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Courier Corp. Sales, Income Up in Third Quarter

July 20, 2010

"Our publishing businesses still face an uncertain sales environment and a persistent shortfall in consumer confidence. In response, we continue to tailor both our titles and our promotions to capture the positives within that environment. And we continue to find new ways to make our publishing operations nimbler and more efficient, from innovations in web marketing to a recent consolidation of distribution facilities. I am confident that when the environment improves, we will be ready to take advantage of it.

"In the meantime, our balance sheet remains strong, with debt still at a modest level despite this new round of technology investment. In keeping with our performance and prospects, I'm pleased to announce that once again, Courier's Board of Directors has voted to declare our regular quarterly dividend of $.21 per common share."

Book manufacturing: four-color growth drives expansion plans


Courier's book manufacturing segment had third-quarter sales of $56.8 million, up 8% from $52.7 million in fiscal 2009's third quarter. The segment's operating income was $3.7 million, virtually flat from last year's third quarter. Gross profit in the segment was $10.0 million, or 18% of sales, versus $9.9 million, or 19% of sales, in the third quarter of fiscal 2009, reflecting the very competitive pricing environment as well as approximately $500,000 in startup costs related to the company's new digital operation, Courier Digital Solutions.

For the first nine months of fiscal 2010, book manufacturing sales were $161.7 million, up 5% from the first nine months of fiscal 2009. Nine-month operating income in the segment was $12.2 million, up 22% from $10.0 million last year excluding restructuring costs, or $6.7 million including those costs. The segment's gross profit through nine months was $32.8 million or 20% of sales, up from $29.3 million or 19% of sales last year excluding restructuring costs.

The book manufacturing segment focuses on three publishing markets: education, religion, and specialty trade. Sales to the education market were up 7% in the quarter and up 6% year-to-date, with increases at both the college and elementary/high school levels. Sales to the specialty trade market were up 22% from last year's third quarter and up 9% for the first nine months of fiscal 2010, helped by growth in new accounts, computer game books and other four-color work. Sales to the religious market were up 1% from last year's third quarter and up 5% through nine months.

"As indicated last quarter, robust demand for four-color textbooks kept us busy throughout the spring," said Conway. "But we also found time to complete our integration of HP digital printing technology and Highcrest Media. The result is an exceptionally powerful combination of software and production solutions for our customers. Our decision to order a second HP system reflects both the smooth startup of the first one and our growing appreciation of its versatility and value based on the books it's already producing for Dover."

Specialty publishing: consumer caution slows sales

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.

Third-quarter revenues for the segment were $10.9 million, down 4% from $11.3 million in last year's third quarter. REA continued to perform well, with sales up 2% in the quarter and up 22% through the first nine months of fiscal 2010. Sales at Dover were down 6% in the quarter, but up 3% year-to-date. Creative Homeowner sales were down 4% in the quarter and down 28% through nine months, reflecting continued weakness in home center sales as well as the absence of revenues from a book distribution service Creative Homeowner exited in fiscal 2009. However, Creative Homeowner's third-quarter operating loss of $406,000 was 30% less than its loss in last year's third quarter. Overall, the segment lost $424,000 in the quarter, versus an operating loss of $624,000 a year earlier.

For the first nine months of fiscal 2010, specialty publishing sales were $34.1 million, down 2% from $34.9 million in fiscal 2009. The segment's nine-month operating loss was $925,000, with excellent results at REA offset by losses at Dover and Creative Homeowner. For the first nine months of fiscal 2009, the segment's operating loss was $3.1 million, including $500,000 in restructuring costs.

"Given the uneven state of the recovery, many consumers chose to stay on the sidelines," said Conway. "Only REA, with its very targeted offering, was able to extend its gains into the third quarter. The uncertain housing market continued to hamper Creative Homeowner sales. At Dover, children's books and math and science titles did well, but others were off as caution prevailed among readers and retailers. We did make progress behind the scenes, deploying much-improved Web marketing technology at Dover and a more economical distribution solution for Creative Homeowner. We also began taking advantage of the quality and cost benefits of our new digital inkjet system to inject new life into Dover's backlist. We'll do more of that in coming quarters as we continue to execute efficiently while positioning ourselves for the fall season."

Outlook


"We enter the fourth quarter pleased with our continued growth in four-color business for the education and trade markets," said Conway. "But the sales environment remains challenging for publishers of all kinds, including our own brands. As a result, we expect competition to remain keen everywhere on the manufacturing side. At the same time, I'm confident that our balanced addition of short- and long-run, one- to four-color capacity will help us improve our margins, increase our market share and extend our widely recognized service edge in our chosen segments of the book industry. Our strategy of focusing on long-term markets, anticipating customer needs and operating with exceptional efficiency should continue to deliver the returns our shareholders expect.

"For fiscal 2010 overall, we expect to achieve total sales of between $258 million and $263 million. We expect earnings per diluted share of between $.80 and $.95, after allowing for approximately $.05 to $.07 per share from startup costs related to our digital print operation. This compares with fiscal 2009 earnings of $.86 per diluted share, excluding restructuring and impairment charges.

"Factors not incorporated into our guidance include the potential impact of continued weakness in the credit markets on customers, competitors and vendors in both of our business segments, and the possibility of future impairment or restructuring charges.

"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 2010, we expect EBITDA to be between $38 million and $41 million, compared to $37 million, excluding impairment and restructuring charges in fiscal 2009."

About Courier Corp.

Courier Corp. prints, publishes and sells books. Headquartered in North Chelmsford, MA, Courier has two business segments, full-service book manufacturing and specialty book publishing. For more information, visit www.courier.com.
 

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