Mod-Pac's Q1 net income grows to US$357,000 from US$20,000 a year ago aided by a 15.8% increase in revenue to US$13.9M in addition to lower cost structure, productivity enhancements
BUFFALO, New York
May 3, 2011
– MOD-PAC CORP. (NASDAQ:MPAC - News), (the “Company”) a manufacturer of custom paper board packaging and provider of personalized print products, today reported revenue of $13.9 million for the first quarter of 2011, which ended April 2, 2011, an increase of 15.8%, compared with revenue of $12.0 million in the first quarter of 2010, which ended April 3, 2010.
Net income for the first quarter of 2011 was $357,000, or $0.10 per diluted share, compared with net income of $20,000, or $0.01 per diluted share, in the first quarter of 2010. The improvement in net income reflects increased product sales leveraged against a lower cost structure and ongoing productivity enhancements and efficiency gains.
Mr. Daniel G. Keane, President and CEO of MOD-PAC CORP, commented, “Led by our market-share gains in custom folding cartons and continued improvement in our stock packaging business line, we delivered a solidly profitable quarter. Our sustained profitability is clear evidence that our many initiatives to restructure and refocus our business platform, together with an improving economy, firmly puts us on the path to achieve our long-term growth and profitability goals.”
First Quarter Sales Review: Strong Custom Folding Carton Sales,
Stock Packaging Sales Continue Strengthening
* Sales of folding cartons, which include custom folding cartons and stock packaging, were $13.1 million in the first quarter of 2011, up 17.2% from $11.2 million in the first quarter of 2010.
* Custom folding carton sales in the first quarter of 2011 reached a record $10.5 million, up 20.9% from $8.7 million in the first quarter of 2010, as the Company experienced increased activity levels with several large existing customers, while also winning business from one new large account.
* Stock packaging sales of $2.6 million in the first quarter of 2011 were up 4.5% from $2.5 million in the first quarter of 2010. Improved market conditions had a favorable impact on the stock packaging line.
* Personalized print sales were $697,000 in the first quarter of 2011, essentially flat with $703,000 in the first quarter of 2010, mainly due to continued weakness in general business conditions.
David B. Lupp, Chief Operating Officer and Chief Financial Officer, noted, “We continue to focus resources on growing our custom folding carton product line, and our sales and marketing efforts have begun to gain traction, momentum that we believe is sustainable as we move through the balance of the year. Leveraged against higher sales, our lower cost structure allowed us to generate significant margin improvements in the quarter.”
First Quarter Operating Results
Gross profit increased 25.1% to $2.25 million in the first quarter of 2011 compared with $1.80 million in the 2010 first quarter. Gross margin improved 130 basis points to 16.2% in the first quarter of 2011, compared with 14.9% in the first quarter of 2010. The increase in gross profit and margin was primarily attributable to operational leverage generated by increased product sales and graphics billings, favorable product mix, and an increase in waste revenue, offset partially by increased repairs expense and pricing pressures.
Selling, general and administrative (SG&A) expenses were $1.82 million, or 13.1% of revenue, in the first quarter of 2011, compared with $1.78 million, or 14.8% of revenue, in the first quarter of 2010. The slight increase in SG&A expense was primarily driven by higher employee-related costs, offset partially by lower professional service costs.
Adjusted earnings before interest, taxes, depreciation, amortization, and non-cash option expense (Adjusted EBITDA) was $1.39 million in the first quarter of 2011, compared with $906,000 in the first quarter of 2010. The Company believes that when used in conjunction with GAAP measures, Adjusted EBITDA, which is a non-GAAP measure, helps in the understanding of operating performance. (See the Reconciliation of Net Income to Adjusted EBITDA in the attached table.)
The Company’s effective tax rate for the first quarter of 2011 was 26.2%. Tax expense for the three months ended April 2, 2011 was recorded at a rate lower than customary mainly due to alternative minimum tax credits.
Cash and cash equivalents were $2.6 million at the end of the first quarter compared with $3.4 million at December 31, 2010. The decrease in cash and cash equivalents during the first three months of 2011 was primarily the result of capital expenditures, loan repayments and an increase in working capital requirements, including forward purchasing of inventory.
Capital expenditures, which were focused on productivity and infrastructure improvements and equipment upgrades, were $0.3 million in the 2011 first quarter, relatively unchanged from the prior year period. MOD-PAC expects capital expenditures in 2011 to be approximately $1.5 million to $2.0 million. Depreciation and amortization for the first three months of 2011 and 2010 was $0.7 million.
MOD-PAC has a $3.0 million secured line of credit of which $0.2 million was in use through a standby letter of credit and there was no balance drawn on the line at the end of the quarter.
Webcast and Conference Call
The release of the financial results will be followed today by a company-hosted teleconference at 1:30 p.m. ET. During the teleconference, Daniel G. Keane, President and Chief Executive Officer, and David B. Lupp, Chief Operating Officer and Chief Financial Officer will review the financial and operating results for the period. A question-and-answer session will follow.
The MOD-PAC conference call can be accessed the following ways:
* The live webcast can be found at http://www.modpac.com. Participants should go to the website 10 - 15 minutes prior to the scheduled conference in order to register and download any necessary audio software.
* The teleconference can be accessed by dialing (201) 689-8562 and requesting conference ID number 348535 approximately 5 - 10 minutes prior to the call.
* The archived webcast will be at http://www.modpac.com. A transcript will also be posted once available.
* A replay can also be heard by calling (201) 612-7415, and entering account number 3055 and conference ID number 348535. The telephonic replay will be available from 4:30 p.m. ET the day of the teleconference until 11:59 p.m. ET on May 11, 2010.
About MOD-PAC CORP.
MOD-PAC CORP. is a high value-added, on-demand print services firm providing products and services in two product categories: folding cartons and personalized print. Within folding cartons, MOD-PAC provides CUSTOM FOLDING CARTONS for branded and private label consumer products in the food and food service, healthcare, medical and automotive industries. The Company also offers a line of STOCK PACKAGING primarily to the retail confectionary industry. MOD-PAC’s PERSONALIZED PRINT product line is a comprehensive offering for consumer and corporate social occasions.
MOD-PAC’s strategy for growth is to leverage its capabilities to innovate and aggressively integrate technology into its production operations providing cost-effective solutions for its customers. Through its large, centralized facility, the Company has captured significant economies of scale by channeling large numbers of small-to-medium-sized orders through its operations due to its rapid order change out skills. Applying its lean manufacturing processes, coupled with state-of-the-art printing technologies, MOD-PAC is able to address short-run, highly variable content needs of its customers with quick turn-around times relative to industry standards.
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