Courier’s Strong Quarter for Book Manufacturing Boosts Its ResultsNovember 15, 2011
Book manufacturing: solid growth in education continues
Courier’s book manufacturing segment had fourth-quarter sales of $66.6 million, up 9 percent from $61.1 million last year. Operating income in the fourth quarter was $11.0 million, up 61 percent from $6.8 million in the fourth quarter of fiscal 2010.
For the full year, book manufacturing sales were $230.2 million, up 3 percent from $222.8 million in fiscal 2010. The segment’s full-year operating income was up 18 percent to $22.5 million, excluding the restructuring costs, versus $19.1 million in fiscal 2010.
The segment’s gross profit was $17.8 million or 26.7 percent of sales in the fourth quarter, versus $14.0 million or 22.8 percent a year ago. Gross profit for fiscal 2011 was $49.8 million or 21.7 percent of sales, excluding restructuring costs, versus $46.8 million or 21.0 percent of sales last year. The improvement in margins in a competitive pricing environment reflected an improved sales mix, operating efficiencies made possible by recent technology investments and the closing of the Stoughton plant, and increased recycling income.
The book manufacturing segment focuses on three markets: education, religion, and specialty trade.
• Sales to the education market were $31 million in the fourth quarter, up 16 percent from a year earlier. For the year, education sales were $100 million, up 9 percent from fiscal 2010, due to higher sales of college textbooks.
• Sales to the religious market were up 6 percent to $18 million in the quarter, and up 5 percent to $66 million for the full year, reflecting gains at Courier’s largest religious customer.
• Sales to the specialty trade market were down 8 percent to $14 million in the quarter, and down 9 percent to $54 million for the full year, reflecting the impact of the Borders Group bankruptcy and the growth of e-books on trade publishers.
During the year Courier added four-color press capacity, both digital and offset, to meet robust demand for college textbooks. At Courier Digital Solutions, the software and solutions capabilities of Highcrest Media continued to drive rapid growth in the production of customized versions of textbooks tailored to the needs of individual schools, professors and classes. With its second digital inkjet press fully booked following its installation last September, the company added a third HP press in June, in time for the peak summer season.
“Our book manufacturing business succeeded in the midst of widespread market uncertainty through a combination of innovation and consolidation,” noted Conway. “Sales were up modestly for the year, but with significant disparities between markets, and between different kinds of book production. The Borders bankruptcy validated our decision to close our one-color plant in Stoughton, MA, in the face of declining demand for one-color books. Meanwhile, our investment in Courier Digital Solutions and our continuing leadership in four-color offset production paid off handsomely in the college textbook market. While sales at the elementary and high school levels were up in the fourth quarter, they remained down for the year amid continuing soft demand.
“We also continued to work closely with our largest religious customer, a global missionary organization we now serve across more than 100 countries. Religious sales grew at a mid-single-digits pace in line with past patterns and with the long-term customer agreement signed this past year in support of the organization’s ambitious program of worldwide Scripture distribution.”
Specialty publishing results reflect impact of Borders liquidation
Courier’s specialty 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 on home design, decorating, landscaping and gardening.
Fourth-quarter revenues for the segment were $10.1 million, down 15 percent from last year’s fourth quarter, reflecting a combination of direct and indirect effects of the Borders Group bankruptcy and liquidation. The direct impact came from the loss of $900,000 in sales to Borders itself; indirect consequences included reduced consumer purchasing at other bookstores and reduced remainder sales in a market temporarily saturated by the Borders liquidation, resulting in an increase in Courier’s obsolescence reserve.
Sales were down 14 percent at Dover, 20 percent at Creative Homeowner, and 20 percent at REA, for which Borders had been the second-largest customer. Despite its sales decline, REA remained profitable, but Dover and Creative Homeowner reported operating losses. Overall, the segment’s fourth-quarter operating loss was $872,000, versus operating income of $211,000 in fiscal 2010.
For the year as a whole, specialty publishing sales were $40.8 million, down 11 percent from $46.0 million in fiscal 2010, with $3.3 million, or more than 60 percent of the decline, attributable to lost sales to Borders. The segment’s operating loss for the year was $4.1 million, excluding the second quarter bad-debt provision for Borders, versus a loss of $714,000 last year. In addition to lower sales, key factors in the loss included increased returns and the increased allowance for inventory obsolescence.
Positive developments, both in the quarter and for the year, included double-digit increases in sales to online retailers and excellent sales growth at mass merchandising chains, an emerging channel Courier cultivated to reach a broader audience and complement sales at traditional bookstores. At the same time, the company expanded its investment in digitized content, including the conversion of printed content into electronic form to take advantage of the growing market for e-books, maximize its flexibility to reintroduce or repurpose out-of-print titles, and make the quality of its content more visible to online shoppers and search engines.
“The Borders bankruptcy and liquidation continued to cast a shadow over the entire industry for much of our fiscal year,” said Conway. “The effects lasted right through our fourth quarter, when Borders liquidated the remainder of its more than 600 original stores. In addition, e-books continued to account for a growing share of total trade books sold. Between these two factors and the unsettled economy, it was a challenging year for trade publishers everywhere, Courier included. We were partially able to compensate through increased sales to online retailers, and we began reaping significant benefits from our outreach to the major nationwide retail chains.
“With traditional bookselling channels narrowing through store closings, reductions in shelf space and cautious buying, the entire industry is still working its way to a post-Borders equilibrium in the supply chain. Following the close of the fiscal year we took additional steps to bring Courier Publishing’s cost structure in line with the reduced demand we have been experiencing during this period.
“At the same time, we moved decisively to capture our own piece of the e-book traffic that has been the brightest spot in the industry throughout the year. Over the coming months and years, readers will find our superb offering of books in print complemented by a rapidly expanding array of digital content, from online study centers to e-books and mobile apps.”
“Our greatest successes as a book manufacturer in fiscal 2011 came from playing to our strengths in the education and religious markets, and we expect to do more of the same in fiscal 2012,” said Conway. “We also expect Courier Digital Solutions to continue to outpace the overall education market with its integrated solutions for customized textbook production.
“On the publishing side, having worked our way through the worst of the Borders collapse, we expect conditions in the traditional bookstore supply chain to gradually stabilize. At the same time, we continue to pursue additional relationships in non-bookstore channels, both bricks-and-mortar and online. And we will be courting consumers not only through this broader range of channels, but also through the release of e-books and other digital content alongside our print offerings,” Conway continued.
“With our new presses up and running, we expect capital expenditures, which were $16 million in fiscal 2011, to decline to between $10 million and $12 million in fiscal 2012. We also expect to benefit from a full year’s worth of cost reductions related to the March 2011 closure of our one-color plant in Stoughton, MA, as well as from cost reductions this fall at Courier Publishing.
“As in the past, we expect our performance in fiscal 2012 to follow a seasonal pattern, with the larger portion of our earnings coming in the second half.
“In line with our past practice, today’s guidance, including comparisons to prior performance, excludes impairment and restructuring charges. It also excludes severance expenses related to this fall’s cost-reduction measures in our publishing segment as well as certain post-retirement benefits. Overall, we expect fiscal 2012 sales of between $273 million and $286 million, an increase over fiscal 2011 of between 5 percent and 10 percent (which includes the benefit of a 53-week year in fiscal 2012). And we expect earnings per diluted share of between $.75 and $1.05, which compares with our fiscal 2011 earnings of $.89 per diluted share, excluding the Borders receivable write-off.
“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 2012, we expect EBITDA to be between $39 million and $45 million, compared to $39 million in fiscal 2011.
Factors not incorporated into this guidance include the possibility of future impairment or restructuring charges.
Courier Corp. prints, publishes and sells books. Headquartered in North Chelmsford, Massachusetts, Courier has two operating segments, full-service book manufacturing and specialty book publishing.