Book manufacturer Courier reports higher revenue, but lower net income due to pricing pressures
In Courier’s book manufacturing segment, third-quarter sales were up in two of its three principal markets
NORTH CHELMSFORD, Mass. – August 6, 2014 — Courier Corporation, one of America’s leading innovators in book manufacturing, publishing and content management, today announced results for the quarter ended June 28, 2014, the third quarter of its 2014 fiscal year. Revenues were $67.7 million, up 5% from last year’s third-quarter revenues of $64.1 million. Net income for the quarter was $1.2 million or $.10 per diluted share, versus $1.7 million or $.15 per diluted share in last year’s third quarter.
For the first nine months of fiscal 2014, Courier revenues were $201.9 million, up 6% from $190.7 million in fiscal 2013. Net income for the year to date was $450,000 or $.04 per diluted share, including a second-quarter non-cash impairment charge of $1.9 million or $.16 per diluted share related to Courier’s FastPencil subsidiary and the write-off of an $825,000 receivable following the liquidation of a book distribution customer, also in the second quarter. Excluding the impairment charge and the receivable writeoff, adjusted income for the nine-month period was $2.8 million or $.25 cents per diluted share. For the first nine months of fiscal 2013, the company’s net income was $4.4 million or $.39 per diluted share.
Details of these and other items, including reconciliations of non-GAAP measures to GAAP, can be found in the tables at the end of this release. One such non-GAAP measure is EBITDA (earnings before interest, taxes, depreciation and amortization), an additional indicator of the company’s operating cash flow performance. For the first nine months of fiscal 2014, Courier’s EBITDA, adjusted for the net impairment charge and receivable write-off, was $25.4 million, compared to $25.7 million in the same period last year.
In Courier’s book manufacturing segment, third-quarter sales were up in two of its three principal markets. The largest gain was in the education market, with especially strong sales at the elementary and high school levels. Sales to the religious market were also up, while trade sales were off. For the year to date, sales were up in all three markets. In the company’s publishing segment, while sales were off slightly both for the quarter and for the year to date, the adjusted operating loss was down substantially.
“We had a solid quarter across much of our business despite several factors that constrained our earnings,” said Courier Chairman and Chief Executive Officer James F. Conway III. “Pricing pressures and increasingly tight inventory management on the part of publishers have been facts of life for some time. In addition, this year we bore the non-cash burden of depreciation related to our recent expansion in digital press capacity without reaping the full benefit of that capacity until the latter half of the quarter. A third factor was our investment in FastPencil and the subsequent ramp-up. Over time, we expect all these investments to serve our customers and our company well. Meanwhile, we continue to grow our business with our largest religious customer both in the United States and around the world, as we help them carry out their long-term program of international Scripture distribution.
“In our publishing segment, while sales were down, we continued to trim our operating losses, helped by improved performance at both Dover Publications and Research & Education Association (REA).
“We head into our fourth quarter with a strong order flow for our digital and offset manufacturing facilities in Massachusetts and Indiana.
“Given our performance this quarter and our strong financial condition, on July 24 our Board of Directors declared our regular quarterly dividend of $.21 per share.”
Book manufacturing: textbook season starts slow but gains momentum
Courier’s book manufacturing segment had third-quarter sales of $61.1 million, up 5% from $58.1 million in the same period last year. For fiscal 2014 to date, book manufacturing sales were $182.1 million, up 6% from $171.5 million in the first nine months of fiscal 2013. The segment’s third-quarter operating income was $3.0 million, versus $4.2 million a year ago. On a year-to-date basis, operating income was $7.6 million, versus $11.1 million for the same period last year. Factors affecting 2014 earnings in both the quarter and the year to date include continuing pricing pressures, increased depreciation expense associated with the expansion of digital capacity in advance of the peak textbook season, and costs associated with the company’s investment in FastPencil.
The book manufacturing segment focuses on three markets: education, religious, and specialty trade. Sales to the education market were up 7% in the quarter and up 9% for the year to date, with the largest increase coming from sales of elementary and high school textbooks. Sales to the religious market were up 12% in the third quarter and up 5% for the first nine months of the year, largely driven by growth in sales to our largest religious customer. Sales to the specialty trade market were down 3% in the third quarter, but up 3% for the first nine months of the fiscal year.
“For years we have benefited from taking a long view of opportunities in our major markets,” said Mr. Conway. “Once again this quarter proved us right despite its slow start, as the long-depressed elementary and high school textbook market continued its comeback. With our expanded digital capacity, we are well prepared to meet customers’ evolving needs amidst a continually changing landscape. We head into our fourth quarter with a strong backlog for both digital and offset, as the underlying drivers in the education market continue to be positive.
“Meanwhile, in the religious market, we had an excellent quarter which more than made up for a slower second quarter and put us back on track for the year, in keeping with our long-term relationship with our largest religious customer.”
Publishing: print and electronic working together to reduce losses
Courier’s publishing segment includes three businesses: Dover Publications, a publisher of thousands of titles in dozens of specialty trade markets; Research & Education Association (REA), a publisher of test preparation books and study guides; and Creative Homeowner, a publisher of books on home design, decorating, landscaping and gardening.
Third-quarter revenues for the segment were $8.5 million, down 4% from $8.8 million in last year’s third quarter. Despite this decline, the segment reduced its operating loss to $493,000, from a loss of $889,000 last year. For fiscal 2014 to date, segment sales were $26.6 million, versus $27.3 million for the first nine months of last year, with the shortfall entirely attributable to disruption at Creative Homeowner following the liquidation of its major distributor. The segment’s operating loss through nine months was $2.3 million, or $1.4 million excluding the write-off of the receivable from that distributor.
Within the segment, sales were flat at Dover and REA, but down at Creative Homeowner, a pattern which held true both for the quarter and for the first nine months of the year. Operating results improved at both Dover and REA, with REA showing a profit both for the quarter and for the year to date.
“Our publishing businesses continue to operate with focus and discipline,” said Mr. Conway, “paring back the segment’s operating losses and compensating for a challenging bricks-and-mortar retail environment with good growth in sales to online retailers, as well as electronic products. Dover continues to win new fans with its Creative Haven line of adult coloring books, while REA solidifies its standing as a leader in the test-prep market with a significantly leaner structure. In addition, our growing library of ebooks continues to generate new sales while improving profitability throughout the segment.”
“We start our fourth quarter with the expectation of another strong finish to our fiscal year,” said Mr. Conway. “We are being helped by the continued improvement in the economy and, with it, the renewed growth in textbook demand at the elementary and high school levels. We also continue to benefit from our market-leading service offering in customized textbooks for colleges and universities and steady growth with our largest religious customer. At the same time, we expect our publishing segment to continue on its path of managing costs aggressively while staying closely aligned with retailers’ needs and consumers’ interests.
“Overall, we expect fiscal 2014 sales of between $280 million and $289 million, compared to $275 million in fiscal 2013. We expect earnings per diluted share of between $.70 and $.90, excluding the second-quarter impairment charge and receivable write-off, versus fiscal 2013 earnings of $.98 per diluted share.
“In addition to measuring our performance by generally accepted accounting principles, we also track several non-GAAP measures including EBITDA as an additional indicator of the company’s operating cash flow performance. This measure should be considered in addition to, not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. In fiscal 2014, we expect EBITDA to be between $41 million and $45 million, excluding the second-quarter impairment charge and receivable write-off, compared to $42 million in fiscal 2013.
Factors not incorporated into this guidance include the possibility of future impairment or restructuring charges.