Courier Corporation has announced fourth-quarter and full-year results for its fiscal year ended September 28, 2013. Courier’s 2013 fiscal year had 52 weeks. Its 2012 fiscal year had 53 weeks, with the extra week included in the fourth quarter.
Fourth-quarter revenues in fiscal 2013 were $84 million, up 9% from $77 million in the fourth quarter of fiscal 2012. Net income in this year’s fourth quarter was $6.8 million or $.59 per diluted share, up from $5.7 million or $.50 per diluted share in last year’s fourth quarter, which included restructuring costs of $1.5 million or $.08 per diluted share primarily related to the writedown of an unutilized one-color press. Excluding those costs, fourth-quarter net income in fiscal 2012 was $6.6 million or $.58 per diluted share.
For the full year of fiscal 2013, Courier sales were $275 million, up 5% from $261 million for the 53 weeks of fiscal 2012. Net income was $11.2 million or $.98 per diluted share, up from $9.2 million or $.77 per diluted share last year, which included restructuring costs of $3.3 million or $.17 per diluted share as well as a first-quarter pretax gain of $0.6 million from the sale of certain non-operating assets. Excluding those items, net income for fiscal 2012 was $10.9 million or $.91 per diluted share. Details of last year’s restructuring costs and other items can be found in the tables at the end of this release.
The principal contributor to the sales increase, both for the quarter and for the year, was growing demand from educational publishers. Sales of textbooks for elementary and high schools rose, reversing several years of slower sales, while sales of college textbooks grew by a larger amount, led by sales of textbooks customized to the needs of individual professors, courses, institutions and geographic regions.
“We finished a very good year in the education market with a banner quarter in which total textbook sales rose more than 25%,” said Courier Chairman and Chief Executive Officer James F. Conway III. “Between our industry-leading textbook customization technology and our combination of four-color offset and digital inkjet printing capabilities, we are producing top-quality textbooks at a variety of run lengths to meet highly specific needs for publishers and educators alike. This past spring, we opened a second digital facility near our four-color offset plant in Kendallville, Indiana, to help meet demand throughout the United States. In addition, shortly after the close of the fiscal year we entered into new relationships which will enable us to extend the benefits of our technology to millions of students in Brazil.
“As always, we worked hard to help our customers succeed, and we continued to grow our share with our largest customers in both the education and religious markets. Our manufacturing and distribution relationship with our largest religious customer spans more than 100 countries and plays an expanding role in helping our customer deliver Scriptures to tens of millions of people each year. At the same time, we took an important step in a very different market with our April acquisition of California-based startup FastPencil, provider of a collaborative content management application as well as a self-publishing software platform that has been used by more than 50,000 content creators.
“Our publishing segment reported sales essentially even with last year, but cut its operating loss nearly in half as ebook sales passed the million-dollar mark and started to contribute significantly to profitability. Well over 4,000 print titles, representing all three of our publishing brands, are now available as ebooks on all the major retail platforms. Also, consumers can now obtain Dover’s entire ebook offering via direct download from a newly redesigned www.doverpublications.com website.
“Pleased as we were with our sales gains in book manufacturing, operating margins were under pressure from the combined effects of a very competitive pricing environment and lower recycling revenues. But cash flow remained strong, and while our debt at year-end was up by $10 million as a result of our investments in expanded digital capacity and FastPencil, we enter fiscal 2014 in solid financial condition. Confirming this judgment, Courier’s Board of Directors has once again declared a dividend of $.21 per share, the same as last quarter. In addition, following the expiration of the stock repurchase program authorized last year, the Board has issued a new authorization for the repurchase of up to $10 million in Courier stock.”
Book manufacturing: custom textbooks continue to outperform
Courier’s book manufacturing segment had fourth-quarter sales of $76 million, up 10% from $69 million last year. Fourth-quarter operating income in the segment was $10.8 million, versus $10.2 million last year including restructuring costs. Excluding those costs, the segment’s fourth-quarter operating income in fiscal 2012 was $11.7 million.
For the full year, book manufacturing sales were $247 million, up 6% from $233 million in fiscal 2012. The segment’s full-year operating income was $22.0 million, versus $20.7 million last year, including restructuring costs. Excluding those costs, fiscal 2012 operating income in the segment was $23.4 million.
The segment’s gross profit was $20.6 million or 27.1% of sales in the fourth quarter, versus $19.6 million or 28.4% of sales in last year’s fourth quarter excluding restructuring costs. Gross profit for fiscal 2013 was $53.9 million or 21.8% of sales, versus fiscal 2012 gross profit of $51.7 million or 22.2% of sales excluding restructuring costs. The reduction in gross profit margins resulted from intense price competition, reduced recycling income, and increased expense associated with the LIFO method of accounting for certain inventories. Other factors affecting the segment’s overall profitability included increased performance-based compensation costs and transaction costs related to the FastPencil acquisition and our pending investment in Brazil.
The book manufacturing segment focuses on three markets: education, religion, and specialty trade. Sales to the education market were $39 million in the fourth quarter, up 26% over the previous year. For the year, education sales were $112 million, up 14% from fiscal 2012, with most of the growth related to sales of college textbooks, but also renewed growth in sales of elementary and high school textbooks. Sales to the religious market were $19 million in the quarter, down 3% from last year; for fiscal 2013 as a whole, religious sales were $69 million, up 2% over fiscal 2012, in line with historical trends. Fourth-quarter sales to the specialty trade market were $16 million, down 4% from an exceptionally strong quarter last year; for the full year, specialty trade sales were $59 million, down 2% from fiscal 2012, reflecting tight inventory management leading to smaller print quantities.
Digital sales increased both in the fourth quarter and for the year as a whole, reflecting escalating demand for customized versions of college textbooks. With its Massachusetts digital facility running close to capacity, in April Courier opened a second digital production facility in Kendallville, Indiana, and utilization was high at both facilities through the balance of the year.
“The education market continues to deliver for us—as we do for our customers,” said Mr. Conway. “Our consistent policy of customer-focused investment is helping publishers and educators reach today’s students more effectively than ever with materials that provide a powerful, integrated learning experience. With our combination of offset and digital capacity, we can meet course-specific deadlines while producing efficiently at every scale across the full life cycle of every title. This capability is a key factor driving the continued expansion of our relationship with our major customer in the education market.
“Having successfully replicated our Massachusetts digital operations at our new Indiana facility, it was only natural for us to investigate other markets suitable for our technology and approach. Earlier this year we began discussions with leaders in Brazil’s education market, the largest in Latin America. In October we entered into a pair of agreements with Digital Page Gráfica E Editora, a Sao Paulo-based digital printing firm, and Santillana, the largest Spanish/Portuguese educational publisher in the world. We expect both agreements to close by the end of this calendar year. Under these agreements, through the combination of our customization technology and Digital Page’s manufacturing facilities, Santillana will become the first publisher in Brazil to offer textbooks customized to the needs of individual schools—while Courier takes a position as 40% owner of Digital Page.
“Sales to the religious market were down in the fourth quarter but up slightly for the full year, in keeping with our long history of quarter-to-quarter fluctuations with our largest religious customer. The decline in specialty trade sales reflects continued tight management of inventories and associated utilization to digital printing for certain titles. Though overall order flow in specialty trade remained consistent, we expect the pattern of tight inventory management to continue.
“Finally, our April acquisition of FastPencil and its popular self-publishing software platform brought us a ground-floor position in one of the industry’s fastest-growing segments. FastPencil’s workflow technology, licensing expertise and Premiere publishing imprint also offer significant benefits for established authors, particularly in combination with our digital print capabilities.”
Publishing: ebook sales making a difference
Courier’s publishing segment includes three businesses: Dover Publications, a niche publisher with 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, which publishes books and plans on home design, decorating, landscaping and gardening.
Fourth-quarter revenues for the segment were $10.3 million, up 2% over last year’s 14-week fourth quarter. Overall, the segment’s fourth-quarter operating income was $324,000, versus a loss of $426,000 in fiscal 2012.
For the year as a whole, publishing sales were $37.6 million, down 2% from $38.4 million in fiscal 2012. The segment’s operating loss for fiscal 2013 was $2.1 million, much improved from a fiscal 2012 loss of $4.4 million including restructuring costs, or $3.7 million excluding those costs. The improved performance reflected the continuation of stringent cost-control measures, reduced inventory obsolescence costs and increased ebook revenues.
“Dover continues to look better each quarter,” said Mr. Conway. “Our investment in ebooks is starting to generate a larger audience as well as improved profitability. In addition, the revamped website combines a refreshing new look with a host of new features including an improved shopping cart and the ability to bundle print and ebook purchases. Meanwhile, our other publishing brands continue to offer excellent content through a channel network still compromised by the loss of Borders and Home Depot. Yet with attentive management and increasingly effective use of digital print to minimize obsolescence costs, we have continued to bring the segment’s losses down as we pursue additional sales and distribution opportunities.”
“We enter fiscal 2014 with exciting prospects, but also continuing challenges,” said Mr. Conway. “We continue to reap the benefits of our investments in customization and content management, and we are adding to those investments in order to expand our opportunities, both domestically and internationally. Yet at the same time, we face the same pressures on print pricing as the rest of the industry. As a result, while we expect revenues to continue to outpace the overall U.S. education market and maintain their growth pace with our largest religious customer, we expect growth in net income to be constrained by those continuing pressures, even as EBITDA rises.
“As in the past, we expect our performance in fiscal 2014 to follow a seasonal pattern, with the larger portion of our earnings coming in the second half.
“Overall, we expect fiscal 2014 sales of between $275 million and $295 million, compared to $275 million in fiscal 2013. We expect earnings per diluted share of between $.70 and $1.00, which compares with our 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 (earnings before interest, taxes, depreciation and amortization) 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 $46 million, compared to $42 million in fiscal 2013.
“Factors not incorporated into this guidance include the possibility of future impairment or restructuring charges.”