Checkpoint Systems, Inc. (NYSE: CKP) today reported
financial results for the first quarter ended March 27, 2011.
Net revenues for the first quarter of 2011 were $184.7 million
compared to net revenues for the first quarter of 2010 of $187.5
million. Net loss attributable to Checkpoint Systems, Inc. for the
first quarter of 2011 was $9.3 million, or $0.23 per diluted share,
compared to net earnings attributable to Checkpoint Systems, Inc.
for the first quarter of 2010 of $3.5 million, or $0.09 per diluted
share. Non-GAAP net loss attributable to Checkpoint Systems, Inc.
for the first quarter of 2011 excluding restructuring expenses was
$8.2 million, or $0.20 per diluted share. Non-GAAP net earnings
attributable to Checkpoint Systems, Inc. for the first quarter of
2010 were $4.0 million, or $0.10 per diluted share. (See
accompanying Reconciliation of GAAP to Non-GAAP Financial
Measures.)
“Gross profit margin for the quarter declined from the
comparable period one year ago and had a significant impact on our
bottom line,” said Rob van der Merwe, Chairman, President and Chief
Executive Officer of Checkpoint Systems. “The decline in our EAS
consumables businesses and Apparel Labeling Solutions was
principally due to new RF label product introductions. We have been
surprised by the speed with which customers have adopted our new RF
label technology. Strategically this is good news for Checkpoint in
the long run, as it migrates us away from the vanilla EAS label
base, which although very profitable, is subject to increasing
competition. The expansion of production of products employing this
new technology also created unanticipated cost pressures in late
2010, which have extended into 2011. We have implemented actions
that will improve this product transition that will protect and
improve the margins. From the costing information visible in March
and April it is clear that costs for the new products are now
coming down and this will continue as productivity improves and as
outside production is in-sourced. We are taking strong pricing
action across all businesses and this will be completed by June. I
expect a sequential improvement in the overall margins of the
Company beginning in the second quarter and this is all included in
the guidance provided to shareholders today.”
Mr van der Merwe continued, “For the first quarter of 2011, our
net revenues experienced a minor decline principally due to the EAS
consumables businesses. Although our Hard Tag @ Source™ business
nearly doubled from the fourth quarter, and while this performance
was consistent with our expectations, it was well off the levels of
one year ago when a highly successful program with a major European
retailer started to peak. We believe that revenues in this business
will continue to increase. To a much lesser degree, our EAS labels
business declined due to lower than anticipated business with
certain European accounts. We believe this is only temporary. The
remaining businesses finished the quarter effectively at last
year’s comparable quarter levels.”
van der Merwe concluded, “Despite the issues we encountered in
the first quarter, I remain confident that the progress we made in
2010 coupled with the actions we are now taking will provide a
solid foundation for both top-line and bottom-line growth in the
future. Our focus continues to be on the converging fields of
shrink management, merchandise visibility and apparel labeling. In
addition, we successfully launched the North America phase of our
global ERP system initiative at the beginning of the second
quarter. This deployment will facilitate improvements in the bottom
line over the remainder of the year.”
Selected analysis and discussion for the first quarter of
2011:
- Net revenues decreased 1.5%. This
decrease was principally due to a decline in organic growth of
1.9%, driven by the Shrink Management Solutions segment, notably
EAS consumables, which includes Hard Tag @ Source. Foreign currency
effects resulted in a 0.4% net revenues increase compared to the
first quarter of 2010, driven principally by the weakened dollar
versus the euro.
- Gross profit margin was 38.1% compared
to 43.0 % for the first quarter of 2010. The decrease was
principally due to lower gross margins in EAS consumables and
Apparel Labeling Solutions, which were impacted by delays in
capturing cost efficiencies, as we expanded new product and
specialty label capacity, coupled with pricing that did not reflect
enhanced capabilities of these products. Also contributing to the
decline was our typically lower margin CheckView® business, where
gross margins were impacted by customer and product mix as well as
cost associated with obsolete inventory. Additionally, revenue
reduction in our strong gross margin Hard Tag @ Source business
contributed to the decline.
- Selling, general and administrative
(SG&A) expenses were $74.6 million compared to $69.8 million
for the first quarter of 2010. The increase was due primarily to
costs associated with building internal capabilities prior to
implementing our company-wide ERP system and associated SG&A
restructuring initiatives. A one-time expense resulting from lower
than expected forfeitures in share-based compensation also
increased SG&A expense in 2011.
- GAAP operating loss was $10.6 million
compared to income of $5.6 million for the first quarter of 2010.
Non-GAAP operating loss excluding restructuring expenses was $9.0
million, or 4.9% of net revenues. Non-GAAP operating income for the
first quarter of 2010 was $6.1 million, or 3.2% of net revenues.
(See accompanying Reconciliation of GAAP to Non-GAAP Financial
Measures.)
- Restructuring expenses were $1.6
million due to the selling, general, and administrative
restructuring plan.
- Effective tax rate was 16.5% compared
to 30.6% for the first quarter of 2010.
- Cash flow provided by operating
activities was $11.0 million compared to cash flow used in
operating activities of $4.4 million for the first quarter of
2010.
- At March 27, 2011, cash and cash
equivalents were $188.6 million compared to $173.8 million at
December 26, 2010, and total debt was $143.2 million compared to
$141.9 million at December 26, 2010. Capital expenditures were $4.3
million for the first quarter of 2011.
Outlook for 2011
Checkpoint previously provided guidance for 2011, which is
summarized below. This guidance is being reaffirmed today with the
only change being a $10.0 million improvement to the range of free
cash flow. Additionally, as in the past, results are expected to
include the impact of one or more major transactions in the
remainder of the year. 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 continues to include the
impact of the acquisition 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 $45.0 million to $55.0 million.
Checkpoint Systems will host a conference call today, May 3,
2011, at 11:00 AM Eastern Time, to discuss its 2011 first quarter
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;
amendments to the Shore to Shore purchase agreement prior to
closing; 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; risks generally associated with our company-wide
implementation of an enterprise resource planning (ERP) system 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
(13 weeks) Ended
March 27,2011
March 28,2010
Net revenues $ 184,673 $ 187,456 Cost of revenues
114,299 106,905 Gross
profit 70,374 80,551 Selling, general, and administrative
expenses 74,569 69,802 Research and development 4,789 4,692
Restructuring expenses 1,597
436 Operating (loss) income (10,581 ) 5,621 Interest
income 966 668 Interest expense 1,642 1,600 Other gain (loss), net
110 266 (Loss)
earnings from operations before income taxes (11,147 ) 4,955 Income
taxes (1,836 ) 1,518 Net
(loss) earnings (9,311 ) 3,437 Less: (loss) attributable to
noncontrolling interests — (69 ) Net (loss) earnings attributable
to Checkpoint Systems, Inc. $ (9,311 ) $ 3,506
Net (loss) earnings attributable to Checkpoint Systems,
Inc., per Common Shares: Basic (loss) earnings per share
$ (0.23 ) $ 0.09 Diluted (loss) earnings per share
$ (0.23 ) $ 0.09
Checkpoint Systems, Inc.Summary
Consolidated Balance Sheet(amounts in thousands)
March 27,2011
December 26,2010
(unaudited) Cash and Cash
Equivalents $ 188,646 $ 173,802 Working Capital $ 304,839 $ 298,794
Current Assets $ 532,962 $ 512,829 Total Debt $ 143,189 $ 141,949
Total Equity $ 595,848 $ 584,291 Total Assets $ 1,068,543 $
1,035,273
Reconciliation of Non-GAAP Financial
Measures in Accordance with SEC Regulation GCheckpoint 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
(13 weeks) Ended
Reconciliation of GAAP to Non-GAAP Operating (Loss) Income:
March 27,
2011
March 28,
2010
Net revenues $ 184,673 $ 187,456
GAAP operating (loss) income (10,581) 5,621 Non-GAAP
adjustments: Restructuring expenses
1,597 436 Adjusted Non-GAAP operating (loss) income
$ (8,984) $ 6,057 GAAP operating margin
(5.7)% 3.0% Adjusted Non-GAAP operating margin (4.9)% 3.2%
Checkpoint Systems,
Inc.Reconciliation of GAAP to Non-GAAP Financial Measures
continued(amounts in thousands, except per share
data)(unaudited)
Quarter
(13 weeks) Ended
Reconciliation of GAAP to
Non-GAAP(loss) earnings attributable to Checkpoint Systems,
Inc.:
March 28,2010
March 29,2009
(Loss) earnings attributable to Checkpoint Systems, Inc., as
reported $ (9,311 ) $ 3,506 Non-GAAP
adjustments: Restructuring expenses, net of tax (1)
1,144 449 Adjusted net (loss) earnings
attributable to Checkpoint Systems, Inc. $ (8,167 ) $
3,955 Reported diluted shares 40,331 40,102 Adjusted
diluted shares 40,331 40,102 Reported net (loss) earnings
attributable to Checkpoint Systems, Inc., per share – diluted $
(0.23 ) $ 0.09 Adjusted net (loss) earnings attributable to
Checkpoint Systems, Inc., per share – diluted $ (0.20 ) $ 0.10
(1)
The tax rate on restructuring expense for
the first quarter of 2010 was negative 2.9% due to a release of
restructuring expense in subsidiaries with higher tax rates while
the majority of restructuring expense was realized in subsidiaries
with lower tax rates. The tax rate on restructuring expense for the
first quarter of 2011 was 28.4%
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