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Schawk Signs Gravure Cylinder Supply Agreement, Posts Sales Decline

May 5, 2011
DES PLAINES, IL—May 05, 2011—Schawk Inc., a leading provider of brand development and deployment services, announced it has executed a formal supply agreement with American Yuncheng Gravure Cylinder Inc. (AYGCI), located in Spartanburg, SC. AYGCI is the U.S. subsidiary of Yuncheng Plate Making Group Co., a leading manufacturer of gravure printing cylinders.

This strategic relationship and supplier agreement is expected to allow Schawk to expand its current gravure cylinder engraving capabilities in the North American region, thereby further enhancing its portfolio of brand development and deployment services.

Schawk COO A. Alex Sarkisian commented, “By forming an alliance with American Yuncheng, we are better-positioned to deliver expanded world-class gravure cylinder engraving services to our clients in North America while continuing to focus our internal capital investments into technology and leading edge modes of communication both domestically and internationally, particularly in developing and emerging regions.”

Sarkisian added, “We have been doing business in Asia since the late 1990s, and as part of the services we routinely perform for our clients, we were familiar with the high quality products and services provided by the Yuncheng Group. We look forward to doing business with American Yuncheng in North America and believe that this relationship will be beneficial not only for Schawk but for the overall market as well.”

“We are pleased to have entered into this agreement with Schawk,” said Wenchun Li, CEO of American Yuncheng. “Schawk is well known in its industry and has a reputation as a world-class provider of brand development and deployment services globally. I believe that combining Schawk's capabilities and excellence and Yuncheng’s world-class quality and efficiency will further elevate the quality of service and products delivered to the North American brand imaging market.”

2011 First-Quarter Results

Schawk’s net income in the first quarter of 2011 was $2.8 million vs. $2.5 million in the first quarter of 2010. On a non-GAAP basis, adjusting for financial impacts relating to foreign currency exposure and certain expenses as further detailed in this earnings release, adjusted net income was $4.2 million in the first quarter of 2011 compared to $4.5 million during the prior-year comparable period.

President and CEO David A. Schawk commented, “Our first quarter 2011 revenue reflected typical first-quarter softness relative to other quarters of the year coupled with continued cautionary spending by our consumer packaged goods clients reflecting their concern over elevated commodity prices. During this period of continued economic uncertainty, we continue to focus on managing our costs effectively and positioning our company for future growth, particularly in developing and emerging regions. In fact, we recently have seen success with certain of our CPG clients as they expand further into these global markets. Furthermore, we remain focused on expanding our diverse service offering across our client base and driving operational excellence throughout our organization.”

Consolidated Results for First Quarter Ended March 31, 2011

Consolidated net sales in the first quarter of 2011 were $107.2 million compared to $111.7 million in the same period of 2010, a decrease of approximately $4.5 million, or 4 percent. The quarter-over-quarter sales decline was partially offset by $1.4 million of foreign currency translation gains, as the U.S. dollar declined in value relative to the local currencies of certain of the Company's non-U.S. subsidiaries.

• Consumer packaged goods (CPG) accounts sales in the first quarter of 2011 were $82.3 million, or 76.8 percent of total sales, compared to $84.4 million in the same period of 2010, a decrease of 2.5 percent. The decrease over the prior-year quarter was primarily driven by decreased product and brand activity by the company's CPG clients.

• Advertising and retail accounts sales of $18.5 million, or 17.3 percent of total sales, in the first quarter of 2011 decreased 11.2 percent, from $20.8 million in the prior-year period. Included in the decline in Advertising and retail accounts sales is a $1.9 million decline in revenue related to the previously disclosed loss of a non-core, retail client during the third quarter of 2010.

• Entertainment accounts sales for the first quarter of 2011 of $6.4 million, or 6.0 percent of total sales, were essentially comparable to the $6.5 million reported in the same period of 2010.

Gross profit was $38.8 million in the first quarter of 2011, a decrease of $3.1 million from the first quarter of 2010. First-quarter 2011 gross profit as a percentage of sales decreased to 36.1 percent from 37.5 percent in the 2010 first-quarter period. The decline in gross profit percent was largely driven by the reduced operating leverage resulting from the lower period-over-period revenue.

Selling, general and administrative (SG&A) expenses declined approximately $1.5 million to $31.0 million in the first quarter of 2011 from $32.5 million in the first quarter of 2010, principally due to the sublease of certain vacant properties in Europe.

During the first quarter of 2011, the Company reported business and systems integration expenses of $1.2 million compared to $0.1 million in the prior-year comparable period. As previously disclosed, these expenses relate to the Company's information technology and business process improvement initiative.

The company recorded a $0.5 million loss on foreign exchange exposures in the first quarter of 2011 compared to a loss of $1.8 million in the comparable prior-year period. The Company's foreign exchange gains or losses are largely driven by unhedged currency exposure from intercompany debt obligations of the Company's non-U.S. subsidiaries. Since foreign currency gains or losses primarily relate to intercompany financing activity, the economic impact to the Company is minimal, as these gains or losses are mostly offset by corresponding losses or gains in accumulated comprehensive income, net, included in stockholders' equity.

There were no expenses related to the impairment of long-lived assets during the first quarter of 2011 compared to $0.7 million in the first quarter of 2010. During the first quarter of 2010, certain equipment sustained water damage and was rendered inoperable at one of the Company's facilities.

Acquisition integration and restructuring expenses increased from $0.2 million in the first quarter of 2010 to $0.4 million in the first quarter of 2011. The charges in the 2011 first quarter arose from the Company's continued focus on consolidating, reducing and re-aligning the Company's work force and operations and are for employee terminations and other associated costs. These actions are expected to result in annualized savings of approximately $1.3 million, with approximately $1.0 million to be realized during 2011.

Schawk reported operating income of $5.5 million in the 2011 first quarter compared to $6.5 million in the first quarter of 2010. The decrease in operating income compared to the prior-year period was primarily the result of the decrease in gross margin driven by lower revenue coupled with increased business and systems integration expenses, mitigated somewhat by the Company's previously-discussed cost reduction efforts, lower foreign exchange losses and reduced expenses related to the impairment of long-lived assets.

Net income in the first quarter of 2011 was $2.8 million compared to $2.5 million in the first quarter of 2010. Excluding the after-tax effects of certain expenses detailed within the non-GAAP tables at the end of this press release, first-quarter 2011 Adjusted net income was $4.2 million compared to $4.5 million on a comparable basis for the prior-year period.

Adjusted EBITDA and Management Adjusted EBITDA Performance

Adjusted EBITDA for the first quarter of 2011 was $10.4 million compared to $12.2 million for the first quarter of 2010. Management adjusted EBITDA for the first quarter of 2011 was $12.5 million compared to $14.3 million for the first quarter of 2010. Please refer to the "Reconciliation of Non-GAAP Adjusted EBITDA and Management Adjusted EBITDA" table attached at the end of this press release for a reconciliation of these measures.

About Schawk
Schawk Inc. is a leading provider of brand development and deployment services, enabling companies of all sizes to connect their brands with consumers. With a global footprint of operations in 18 countries, Schawk helps companies create compelling and consistent brand experiences by providing integrated strategic, creative and executional services across brand touchpoints. Founded in 1953, Schawk is trusted by many of the world's leading organizations to help them achieve global brand consistency. For more information about Schawk, visit www.schawk.com.

About American Yuncheng Gravure Cylinder
American Yuncheng Gravure Cylinde, Inc., one of the world’s largest manufacturers of gravure printing cylinders, was founded in 2007 in Spartanburg, SC. This state-of-the art facility manufactures engraved printing cylinders for the packaging and decorative finishes industries. American Yuncheng Gravure Cylinder offers a wealth of experience and successes from its operations in Asia, Europe and Mexico, as well as the most advanced engraving technology. With more than 20 years of international gravure cylinder manufacturing experience and the most advanced automatic equipment available today, American Yuncheng Gravure Cylinder is committed to giving its customers a distinct competitive advantage and helping them grow their businesses and profits. For more information, visit www.yunchengusa.com.

Source: company release.

 

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