Checkpoint Systems, Inc. (NYSE: CKP) today reported
financial results for the fourth quarter and full year ended
December 26, 2010.
Net revenues for the fourth quarter of 2010 were $235.5 million
compared to net revenues for the fourth quarter of 2009 of $237.8
million. Net earnings attributable to Checkpoint Systems, Inc. for
the fourth quarter of 2010 were $7.7 million, or $0.19 per diluted
share, compared to net earnings attributable to Checkpoint Systems,
Inc. for the fourth quarter of 2009 of $18.6 million, or $0.47 per
diluted share. Non-GAAP net earnings attributable to Checkpoint
Systems, Inc. for the fourth quarter of 2010 excluding
restructuring expenses and pre-acquisition reserve adjustments were
$14.5 million, or $0.36 per diluted share. Non-GAAP net earnings
attributable to Checkpoint Systems, Inc. for the fourth quarter of
2009 were $23.4 million, or $0.59 per diluted share. (See
accompanying Reconciliation of GAAP to Non-GAAP Financial
Measures.)
Net revenues for the year 2010 were $834.5 million compared to
net revenues for the year 2009 of $772.7 million. Net earnings
attributable to Checkpoint Systems, Inc. for the year 2010 were
$27.4 million, or $0.68 per diluted share, compared to net earnings
attributable to Checkpoint Systems, Inc. for the year 2009 of $26.1
million, or $0.66 per diluted share. Non-GAAP net earnings
attributable to Checkpoint Systems, Inc. for the year 2010
excluding restructuring expenses, the impact of a change in
valuation allowances, and pre-acquisition reserve adjustments were
$40.4 million, or $1.00 per diluted share. Non-GAAP net earnings
attributable to Checkpoint Systems, Inc. for the year 2009 were
$36.3 million, or $0.92 per diluted share. (See accompanying
Reconciliation of GAAP to Non-GAAP Financial Measures.)
“For the fourth quarter 2010, our revenues were effectively
unchanged from last year,” said Rob van der Merwe, Chairman,
President and Chief Executive Officer of Checkpoint Systems. “We
continued to realize excellent organic revenue in our Alpha® and
CheckView® businesses. Apparel Labeling Solutions increased nicely
from last quarter as we started to experience top-line synergies
from Brilliant Label. And the EAS systems business, although still
below last year, continues to narrow the gap from comparable period
revenues. However, our EAS consumables business, which had been
very strong during the first half of the year, slowed as expected
due to the completion of a significant Hard Tag @ Source™ program
in the third quarter. We believe this business will be back on
track by early 2011.”
Mr. van der Merwe continued, “Gross profit margin for the
quarter declined, principally due to the impact of the reduced Hard
Tag @ Source business and to a lesser degree start-up costs
associated with some of our recent product introductions.
“For the year just concluded we moved forward on many fronts to
better position the Company for the future,” said van der Merwe.
“We continued to leverage our innovative capabilities, introducing
new products and solutions; we completed the integration of sales
and operations at Brilliant Label and thus established a more
product and geographically diverse business; we strengthened our
balance sheet as we restructured our credit facility; we are
meeting our aggressive internal timetable to move to a common ERP
platform; and we commenced a broad-based SG&A restructuring
plan.”
van der Merwe concluded, “I am confident that the progress we
made in 2010, our recently announced definitive agreement to
acquire Shore to Shore and our continuing focus on the converging
fields of shrink management, merchandise visibility and apparel
labeling will provide a solid foundation for future growth.”
Selected analysis and discussion for the fourth quarter of
2010:
- Net revenues decreased 0.9%. Foreign
currency effects resulted in a 1.8% net revenues decline driven
principally by the strengthened dollar versus the euro. This
decrease was partially offset by organic growth of 0.9%, driven by
the Apparel Labeling Solutions segment and to a lesser degree the
Shrink Management Solutions segment, notably the CheckView® and
Alpha High Theft Solutions® businesses.
- Gross profit margin was 39.7% compared
to 43.1% for the fourth quarter of 2009. The decrease was
principally due to lower gross margins in the EAS consumables
businesses.
- GAAP operating income was $9.8 million
compared to $19.7 million for the fourth quarter of 2009. Non-GAAP
operating income excluding restructuring expenses and
pre-acquisition reserve adjustments was $16.1 million, or 6.8% of
net revenues. Non-GAAP operating income for the fourth quarter of
2009 was $23.9 million, or 10.1% of net revenues. (See accompanying
Reconciliation of GAAP to Non-GAAP Financial Measures.)
- Restructuring expenses were $5.4
million due primarily to the initial stages of our selling,
general, and administrative restructuring plan.
- Selling, general and administrative
expenses include $0.8 million in expense resulting from an
adjustment to pre-acquisition reserves.
- Effective tax rate was an expense of
3.5% compared to a benefit of 5.1% for the fourth quarter of
2009.
- Cash flow provided by operating
activities was $18.9 million compared to cash flow provided by
operating activities of $60.6 million for the fourth quarter of
2009.
- At December 26, 2010, cash and cash
equivalents were $173.8 million compared to $162.1 million at
December 27, 2009, and total debt was $141.9 million compared to
$116.9 million at December 27, 2009. Capital expenditures were $7.4
million for the fourth quarter of 2010.
Outlook for 2011
Based on an assessment of current market conditions, Checkpoint
is providing guidance for 2011. This guidance does not include the
impact of unusual charges, such as additional restructuring
expenses that the Company may incur during the year, and assumes a
continuation of current exchange rates. This guidance includes the
impact of Shore to Shore, Inc. commencing in the second
quarter.
- Net revenues are expected to be in the
range of $910.0 million to $950.0 million.
- Non-GAAP diluted net earnings per share
attributable to Checkpoint Systems, Inc. are expected to be in the
range of $1.27 to $1.41.
- Non-GAAP operating income margin is
expected to be in the range of 7.7% to 8.4%.
- An annualized tax rate is expected to
be in the range of 20% to 23%.
- Free cash flow (cash flow from
operations less capital expenditures) is expected to be in the
range of $35.0 million to $45.0 million.
Checkpoint Systems will host a conference call today, February
22, 2011, at 11:00 AM Eastern Time, to discuss its 2010 fourth
quarter and full year 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: satisfaction of applicable closing
conditions in our agreement to acquire the Shore to Shore business;
our ability to integrate this and other 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 (amounts in thousands, except per
share data) (unaudited) Quarter Twelve
Months (13 weeks) Ended (52 weeks) Ended
December 26, December 27, December 26,
December 27, 2010
2009 2010
2009 Net revenues $ 235,542 $ 237,777 $ 834,498 $
772,718 Cost of revenues 142,088
135,388 487,850 441,434 Gross profit
93,454 102,389 346,648 331,284 Selling, general, and
administrative expenses 72,473 72,925 275,282 262,649 Research and
development 5,731 5,543 20,507 20,354 Restructuring expenses 5,401
4,189 8,211 5,401 Litigation settlement −
− − 1,300 Operating income 9,849
19,732 42,648 41,580 Interest income 910 631 3,118 1,971 Interest
expense 1,782 2,323 6,507 7,386 Other gain (loss), net
(953) (476) (2,237)
(180) Earnings from operations before income taxes 8,024
17,564 37,022 35,985 Income taxes 280
(900) 9,767 10,290 Net earnings 7,744
18,464 27,255 25,695 Less: (loss) attributable to noncontrolling
interests − (115) (116)
(447) Net earnings attributable to Checkpoint
Systems, Inc. $ 7,744 $ 18,579 $ 27,371
$ 26,142
Net earnings attributable to Checkpoint Systems, Inc.,
per Common Shares: Basic earnings per share $ 0.19 $
0.47 $ 0.69 $ 0.67 Diluted earnings per share $ 0.19
$ 0.47 $ 0.68 $ 0.66
Checkpoint Systems, Inc. Summary Consolidated Balance
Sheet (amounts in thousands) December 26,
December 27, 2010
2009 (unaudited) Cash and Cash Equivalents $
173,802 $ 162,097 Working Capital $ 298,794 $ 241,809 Current
Assets $ 512,829 $ 482,690 Total Debt $ 141,949 $ 116,872 Total
Equity $ 584,291 $ 558,554 Total Assets $ 1,035,273 $ 1,024,233
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 (amounts in thousands,
except percents) (unaudited) Quarter
Twelve Months (13 weeks) Ended (52 weeks)
Ended Reconciliation of GAAP to Non-GAAP Operating
December 26, December 27, December 26,
December 27, Income: 2010
2009 2010 2009 Net
revenues $ 235,542 $ 237,777 $ 834,498
$ 772,718 GAAP operating income 9,849 19,732 42,648 41,580
Non-GAAP adjustments: Pre-acquisition reserve
adjustment 812 − 812 − Restructuring expenses 5,401 4,189 8,211
5,401 Litigation settlement − − − 1,300
Adjusted Non-GAAP operating income $ 16,062 $ 23,921
$ 51,671 $ 48,281 GAAP operating margin 4.2%
8.3% 5.1% 5.4% Adjusted Non-GAAP operating margin 6.8% 10.1% 6.2%
6.2%
Checkpoint Systems, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
continued (amounts in thousands, except per share data)
(unaudited) Quarter Twelve Months
(13 weeks) Ended (52 weeks) Ended Reconciliation
of GAAP to Non-GAAP Earnings December 26,
December 27, December 26, December 27,
attributable to Checkpoint Systems, Inc.:
2010 2009 2010
2009 Earnings attributable to
Checkpoint Systems, Inc., as reported $ 7,744 $
18,579 $ 27,371 $ 26,142 Non-GAAP adjustments:
Pre-acquisition reserve adjustment, net of tax 812 − 812 −
Restructuring expenses, net of tax 4,174 3,145 6,204 4,045
Litigation settlement, net of tax − − − 801 Pre-acquisition tax
reserve adjustment 1,730 − 1,730 − Valuation allowance adjustment
− 1,667 4,261
5,262 Adjusted net earnings attributable to Checkpoint
Systems, Inc. $ 14,460 $ 23,391 $ 40,378
$ 36,250 Reported diluted shares 40,687 39,757 40,445
39,552 Adjusted diluted shares 40,687 39,757 40,445 39,552
Reported net earnings attributable to Checkpoint Systems,
Inc., per share – diluted $ 0.19 $ 0.47 $ 0.68 $ 0.66
Adjusted net earnings attributable to Checkpoint Systems, Inc., per
share – diluted $ 0.36 $ 0.59 $ 1.00 $ 0.92
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