Mod-Pac's Q4 net income up 70.8% year-over-year to US$410,000, reflecting positive leverage from higher sales, offset by negative product mix and continued raw material pricing pressures; revenue up 13.7% to US$14.6M

BUFFALO, New York , February 16, 2012 (press release) – MOD-PAC CORP. (NASDAQ: MPAC - News) (the “Company”), a manufacturer of custom and stock paperboard packaging and provider of personalized print products, today announced financial results for its fourth quarter and year ended December 31, 2011.

In the fourth quarter of 2011, revenue increased $1.8 million, or 13.7%, to $14.6 million from $12.8 million in the fourth quarter of 2010. Each of the Company’s product lines contributed to the revenue growth. Net income was $0.4 million, or $0.12 per diluted share, compared with $0.2 million, or $0.07 per diluted share, in the fourth quarter of 2010. The higher net income reflects positive leverage from higher sales, offset by negative product mix and continued raw material pricing pressures. The prior year fourth quarter includes a $178 thousand, or $0.05 per diluted share, charge for impaired asset write-downs.

Total revenue for 2011 was $56.2 million compared with $48.7 million in 2010, reflecting higher folding carton sales and improved waste sales due to a recovery in the recycling market. Net income increased 43.3% to $1.9 million, or $0.55 per diluted share, in 2011 from $1.3 million, or $0.37 per diluted share, in 2010. Higher revenue along with productivity and cost reduction initiatives drove the net income increase.

Daniel G. Keane, President and CEO, commented, “As a result of our continued implementation of our targeted sales strategy, we delivered strong performance in 2011. This was primarily led by growing business from existing customers and increased market-share gains in our custom folding cartons line.”

Fourth Quarter 2011 Sales Review

Sales of custom folding cartons were up 17.7% to $10.3 million in the 2011 fourth quarter from $8.7 million in the prior year fourth quarter, mainly due to business from one new customer, increased sales to two relatively new customers and increased waste sales.
Stock packaging sales increased 4.9%, or $0.2 million, to $3.5 million in the fourth quarter, primarily due to improved market conditions.
Personalized print sales were $660,000 in the fourth quarter of 2011, up slightly from $621,000 in the fourth quarter of 2010.

David B. Lupp, Chief Operating Officer and Chief Financial Officer, noted, “We believe our consistent growth in folding cartons is because we have executed an aggressive sales and marketing plan to expand our penetration into the marketplace. This coupled with the implementation of increasing efficiency and sustainability in every area of our business, has shown through in our operating performance and margins in 2011. However, in the fourth quarter, our gross margin was negatively impacted by product mix and higher raw materials costs. We have been working to offset these impacts and believe that over time we can achieve greater leverage on higher sales.”

Fourth Quarter Operating Results

Gross profit for the 2011 fourth quarter was $2.5 million, or 17.2% of total revenue, compared with gross profit of $2.2 million, or 17.5% of total revenue, in the prior year period. The decrease in gross margin was primarily attributable to product mix and increased materials and repairs costs, partially offset by operational leverage generated by increased product sales.

Selling, general and administrative (SG&A) expense was up $0.2 million to $1.9 million in the fourth quarter of 2011 compared with $1.7 million in the prior year period, but as a percent of total revenue was unchanged both periods at 13.2%. The dollar increase was a result of investments in the sales force and increased commissions from folding carton sales.

In the fourth quarter of 2010, the Company recognized a $60 thousand expense for the write-down of impaired assets due to the Company's rationalization of the specialty print and direct mail product line and a $118 thousand expense for the write-down of a software system.

Earnings before interest, asset impairment, taxes, depreciation and amortization, and non-cash option expense (EBITDA) was $1.4 million in the fourth quarter of 2011 compared with $1.3 million in the 2010 fourth quarter. The Company believes that, when used in conjunction with GAAP measures, EBITDA, which is a non-GAAP measure, helps in the understanding of operating performance. (See the Reconciliation of Net Income to EBITDA in the attached table.)

The Company’s effective tax rate for the fourth quarter of 2011 and 2010 was 23.1% and 16.7%, respectively.

2011 Review

Custom folding carton sales in 2011 increased $7.1 million, or 19.9%, to $42.8 million compared with $35.7 million for 2010, as the Company has successfully won customers and gained additional business from existing accounts, as well as benefited from higher waste sales. Stock packaging sales increased $0.5 million, or 5.2%, to $10.1 million over the corresponding period, while personalized print sales were down $59 thousand to $2.9 million.

Gross profit increased to $10.3 million, or 18.3% of total revenue, in 2011 from gross profit of $8.8 million, or 18.0% of total revenue, in 2010. The improvement in margin was primarily due to operating leverage and higher margin waste sales, partially offset by increased materials, repairs and maintenance costs.

SG&A expense was $7.5 million, or 13.3% of total revenue, compared with $7.1 million, or 14.5% of total revenue, in 2010.

Included in the 2010 results was the previously noted $178 thousand of expense associated with the write-down of impaired assets.

EBITDA for 2011 was up 27.3% to $6.3 million compared with $4.9 million in 2010. (See the Reconciliation of Net Income to EBITDA in the attached table.)


Cash and cash equivalents were $3.9 million at December 31, 2011, up from the 2010 year-end balance of $3.4 million. Higher net income offset increased working capital requirements, particularly with inventory, higher capital expenditures and the repurchase of stock. The Company increased inventory to $7.0 million at December 31, 2011, from $5.2 million at 2010 year-end to continue to meet demand and customer schedules as well as take advantage of strategic buy-ahead opportunities.

Capital expenditures for 2011 were $2.3 million compared with $1.8 in 2010. Infrastructure and productivity improvements and other equipment upgrades made up the bulk of the 2011 expenditures. Capital expenditures in 2012 are expected to be between $2.8 million to $3.2 million and will primarily be used for production equipment and enhancements.

The Company did not repurchase shares in the 2011 fourth quarter. For the full year, a total of 182,539 shares were repurchased at an average price of $5.53. MOD-PAC has authorization to repurchase up to 200,000 additional shares.

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 2011.


Mr. Keane concluded, “We are continuing to make targeted investments in our business to further advance our market position and generate long-term growth in order to increase our profitability. We remain aggressive on growing sales and continue to look for opportunities to increase efficiencies and reduce costs.”

Webcast and Conference Call

MOD-PAC will host a conference call and webcast on Friday, February 17, 2012 at 11:00 a.m. Eastern Time. During the conference call and webcast, management will review the financial and operating results for the period, followed by a question-and-answer session.

The conference call can be accessed by dialing (201) 689-8562. The listen-only audio webcast can be monitored at

The telephonic replay will be available from 2:00 p.m. ET the day of the call until Friday, February 24, 2012. To listen to the archived call, dial (858) 384-5517, and enter conference ID number 386648. Alternatively, the archive of the webcast will be available on the Company’s website at A transcript will also be posted to the website, once available.


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.

Additional information on MOD-PAC can be found at its website:

(in thousands except per share data)                
    Three months ended   Year ended
    12/31/2011   12/31/2010   12/31/2011   12/31/2010
Product sales   $ 14,446     $ 12,697     $ 55,777     $ 48,232  
Rent     113       107       448       489  
Total Revenue     14,559       12,804       56,225       48,721  
Cost of products sold     12,053       10,559       45,943       39,964  
Gross profit     2,506       2,245       10,282       8,757  
Gross profit margin     17.2 %     17.5 %     18.3 %     18.0 %
Selling, general and administrative expense     1,927       1,694       7,488       7,056  
Net write-down (write-up) of impaired assets     --       178       --       178  
Income (Loss) from operations     579       373       2,794       1,523  
Operating margin     4.0 %     2.9 %     5.0 %     3.1 %
Interest expense, net     47       47       192       195  
Other (expense) income     1       (38 )     146       45  
Income (Loss) before taxes     533       288       2,748       1,373  
Income tax expense (benefit)     123       48       877       67  
Net income (loss)   $ 410     $ 240     $ 1,871     $ 1,306  
Basic income (loss) per share:   $ 0.13     $ 0.07     $ 0.57     $ 0.38  
Diluted income (loss) per share:   $ 0.12     $ 0.07     $ 0.55     $ 0.37  
Weighted average diluted shares outstanding     3,337       3,497       3,416       3,544  

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