Checkpoint Systems, Inc. (NYSE: CKP) today reported
financial results for the second quarter ended June 28, 2009.
Net revenues for the second quarter of 2009 were $181.9 million
compared to net revenues for the second quarter of 2008 of $236.2
million. Net earnings attributable to Checkpoint Systems, Inc. for
the second quarter of 2009 were $6.9 million, or $0.18 per diluted
share, compared to net earnings attributable to Checkpoint Systems,
Inc. for the second quarter of 2008 of $14.4 million, or $0.36 per
diluted share. Non-GAAP net earnings attributable to Checkpoint
Systems, Inc. for the second quarter of 2009 excluding
restructuring expense were $7.4 million, or $0.19 per diluted
share. Non-GAAP net earnings attributable to Checkpoint Systems,
Inc. for the second quarter of 2008 were $11.6 million, or $0.29
per diluted share. (See accompanying Reconciliation of GAAP to
Non-GAAP Financial Measures.)
“We are pleased with our second quarter results. Although the
global retail markets remain a challenging environment, Checkpoint
is continuing its efforts to extend its shrink management portfolio
into a broader solutions proposition. Our ability to continue to
take share in the highly competitive apparel labeling business,
coupled with proactive global cost-reduction initiatives led to
solid results for the quarter,” said Rob van der Merwe, Chairman,
President and Chief Executive Officer of Checkpoint Systems.
Mr. van der Merwe concluded, “Even as the retail markets
continue to lack the conviction of a near-term upward move, we
continue to manage the business for the future, using our strong
balance sheet and cash flows, while at the same time carefully
monitoring spending. Our commitment to our stated strategy to focus
on the opportunities we see in the converging fields of shrink
management, merchandise tracking and visibility, and apparel
labeling remains unchanged.”
Selected analysis and discussion for the second quarter of
2009:
- Net revenues decreased 23.0% due
to an organic decline of 16.3% primarily due to global softness in
demand in the Shrink Management Solutions segment, particularly in
CheckView™ store monitoring solutions and EAS systems. Foreign
currency effects resulted in a 6.9% net revenues decline driven
principally by the strengthened dollar versus the euro. Acquisition
growth was 0.2%.
- Gross profit margin was 42.7%
compared to 41.5% for the second quarter of 2008. The increase was
primarily due to higher margins in Apparel Labeling Solutions and
the Shrink Management Solutions segment, notably in EAS systems and
labels.
- GAAP operating income was $10.8
million compared to $13.2 million in operating income for the
second quarter of 2008. Non-GAAP operating income was $11.3
million, or 6.2% of net revenues. Non-GAAP operating income for the
second quarter of 2008 was $16.3 million, or 6.9% of net revenues.
(See accompanying Reconciliation of GAAP to Non-GAAP Financial
Measures.)
- Restructuring expense was $0.6
million arising from general and administrative cost reductions. In
addition, the Company continues to implement the previously
announced manufacturing and supply chain restructuring program and
expects annualized cost savings of approximately $6.0 million when
the program is complete in 2010.
- Effective tax rate was 28.3%
compared to negative 8.4% for the second quarter of 2008. The
second quarter 2008 effective tax rate included a $4.8 million
benefit relating to the release of a valuation allowance as a
result of strategic decisions related to foreign operations and the
related impact on assumptions of future taxable income.
- Cash flow provided by operating
activities was $8.0 million compared to $25.4 million for the
second quarter of 2008. Cash flow provided by operating activities
for the six month period ended June 28, 2009 was $31.7 million
compared to $19.2 million for the comparable period in 2008.
- At June 28, 2009, cash and cash
equivalents were $121.0 million compared to $132.2 million at
December 28, 2008, and total debt was $118.4 million compared to
$145.3 million at December 28, 2008. Capital expenditures were $2.1
million for the second quarter of 2009.
Checkpoint also announced today that it has entered into a
definitive agreement to acquire Brilliant Label Manufacturing Ltd.,
a China-based manufacturer of woven and printed labels. Total
consideration for the acquisition of $38 million includes a cash
payment of approximately $23 million and the assumption of
Brilliant’s debt of approximately $15 million. Checkpoint expects
the transaction to close by the end of the third quarter 2009, and
to be slightly dilutive to earnings this year and accretive in
2010.
Brilliant, through its woven and printed label manufacturing
facilities in Hong Kong and China, is expected to generate revenues
of more than $40 million in 2010. Its customer base includes many
of the world’s leading retailers and apparel manufacturers.
“With the Brilliant acquisition, Checkpoint takes a significant
step to strengthen and expand its core apparel labeling offering,”
said Rob van der Merwe. “Brilliant’s woven and printed label
manufacturing capabilities move us closer to our previously
announced strategy of becoming the recognized number two global
provider of apparel labeling solutions.”
Outlook for
2009
Based on an assessment of current market conditions, Checkpoint
is providing guidance for 2009. This guidance includes the
Brilliant acquisition but does not include the impact of unusual
charges, such as additional restructuring expense, that the Company
may incur during the year, and assumes a continuation of current
exchange rates.
- Net revenues are expected to be
in the range of $770 million to $800 million.
- Non-GAAP diluted net earnings
per share attributable to Checkpoint Systems, Inc. are expected to
be in the range of $0.65 to $0.85.
- Non-GAAP operating income margin
is expected to be in the range of 5% to 6%.
- An annualized tax rate of
approximately 20%.
- Free cash flow (cash flow from
operations less capital expenditures) is expected to be in the
range of $45 million to $55 million.
Checkpoint Systems will host a conference call today, August 6,
2009, at 10:00 AM Eastern Time, to discuss its 2009 second quarter
results. The conference call will be simultaneously broadcast live
over the Internet. Listeners may access the webcast at Checkpoint
Systems Web site through the Conference Calls link or Investors
section of the Web site. A replay will be available following the
event.
Checkpoint Systems,
Inc.
Checkpoint Systems is a global leader in shrink management,
merchandise visibility and apparel labeling solutions. Checkpoint
enables retailers and their suppliers to reduce shrink, improve
shelf availability and leverage real-time data to achieve
operational excellence. Checkpoint solutions are built upon 40
years of RF technology expertise, diverse shrink management
offerings, a broad portfolio of apparel labeling solutions,
market-leading RFID applications, innovative high-theft solutions
and its Web-based Check-Net data management platform. As a result,
Checkpoint customers enjoy increased sales and profits by improving
supply-chain efficiencies, by facilitating on-demand label printing
and by providing a secure open-merchandising environment enhancing
the consumer’s shopping experience. For more information, visit
Checkpoint Systems.
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 our acquisitions and to achieve our financial and
operational goals for our acquisitions; 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 28,
2009
June 29,
2008
June 28,
2009
June 29,
2008
Net revenues $ 181,913 $ 236,200 $ 340,863 $ 445,820
Cost of revenues 104,222 138,259
196,642 261,400
Gross profit 77,691 97,941 144,221 184,420 Selling, general,
and administrative expenses 61,597 75,943 123,514 149,830 Research
and development 4,753 5,739 9,937 10,970 Restructuring expense 572
3,021 1,059 4,000 Litigation settlement −
− 1,300 −
Operating income 10,769 13,238 8,411 19,620 Interest income
416 657 921 1,298 Interest expense 1,903 1,192 3,185 2,486 Other
gain (loss), net 321 558
819 (606 ) Earnings from
operations before income taxes 9,603 13,261 6,966 17,826 Income
taxes 2,718 (1,112 )
2,306 (1,221 ) Net earnings 6,885
14,373 4,660 19,047 Less: (Loss) earnings attributable to
noncontrolling interests (45 ) 17
(264 ) (107 ) Net earnings
attributable to Checkpoint Systems, Inc. $ 6,930
$ 14,356 $ 4,924 $ 19,154
Net earnings attributable to Checkpoint Systems, Inc., per
Common Shares: Basic earnings per share $ .18 $ .36 $ .13 $ .48
Diluted earnings per share $ .18 $ .36
$ .13 $ .47
Checkpoint Systems,
Inc. Summary Consolidated Balance Sheet
(Thousands) June 28,
2009
December 28,
2008
(unaudited) Cash and Cash Equivalents $ 120,969 $
132,222 Working Capital $ 259,486 $ 282,752 Current Assets $
434,356 $ 494,310 Total Debt $ 118,357 $ 145,286 Total Equity $
514,686 $ 505,238 Total Assets $ 925,153 $ 985,716
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 28,
2009
June 29,
2008
June 28,
2009
June 29,
2008
Net revenues $ 181,913 $ 236,200
$ 340,863 $ 445,820 GAAP
operating income 10,769 13,238 8,411 19,620 Non-GAAP
adjustments: Restructuring expense 572 3,021 1,059 4,000
Litigation settlement − − 1,300 − Deferred
compensation expense adjustment −
− − 1,381
Adjusted Non-GAAP operating income $ 11,341 $
16,259 $ 10,770 $ 25,001
GAAP operating margin 5.9 % 5.6 % 2.5 % 4.4 % Adjusted Non-GAAP
operating margin 6.2 % 6.9 % 3.2 % 5.6 %
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 attributable to Checkpoint Systems,
Inc.:
June 28,
2009
June 29,
2008
June 28,
2009
June 29,
2008
Earnings attributable to
Checkpoint Systems, Inc., asreported
$ 6,930 $ 14,356 $ 4,924 $
19,154 Non-GAAP adjustments: Restructuring
expense, net of tax 420 2,076 741 2,785 Litigation
settlement, net of tax − − 801 − Deferred compensation
expense adjustment, net of tax − − − 849 Valuation allowance
adjustment − (4,812 ) −
(4,812 )
Adjusted net earnings attributable
to Checkpoint Systems,Inc.
$ 7,350 $ 11,620 $ 6,466 $
17,976 Reported diluted shares 39,468 40,274 39,359
40,630 Adjusted diluted shares 39,468 40,274 39,359 40,630
Reported net earnings attributable
to Checkpoint Systems,Inc., per share – diluted
$ 0.18 $ 0.36 $ 0.13 $ 0.47
Adjusted net earnings attributable
to Checkpoint Systems,Inc., per share – diluted
$ 0.19 $ 0.29 $ 0.16 $ 0.44
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