 Weeks Ended)
Reconciliation of GAAP to Non-GAAP Earnings from Continuing
Operations: � September 28, 2008 � � September 30, 2007 � �
September 28, 2008 � � September 30, 2007 � � Earnings from
continuing operations, as reported � $ 12,776 � � $ 14,347 � � $
31,930 � � $ 33,887 � Non-GAAP adjustments: � Restructuring
expense, net of tax 486 23 3,271 530 � Litigation settlement, net
of tax 292 ? 292 ? � Other operating income, net of tax (954 ) ?
(954 ) ? � Deferred compensation expense adjustment, net of tax ? ?
849 ? � Valuation allowance adjustment � � ? � � � ? � � � (4,812 )
� � ? � Adjusted net earnings � $ 12,600 � � $ 14,370 � � $ 30,576
� � $ 34,417 � Reported diluted shares 39,383 40,973 40,204 40,638
� Adjusted diluted shares 39,383 40,973 40,204 40,638 � Reported
net earnings per share � diluted $ 0.32 $ 0.35 $ 0.79 $ 0.84 �
Adjusted net earnings per share � diluted $ 0.32 $ 0.35 $ 0.76 $
0.85
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