Courier Corporation (Nasdaq: CRRC), one of America’s leading innovators in book manufacturing, publishing and content management, on Wednesday announced results for the quarter ended March 29, 2014, the second quarter of its 2014 fiscal year. Revenues were $61.4 million, off slightly from $61.8 million in last year’s second quarter. For the quarter, the company reported a loss of $3.4 million or $.30 per diluted share, including a non-cash impairment charge of $1.9 million or $.17 per diluted share related to FastPencil, a California startup acquired by Courier last spring, as well as an $825,000 write-off associated with the failure of a book distribution customer. Excluding the impairment charge and the receivable write-off, the adjusted loss for the quarter was $1.0 million or $.09 per diluted share. In fiscal 2013’s second quarter, net income was $336,000 or $.03 per diluted share.
For the first six months of fiscal 2014, Courier revenues were $134.2 million, an increase of 6% from $126.5 million last year. The company reported a loss for the six-month period of $0.7 million or $.06 per diluted share, including the second-quarter impairment charge and receivable write-off; excluding those items, income through six months was $1.7 million or $.14 per diluted share, versus net income of $2.8 million or $.24 per diluted share for the first half of fiscal 2014. Details of the impairment charge and other items, including reconciliations of non-GAAP measures to GAAP, can be found in the tables at the end of this release.
“For years our financial results have reflected the seasonal nature of our business, with a slow second quarter paving the way for a stronger second half,” said Courier Chairman and Chief Executive Officer James F. Conway III. “Our performance so far this year is in line with that history. But this spring we faced three additional challenges that reinforced the pattern and led to a quarterly loss.
“Externally, the sudden closing and liquidation of our primary distributor into the home improvement channel hurt results. Internally, we had to absorb additional depreciation costs associated with expanded digital press capacity acquired in anticipation of the coming textbook season—an investment that we are confident will be amply rewarded over time. Finally, we took a non-cash impairment charge of $1.9 million related to our California software startup, FastPencil. While FastPencil’s enterprise-level sales are taking longer than we had hoped, the company’s innovative technology platform continues to gain traction in the large and growing community of self-publishers.
“Customized textbooks continue to be an important growth avenue for our education business, but our second fiscal quarter falls outside the busy season for this activity. In the religious market, the sales decline at our largest customer came on the heels of a strong first quarter. On the publishing side, the bright spot in a difficult quarter was the healthy sales growth and improved bottom line at REA, whose line of AP test prep titles continues to shine in a crowded competitive landscape.
“Despite the quarter’s challenges, our financial condition remains strong and we face the second half of the fiscal year well positioned for the demand we foresee. As a result, on April 23rd our Board of Directors declared a dividend of $.21 per share, the same as last quarter.”
Book manufacturing: investing for the future amidst seasonal challenges
Courier’s book manufacturing segment reported second-quarter sales of $55.4 million, down 1% from $55.9 million in last year’s second quarter. The segment’s operating loss was $718,000, including a loss of $900,000 at FastPencil, versus operating income of $1.4 million a year ago. Additional factors affecting earnings included a tight pricing environment and over $1 million of additional depreciation and amortization expense, primarily due to recent investments in digital capacity in anticipation of future demand.
For the first six months of the fiscal year, book manufacturing sales were $121 million, up 7% from $113 million in the first half of fiscal 2013. Six-month operating income in the segment was $4.6 million, including a loss of $1.8 million at FastPencil, versus income of $6.9 million a year ago.
The book manufacturing segment focuses on three markets: education, religion, and specialty trade. Sales to the education market were $21 million in the second quarter, up 5% from a year earlier, driven by increased sales of elementary and high school textbooks; for the year to date, education sales were $49 million, up 10% from fiscal 2013. Sales to the religious market were down 8% to $17 million in the quarter, with sales to Courier’s largest religious customer down 11%, but down only 2% on a year-to-date basis. Overall, religious sales for the first six months of the fiscal year were up 3% over last year. Sales to the specialty trade market were $15 million, comparable to last year’s second quarter, while year-to-date sales were $32 million, up 6% from last year, reflecting an increase in four-color work as well as sales of digital print.
“Coming out of the seasonally slower second quarter in book manufacturing, we expect stronger demand for the remainder of the year,” said Mr. Conway. “As it happened, some of the burden of preparing for the future fell on the second quarter, with two new digital presses ready and waiting for the coming season. As the year progresses, we expect to be at or near capacity due to the combination of continued growth in custom college textbooks, the gradual ongoing revival of the elementary and high school textbook market, and helpful vendor consolidation trends on the part of several publishers.”
Publishing: coping with a key distributor loss
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.
Second-quarter revenues for the segment were $9.0 million, down from $9.4 million last year, with sales up at REA but lower at the other two publishing companies. The segment’s operating loss for the quarter was $1.2 million, versus $368,000 for the second quarter of fiscal 2013, with the difference almost entirely attributable to the $825,000 write-off associated with the closing of Creative Homeowner’s largest distribution customer. Publishing revenues for the first six months of the year were $18 million, down 2% from last year; the segment’s loss for the year to date was $1.8 million, versus $1.5 million in fiscal 2013.
“While REA delivered a strong performance, Creative Homeowner was hurt by the loss of its major home improvement distributor,” said Mr. Conway. “At Dover, it’s worth noting that online sales, sales of ebooks, and sales of Creative Haven line of adult coloring books all continued to rise during the quarter.”
“While it has been a choppy year on the surface, the underlying drivers for our business remain positive,” said Mr. Conway. “Our investments in technology and service should stand us in good stead as we enter the busiest part of our sales year. Our relationships with global leaders in our key markets are stronger than ever, and in our largest market, education, we are encouraged by the recent showings of renewed strength in the long-depressed elementary and high school segment. At the same time, we still face intense pricing pressures.
“As in the past, we expect our performance in fiscal 2014 to follow a seasonal pattern, with stronger earnings in the second half driving full-year results.
“Overall, we expect fiscal 2014 sales of between $280 million and $292 million, compared to $275 million in fiscal 2013. We expect earnings per diluted share of between $.70 and $.95, 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 (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 $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.