Packaging

Schawk Announces 2010 Fourth-Quarter and Full-Year Results

Thursday 10. March 2011 - Company Reports Record Net Income of $32.4 Million and Record EPS of $1.25 for Full Year 2010; Improved Results for the Full Year Driven by Increased Consumer Packaged Goods Accounts Sales and Continued Operational Improvements

Schawk, Inc. (NYSE: SGK), a leading provider of brand development and deployment services, enabling companies of all sizes to connect their brands with consumers, reported fourth-quarter and full-year 2010 results. Net income in the fourth quarter of 2010 was $6.3 million, or $0.24 per diluted share, versus $3.7 million, or $0.15 per diluted share, in the fourth quarter of 2009. Net income for the full year of 2010 was $32.4 million, or $1.25 per diluted share, compared to $19.5 million, or $0.78 per diluted share, for the comparable prior-year period. Net income and EPS for the full year were record highs for the Company.
Net income for the full year of 2009 was positively impacted by the receipt of $9.2 million in cash as part of an indemnity claim settlement in connection with the Company’s 2005 acquisition of Seven Worldwide Holdings, Inc., of which $5.0 million was reported as income. The favorable after-tax impact was $0.20 per share for the period ended December 31, 2009. On a non-GAAP basis, adjusting for financial impacts relating to the indemnity claim settlement and certain other items as further detailed in this release, 2010 full-year Adjusted net income was $31.1 million, or $1.20 per diluted share, compared to $23.1 million, or $0.93 per diluted share, during the prior-year period, on a comparable basis.
President and Chief Executive Officer David A. Schawk commented, “I am very pleased with our record earnings for 2010. Our performance reflects the continued expansion of our brand development and deployment activities and focus on utilizing our global capacity more efficiently. In addition, we experienced growth during 2010 in our largest client channel, consumer packaged goods, reflecting their increased product innovation activity. The increase in overall revenue coupled with our continued focus on global capacity management contributed to an approximate 66 percent increase in our net income for 2010.”
Mr. Schawk added, “Our continued strong cash flow during the year has led to further debt reduction and a solid cash position at year end, thereby positioning us well to invest in our business and future opportunities to the extent they arise. Furthermore, our improved operating results and balance sheet enabled us to double our quarterly dividend to eight cents during the fourth quarter of 2010, which further underscores our confidence in the business and its future growth.”
Mr. Schawk concluded, “We also expanded our digital marketing and creative capabilities through the acquisitions of Real Branding and Untitled London Limited during 2010. These acquisitions reflect our continued commitment to strengthening our overall portfolio of brand development and deployment services that we offer to our clients as they expand their ways of connecting with consumers. Overall, given some continuing uncertainties within the global economy, I am both excited and proud of what we accomplished during 2010.”
Consolidated Results for the Year Ended December 31, 2010
Consolidated net sales in 2010 were $460.6 million compared to $452.4 million in the same period of 2009, an increase of approximately $8.2 million, or 1.8 percent. Year-over-year sales were positively impacted by changes in foreign currency translation rates of approximately $5.2 million, as the U.S. dollar decreased in value relative to the local currencies of certain of the Company’s non-U.S. subsidiaries.
Consumer packaged goods (CPG) accounts sales during the full year of 2010 were $329.0 million, or 71.4 percent of total net sales, compared to $318.7 million in the same period of 2009, an increase of 3.2 percent, reflecting increased product and brand activity by the Company’s clients. Advertising and retail accounts sales in 2010 were $88.4 million, or 19.2 percent of total sales, a decrease of 1.5 percent, from $89.8 million during the full year of 2009, primarily driven by the loss of a non-core retail client. Entertainment accounts sales for the full year of 2010 of $29.1 million, or 6.3 percent of total sales, decreased 11.3 percent, from $32.8 million in the same period of 2009, driven by continued declines in promotional activity.
Gross profit was $178.6 million during 2010, an increase of $7.5 million from the same period of 2009. Full-year 2010 gross profit as a percentage of sales increased to 38.8 percent from 37.8 percent in the prior-year period. The full-year improvement in gross profit percent was largely driven by the improved operating leverage resulting from higher sales and certain cost-reduction actions enacted by the Company during 2010.
Selling, general and administrative (SG&A) expenses declined approximately $6.9 million to $124.2 million during 2010 from $131.1 million in 2009. The decline in SG&A expenses year over year was primarily driven by certain cost-reduction activities implemented in 2009 and 2010 partially offset by approximately $1.6 million of business and systems integration expenses related to the Company’s information technology and business process improvement initiative.
The Company recorded a $2.3 million loss on foreign exchange exposures in the full year of 2010, compared to a gain of $0.5 million in the same period of 2009. The Company’s foreign exchange gains or losses relate primarily to unhedged currency exposure from intercompany debt obligations of the Company’s non-U.S. subsidiaries. Since foreign currency gains or losses primarily relate to intercompany financing activity, the economic impact to the Company is minimal, as these gains or losses are largely offset by corresponding losses or gains in accumulated comprehensive income, net, included in stockholders’ equity.
Acquisition integration and restructuring expenses declined from $6.5 million during the full year of 2009 to $2.0 million during the same period of 2010. These charges relate to employee terminations and other associated costs which arose from the Company’s continued focus on consolidating, reducing and re-aligning its work force and operations. The actions taken during 2010 are expected to result in annualized savings of approximately $10.9 million for 2011, with approximately $4.9 million realized during 2010.
In 2010, the Company reported asset impairment expenses of $0.7 million primarily related to certain equipment which sustained damage and was rendered inoperable at one of the Company’s facilities. During 2009, the Company recorded $1.4 million of expense related to the impairment of long-lived assets. This expense was primarily related to a revaluation of a non-core vacant property owned by the Company.
Additionally, the Company recorded income of $0.2 million during 2010 reflecting its final adjustment of a multi-employer pension withdrawal liability. In 2008, the Company decided to terminate participation in a union supplemental retirement and disability fund, and recorded an initial $7.3 million liability related to its decision. In 2009, an additional $1.8 million of expense was recorded to reflect the Company’s estimate of its liability at year end 2009. The Company currently expects the final settlement to be paid during the second quarter of 2011.
As previously mentioned, net income for the full year of 2009 was positively impacted by the receipt of $9.2 million in cash as part of an indemnity claim settlement in connection with the Company’s 2005 acquisition of Seven Worldwide Holdings, Inc., of which $5.0 million was reported as income.
Schawk reported operating income of $49.6 million in 2010 compared to $35.8 million in 2009. The increase year over year was driven primarily by increases in gross profit and reduced SG&A expense partially offset by the non-recurring indemnity settlement income reported during 2009.
For the full year of 2010, the Company reported a tax expense of $10.0 million compared to $7.6 million during the same period in 2009. The increase in tax expense for 2010 compared to the prior year is primarily due to discrete period tax benefits and amended tax return adjustments recorded during 2009.
Net income in 2010 was $32.4 million, or $1.25 per diluted share, compared to $19.5 million, or $0.78 per diluted share, in 2009. Non-GAAP Adjusted net income was $31.1 million, or $1.20 per diluted share, for 2010 compared to $23.1 million, or $0.93 per diluted share, on a comparable basis for the prior-year period. Please refer to the tables at the end of this press release for a reconciliation of these non-GAAP measures.
Adjusted EBITDA and Management Adjusted EBITDA Performance
Adjusted EBITDA for full year 2010 was $69.8 million compared to $58.4 million for the comparable period of 2009. Management adjusted EBITDA for full year 2010 was $75.4 million compared to $65.4 million for the prior-year period. Please refer to the “Reconciliation of Non-GAAP Adjusted EBITDA and Management Adjusted EBITDA” table attached at the end of this press release for a reconciliation of these measures.