Cenveo's Q3 net income up 59.5% year-over-year to US$4.5M, net sales down 5.1% to US$451.3M primarily due to lower direct mail volumes, closure and consolidation of a printing plant, decision to exit low margin businesses

Kendall Sinclair

Kendall Sinclair

Nov 7, 2012 – Cenveo

STAMFORD, Connecticut , November 7, 2012 (press release) – Company evaluating alternatives to address 2013 maturity

3rd Quarter Net Sales of $451.3 million and Adjusted EBITDA of $57.0 million

3rd Quarter Adjusted EBITDA Margin of 12.6%

3rd Quarter Non-GAAP Operating Income margin of 9.4%


Cenveo, Inc. today announced results for the three and nine months ended September 29, 2012.

The Company generated net sales of $451.3 million for the third quarter of 2012, compared to $475.8 million for the third quarter of 2011. The decrease in net sales was primarily due to lower sales in our print and envelope product lines as a result of lower direct mail volumes from our financial services customers, the closure and consolidation of a print plant in the first quarter of 2012 and our decision to exit certain low margin businesses. The Company generated net sales of $1.3 billion for the first nine months of 2012, compared to $1.4 billion for the first nine months of 2011. The decrease in net sales was primarily due to lower sales in our print and envelope product lines as a result of lower direct mail volumes from our financial services customers, customer product launches in the first nine months of 2011 that did not repeat in the first nine months of 2012, the closure and consolidation of a print plant in the first quarter of 2012 and our decision to exit certain low margin businesses. Net sales from our label and packaging business lines remained relatively flat for the third quarter of 2012 and for the nine months of 2012 despite our decision to exit low margin businesses within those platforms, which has been offset largely by our e-commerce initiatives and new account wins in our packaging business.

Operating income was $35.0 million for the third quarter of 2012, compared to $33.2 million for the third quarter of 2011. The increase in operating income was primarily due to our lower cost structure as a result of the integration of our Envelope Product Group (“EPG”) acquisition and lower compensation related expenses, offset by lower byproduct recoveries and increased pension expense. Non-GAAP operating income was $42.4 million for the third quarter of 2012, compared to $41.6 million for the third quarter of 2011. Operating income was $78.2 million for the first nine months of 2012, compared to $78.8 million2 for the first nine months of 2011. The decrease in operating income was primarily due to increased restructuring, impairment and other charges as a result of the closure and consolidation of a print plant in the first quarter of 2012 and other cost savings actions, lower byproduct recoveries and increased pension expense, offset in part by our lower cost structure due to the integration of our EPG acquisition and lower compensation related expenses. Non-GAAP operating income was $110.3 million for the first nine months of 2012, compared to $110.4 million for the first nine months of 2011. Non-GAAP operating income excludes integration, acquisition and other charges, stock-based compensation provision, restructuring, impairment and other charges. A reconciliation of operating income to Non-GAAP operating income is presented in the attached tables.

For the third quarter of 2012, the Company had income from continuing operations of $4.7 million, or $0.07 per share, compared to income from continuing operations of $1.3 million, or $0.02 per share for the third quarter of 2011. Non-GAAP, income from continuing operations was $13.6 million, or $0.16 per share, for the third quarter of 2012 as compared to $13.7 million, or $0.22 per share, for the third quarter of 2011. For the first nine months of 2012, the Company had a loss from continuing operations of $17.9 million, or $0.28 per share, compared to income from continuing operations of $0.7 million, or $0.01 per share for the first nine months of 2011. Non-GAAP, income from continuing operations was $26.3 million, or $0.34 per share, for the first nine months of 2012 as compared to $22.3 million, or $0.35 per share, for the first nine months of 2011. Non-GAAP income (loss) from continuing operations excludes integration, acquisition and other charges, stock-based compensation provision, restructuring, impairment and other charges, gain on bargain purchase, loss on early extinguishment of debt, net, an adjustment to income taxes to reflect an estimated cash tax rate, and an adjustment for interest expense related to the 7% convertible notes, "7% Notes", net of taxes. A reconciliation of income (loss) from continuing operations to Non-GAAP income from continuing operations is presented in the attached tables.

Adjusted EBITDA for the third quarter of 2012 was $57.0 million, compared to Adjusted EBITDA for the third quarter of 2011 of $58.2 million. Adjusted EBITDA for the first nine months of 2012 was $157.1 million, compared to Adjusted EBITDA for the first nine months of 2011 of $159.1 million. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, integration, acquisition and other charges, stock-based compensation provision, restructuring, impairment and other charges, gain on bargain purchase, loss on early extinguishment of debt, net and (loss) income from discontinued operations, net of taxes. A reconciliation of net income (loss) to Adjusted EBITDA is presented in the attached tables.

Financing and 2013 Maturity update:

The Company has been evaluating several alternatives to retire its outstanding notes with a December 2013 maturity. In particular, the Company is in discussions with prospective lenders regarding arrangements that would provide the Company with an unsecured loan in order to achieve full retirement of these notes by the end of 2012. While there can be no assurance that the Company will be able to reach an agreement with such lenders on acceptable terms, the Company is optimistic that it will be able to announce a solution shortly.

Robert G. Burton, Sr., Chairman and Chief Executive Officer stated:

“Our third quarter results showed sequential improvement as most of our operations performed to our expectations. We achieved this performance despite the well-known top line challenges stemming from continued softness in direct mail from our financial services customers. We have been able to largely offset the weakness in direct mail by continuing to focus on our cost structure as evidenced by our improved operating margins and by solid performances across most of our operations.”

“Our label products performed well with strong e-commerce revenue and product expansion driving anticipated growth especially across our custom label products, which showed 5% sales growth this quarter. Our print products were led by improving performance out of our commercial print group, which again showed margin improvement, and continued profit growth in our content management product line. Our envelope operations have been impacted by continued weakness in the direct mail market throughout the first nine months of the year. While some of this weakness was anticipated, we have yet to see any meaningful rebound in customer ordering patterns in regards to the credit card market to date. However, we have been successful in replacing a portion of this volume with more transactional envelope business, driven by market share gains. We do believe that we will see a return to more normalized volume in the direct market in 2013.”

Mr. Burton concluded:

“As we enter the final quarter of 2012, we are pleased to be in position to put our 2013 maturity behind us before entering our fiscal 2013 year, and we can now focus 100% of our efforts back on operating and growing the business. Despite the challenging macro environment we have faced so far this year, we have been able to continue to drive cash flow, pay down debt and expand our operating margins. We expect that the momentum across each of our business segments to carry over into next year. We remain entirely focused on executing our game plan and remain excited about opportunities ahead of us in 2013 and beyond.”

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