Checkpoint Systems, Inc. (NYSE: CKP) today reported
financial results for the third quarter ended September 27,
2009.
Net revenues for the third quarter of 2009 were $194.1 million
compared to net revenues for the third quarter of 2008 of $234.0
million. Net earnings attributable to Checkpoint Systems, Inc. for
the third quarter of 2009 were $2.6 million, or $0.07 per diluted
share, compared to net earnings attributable to Checkpoint Systems,
Inc. for the third quarter of 2008 of $12.8 million, or $0.32 per
diluted share. Non-GAAP net earnings attributable to Checkpoint
Systems, Inc. for the third quarter of 2009 excluding restructuring
expense and the impact of a change in valuation allowances were
$6.4 million, or $0.16 per diluted share. Non-GAAP net earnings
attributable to Checkpoint Systems, Inc. for the third quarter of
2008 were $12.6 million, or $0.32 per diluted share. (See
accompanying Reconciliation of GAAP to Non-GAAP Financial
Measures.)
“Our third quarter continued to deliver improving results. We
achieved sequential quarter improvement in key financial metrics:
net revenues, gross margin, and operating margin. We continued to
narrow the gap in key financial comparisons to comparable prior
year quarters; and our global cost-reduction initiatives provided
the significant savings we had expected since their implementation.
As we progress through the fourth quarter, we are confident that
the actions taken this year will lead to a traditionally strong
year-end quarter,” said Rob van der Merwe, Chairman, President and
Chief Executive Officer of Checkpoint Systems.
Mr. van der Merwe concluded, “Since the beginning of the year we
remained unwavering in our focus to manage the business for the
future, despite a very challenging retail environment. We steadily
moved forward on our stated strategy to seize opportunities we see
in the converging fields of shrink management, merchandise tracking
and visibility, and apparel labeling. The key business initiatives
put in place to realize that strategy, coupled with the
acquisitions we made in the last two years, have provided a pathway
for achieving our stated long-term financial goals in an economy
that continues to improve.”
Selected analysis and discussion for the third quarter of
2009:
- Net revenues decreased 17.1% due
to an organic decline of 15.7% primarily attributable to global
softness in demand in the Shrink Management Solutions segment,
particularly in EAS systems and CheckView™ store monitoring
solutions. Foreign currency effects resulted in a 3.1% net revenues
decline driven principally by the strengthened dollar versus the
euro. Acquisition growth was 1.7%.
- Gross profit margin was 43.6%
compared to 41.7% for the third quarter of 2008. The increase was
primarily due to higher margins in the Shrink Management Solutions
segment, notably in EAS labels, and in the Apparel Labeling
Solutions segment.
- GAAP operating income was $13.4
million compared to $18.1 million in operating income for the third
quarter of 2008. Non-GAAP operating income was $13.6 million, or
7.0% of net revenues. Non-GAAP operating income for the third
quarter of 2008 was $18.5 million, or 7.9% of net revenues. (See
accompanying Reconciliation of GAAP to Non-GAAP Financial
Measures.)
- Restructuring expense was $0.2
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 77.6%
compared to 19.0% for the third quarter of 2008. The current year
was impacted due to the recognition of valuation allowances on tax
loss carryforwards in Japan and Italy. Excluding the impact of the
valuation allowances, the effective tax rate for the third quarter
of 2009 was 37.3%.
- Cash flow provided by operating
activities was $22.5 million compared to $7.8 million for the third
quarter of 2008. Cash flow provided by operating activities for the
nine month period ended September 27, 2009 was $54.2 million
compared to $27.0 million for the comparable period in 2008.
- At September 27, 2009, cash and
cash equivalents were $114.8 million compared to $132.2 million at
December 28, 2008, and total debt was $127.8 million compared to
$145.3 million at December 28, 2008. Capital expenditures were $4.1
million for the third quarter of 2009.
Outlook for
2009
Based on an assessment of current market conditions, Checkpoint
Systems is providing guidance for 2009. This guidance 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 $765 million to $780 million.
- Non-GAAP diluted net earnings
per share attributable to Checkpoint Systems, Inc. are expected to
be in the range of $0.70 to $0.80.
- Non-GAAP operating income margin
is expected to be in the range of 5.3% to 6%.
- An annualized tax rate of
approximately 23%, which is impacted by the anticipated release of
tax reserves in the fourth quarter.
- Free cash flow (cash flow from
operations less capital expenditures) is expected to be in the
range of $50 million to $55 million.
Checkpoint Systems will host a conference call today, November
4, 2009, at 11:00 AM Eastern Time, to discuss its third quarter
2009 results. The conference call will be simultaneously broadcast
live over the Internet. Listeners may access the webcast at
http://ir.checkpointsystems.com. 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
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 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
Nine Months
(39 weeks) Ended
September 27,
2009
September 28,
2008
September 27,
2009
September 28,
2008
Net revenues $ 194,078 $ 233,995 $ 534,941 $ 679,815
Cost of revenues 109,404 136,364
306,046 397,764
Gross profit 84,674 97,631 228,895 282,051 Selling,
general, and administrative expenses 66,210 73,865 189,724 223,695
Research and development 4,874 5,297 14,811 16,267 Restructuring
expense 153 848 1,212 4,848 Litigation settlement − 467 1,300 467
Other operating income − 968
− 968
Operating income 13,437 18,122 21,848 37,742 Interest income
419 677 1,340 1,975 Interest expense 1,878 1,522 5,063 4,008 Other
gain (loss), net (523 ) (1,512 )
296 (2,118 ) Earnings from
operations before income taxes 11,455 15,765 18,421 33,591
Income taxes 8,884 2,999
11,190 1,778 Net
earnings 2,571 12,766 7,231 31,813 Less: (Loss) attributable to
noncontrolling interests (68 ) (10 )
(332 ) (117 ) Net earnings
attributable to Checkpoint Systems, Inc. $ 2,639
$ 12,776 $ 7,563 $ 31,930
Net earnings attributable to Checkpoint Systems, Inc.,
per Common Shares: Basic earnings per share $ .07 $ .33
$ .19 $ .81 Diluted earnings per share $ .07
$ .32 $ .19 $ .79
Checkpoint Systems,
Inc.
Summary Consolidated Balance
Sheet
(Thousands)
September 27,
2009
December 28,
2008
(unaudited) Cash and Cash Equivalents $ 114,792 $
132,222 Working Capital $ 240,364 $ 282,752 Current Assets $
443,660 $ 494,310 Total Debt $ 127,763 $ 145,286 Total Equity $
532,270 $ 505,238 Total Assets $ 979,478 $ 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
Nine Months
(39 weeks) Ended
Reconciliation of GAAP to Non-GAAP Operating Income:
September 27,
2009
September 28,
2008
September 27,
2009
September 28,
2008
Net revenues $ 194,078 $ 233,995
$ 534,941 $ 679,815 GAAP
operating income 13,437 18,122 21,848 37,742 Non-GAAP
adjustments: Restructuring expense 153 848 1,212 4,848
Litigation settlement − 467 1,300 467 Other operating
income − (968 ) − (968 ) Deferred compensation expense
adjustment − −
− 1,381 Adjusted Non-GAAP
operating income $ 13,590 $ 18,469
$ 24,360 $ 43,470 GAAP operating
margin 6.9 % 7.7 % 4.1 % 5.6 % Adjusted Non-GAAP operating margin
7.0 % 7.9 % 4.6 % 6.4 %
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 Earningsattributable to Checkpoint Systems,
Inc.:
September 27, 2009
September 28, 2008
September 27, 2009
September 28, 2008
Earnings attributable to Checkpoint Systems, Inc., as
reported $ 2,639 $ 12,776 $ 7,563
$ 31,930 Non-GAAP adjustments:
Restructuring expense, net of tax 159 486 900 3,271
Litigation settlement, net of tax − 292 801 292 Other
operating income, net of tax − (954 ) − (954 ) Deferred
compensation expense adjustment, net of tax − − − 849
Valuation allowance adjustment 3,595 −
3,595 (4,812 ) Adjusted
net earnings attributable to Checkpoint Systems, Inc. $
6,393 $ 12,600 $ 12,859 $ 30,576
Reported diluted shares 39,753 39,383 39,489 40,204
Adjusted diluted shares 39,753 39,383 39,489 40,204 Reported
net earnings attributable to Checkpoint Systems, Inc., per share –
diluted $ 0.07 $ 0.32 $ 0.19 $ 0.79 Adjusted net earnings
attributable to Checkpoint Systems, Inc., per share – diluted $
0.16 $ 0.32 $ 0.33 $ 0.76
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