Business News

United Stationers Reports Third Quarter 2012 Earnings

Tuesday 23. October 2012 - United Stationers Inc. (NASDAQ: USTR), a leading North American wholesale distributor of business products, today reported third quarter 2012 earnings per share up 12% and operating cash flow of $107 million on relatively flat sales.

Third Quarter 2012 Financial Highlights
— Net sales in the third quarter were $1.3 billion, flat compared with the
prior-year quarter, after adjusting for one less selling day in the
third quarter of 2012.
— Diluted earnings per share were $0.91, compared with $0.81 in the
prior-year quarter.
— Net cash provided by operating activities in the third quarter of 2012
totaled $107.4 million, compared with $26.2 million in the prior-year
quarter.
— Gross margin in the third quarter of 2012 was up $4.0 million to $203.8
million, or 15.8% of sales, compared with $199.8 million, or 15.3% of
sales, in last year’s third quarter.
— Operating expenses in the quarter were $140.1 million, or 10.9% of
sales, compared with $135.1 million, or 10.3% of sales in the prior-year
quarter.
— Operating income in the quarter was $63.6 million, or 4.9% of sales,
compared with $64.6 million, or 4.9% of sales, in the year-ago quarter.
— Net income was $36.8 million in 2012, compared with $35.8 million in the
year-ago quarter.
— Net cash provided by operating activities for the nine months ended
September 30, 2012, totaled $155.7 million versus $99.5 million last
year.
— Cash paid for share repurchases for the nine months ended September 30,
2012, totaled $67.5 million for 2.4 million shares. On October 17,
2012, the board of directors approved a $0.14 per share cash dividend,
an increase of 8%, to shareholders of record on December 14, 2012 and
payable on January 15, 2013.
“Our third quarter results reflect solid progress on our ‘Winning-from-the-Middle’ strategy,” said Cody Phipps president and chief executive officer. “We drove strong EPS growth, solid cash generation and gross margin expansion. The acquisition of O.K.I. Supply extends our industrial platform in several highly complementary categories and creates compelling growth opportunities and operating efficiencies. In addition, we continued to drive organic growth in industrial and janitorial & breakroom and from our online and public sector initiatives while supporting our core independent and national accounts customers as they reposition themselves in a rapidly evolving marketplace.”
Third Quarter Performance
Sales per selling day in the third quarter of 2012 were flat, compared with last year. Sales growth in the industrial supplies and janitorial/breakroom categories were 7.0% and 2.3%, respectively, from last year. Office products showed improvement with 1.3% growth while technology and furniture category sales were down 4.5% and 2.9%, respectively, versus the prior year.
Gross margin in the third quarter of 2012, was up $4.0 million to $203.8 million, compared with $199.8 million for the same quarter a year ago. Gross margin as a percent of sales increased 56 bps to 15.8%, compared with the prior-year quarter. Gross margin was positively affected by lower cost of goods sold primarily driven by inventory purchase-related supplier allowances and lower advertising costs as well as ongoing War on Waste (WOW) initiatives. These improvements more than offset ongoing competitive pricing pressures.
Operating expenses for the latest quarter were $140.1 million or 10.9% of sales, compared with $135.1 million or 10.3% of sales in the same period last year. Operating expenses in the third quarter 2012 were affected by higher pension, health care, labor, and variable management compensation costs, partially offset by continued success with WOW efforts. In addition, the prior-year quarter included a favorable resolution of a non-income based tax liability.
Operating income for the latest quarter was $63.6 million or 4.9% of sales, compared with $64.6 million or 4.9% of sales in the same quarter last year.
Diluted earnings per share for the 2012 quarter were $0.91, compared with $0.81 in the year-ago quarter. Reduced interest expense, resulting from the expiration of higher fixed interest rate swap contracts, and ongoing stock repurchases, which lowered average shares outstanding, both benefited earnings per share.
Nine-Month Performance
Sales in the first nine months of 2012 were $3.8 billion, up 1.4%, after adjusting for one less selling day in 2012. This increase was due to growth in industrial supplies and janitorial/breakroom of 13.4% and 6.5%, respectively. Office products were near 1% growth while technology declined 4.5% and furniture declined 0.7%.
Gross margin for the first nine months of 2012 increased to $572.9 million or 14.9% of sales, compared with $566.4 million or 14.9% of sales in the same prior-year period. Gross margin was impacted by competitive pricing pressures that were offset by higher inventory purchase-related supplier allowances, increased advertising margins, and continued success from WOW initiatives.
Operating expenses in 2012 were $427.4 million or 11.1% of sales, including a charge of $6.2 million for facility closures and severance costs, compared with $413.9 million, or 10.9% of sales, last year, which included a non-cash $4.4 million equity compensation charge as well as a $1.6 million non-deductible, asset impairment charge with respect to the company’s equity investment in a managed print services business. Excluding these items, operating expenses in 2012 were $421.1 million((1)) or 11.0%((1)) of sales, compared with the prior year of $407.9 million((1)) or 10.7%((1)) of sales. Increased operating expenses in 2012 reflect higher pension, labor, and healthcare costs, partially offset by lower bad debt and continued WOW initiatives. In addition, the prior year included a favorable resolution of a non-income based tax liability.
Operating income for the first nine months of 2012 was $145.6 million or 3.8% of sales, compared with $152.4 million, or 4.0% of sales in the prior-year period. Excluding the items mentioned above, operating income in 2012 was $151.8 million((1)) or 4.0%((1)) of sales, compared with $158.5 million((1)) or 4.2%((1)) of sales in the prior year.
Diluted earnings per share for the first nine months of 2012 were $1.91 versus $1.77 in the same period last year. Excluding the items mentioned above, diluted earnings per share for the first nine months of 2012 rose 7.5% to $2.01((1)), compared with $1.87((1)) in the prior-year period.
Cash Flow, Debt Trends and Share Repurchases
Net cash provided by operating activities totaled $155.7 million for the latest nine-month period versus cash provided of $99.5 million a year ago. Through the six months ended June 30, 2012, net cash provided by operating activities was $48.3 million. The resulting $107.4 million in operating cash flows in the current year quarter were positively affected by lower working capital requirements, primarily from successful inventory management. Cash flow used in investing activities for the nine months ended September 30, 2012 totaled $20.1 million, down from $20.7 million in the prior-year period. Capital spending through the nine months ended September 30, 2012 was $20.3 million and is expected to be in the range of $30 million to $35 million for 2012.
The company has total committed funding sources of approximately $985 million. As of September 30, 2012, the company had total debt outstanding of $455.0 million, compared with $489.7 million as of September 30, 2011. As of September 30, 2012 and 2011, debt-to-total capitalization was 39.0% and 40.4%, respectively. Through the first nine months of 2012, the company repurchased 2.4 million shares for $67.5 million, and paid $16.1 million in dividends to shareholders.
“Our balance sheet, liquidity and cash flows remain strong,” said Phipps. “We have ample financial flexibility to make acquisitions like O.K.I. Supply, which enhance our growth platforms and provide a compelling return on our investment as well as support our diversification strategy. We are also pleased to be able to continue to return capital to investors including the increase in our dividend that was announced last week.”
Outlook
“We remain committed to our strategy and see attractive opportunities to profitably grow our business,” said Phipps. “In this rapidly evolving market, supporting our customers and supplier partners with a variety of solutions to help them succeed is more important than ever. That is why we continue to focus on initiatives that bring value to our customers while we drive the efficiency improvements that allow reinvestment in the business.”