Schawk Reports Net Loss Due to Challenging Americas Market

DES PLAINES, IL—Oct. 31, 2012—Schawk Inc. reported 2012 third-quarter results. Net loss in the third quarter of 2012 was $2.2 million, vs. net income of $8.1 million in the third quarter of 2011. Included in the 2012 third-quarter net loss is $4.3 million of non-cash expense related to the impairment of long-lived assets. In addition, business and system integration expenses for the company’s ongoing information technology and business process improvement initiative increased by approximately $1.0 million for the quarter compared to the prior-year period, which also contributed in part to the decline in net income.

On a non-GAAP basis, adjusting for financial impacts relating to the non-cash impairment expenses, business and system integration expense and other items, adjusted net income was $3.1 million, compared to $5.6 million during the prior-year period.

CEO David A. Schawk, commented, “During the third quarter, we saw measured growth with our largest client channel, consumer packaged goods, offset by continued declines in promotional activity with our retail and advertising and entertainment clients. Our growth in Europe and Asia Pacific continued to positively reflect the impact of emerging markets, investments made in expanding our capabilities, and our clients’ desire to consolidate their spending with fewer vendors.

“However, the Americas continued to reflect our clients’ uncertainty with local markets by taking a more cautionary approach to spending domestically. Adjusting for the non-cash impairment charge during the third quarter, the year-over-year decline in profitability was primarily driven by certain investments made to expand our brand development and deployment capabilities and extend our presence in emerging markets. Due to continued economic headwinds in the Americas, we took additional steps to leverage our operations during the third quarter, which will extend to the fourth quarter and set us up for a more competitive cost structure in 2013.”

Consolidated Results
Consolidated net sales in the third quarter of 2012 were $110.8 million, compared to $112.3 million in 2011, a decrease of approximately $1.5 million, or 1.3 percent. Year-over-year sales were negatively impacted by changes in foreign currency translation rates of approximately $0.6 million, as the U.S. dollar increased 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 third quarter of 2012 were $88.2 million, or 79.5 percent of total net sales, compared to $86.2 million in the same period of 2011, an improvement of 2.3 percent, primarily due to higher product and brand development activity.

• Retail and advertising accounts sales in the third quarter of 2012 were $17.3 million, or 15.6 percent of total sales, a decrease of 9.8 percent, from $19.2 million during the 2011 third quarter, primarily driven by continued reductions in client promotional activity.

• Entertainment accounts sales for the third quarter of 2012 of $5.4 million, or 4.9 percent of total sales, decreased 22.5 percent, from $7.0 million in the 2011 period, driven by continued declines in print-related promotional activity.

Gross profit was $39.2 million in the third quarter of 2012, a decline of $2.7 million from the third quarter of 2011. Gross profit as a percentage of sales decreased to 35.4 percent from 37.4 percent in the prior-year period. Lower gross profit percent was driven by the sales decline and previously mentioned investments in expanding the company’s brand development and deployment capabilities.

Selling, general and administrative (SG&A) expenses increased approximately $1.3 million to $32.5 million during the third quarter of 2012 from $31.1 million in the 2011 period. Higher SG&A expenses in the third quarter of 2012 compared to the third quarter of 2011 is principally due to increases in the company’s previously mentioned investments in expanding brand development and deployment capabilities.

For the third quarter of 2012, Schawk reported business and systems integration expenses of $3.0 million, compared to $2.0 million in the prior-year period, relating to the company’s ongoing information technology and business process improvement initiative.

Acquisition integration and restructuring expenses increased from $0.5 million in the third quarter of 2011 to $1.2 million in the same quarter of 2012. These charges relate to employee terminations and other associated costs from the company’s continued focus on consolidating, reducing and re-aligning its work force and operations. The actions taken during the third quarter of 2012 are expected to result in annualized savings of approximately $5.2 million, with approximately $0.6 million expected to be realized during 2012.

During the third quarter of 2012, Schawk recorded a non-cash expense of $4.3 million related to the impairment of long-lived assets, of which $3.8 million related to the write down of customer relationship intangible assets within the Americas and European segments and $0.5 million related to company-owned real estate written down to its estimated market value.

The company reported an operating loss of $1.5 million in the third quarter of 2012 compared to operating income of $8.2 million in the 2011 period. The decline in income year over year was driven primarily by lower gross profit and higher expenses associated with the non-cash impairment of long-lived assets, business and systems integration, acquisition integration and restructuring and SG&A.

Net loss in the third quarter of 2012 was $2.2 million, compared to net income of $8.1 million in the 2011 period. Non-GAAP adjusted net income was $3.1 million for the 2012 period, compared to $5.6 million on a comparable basis for the prior-year period. Please refer to the tables at the end of this press release for a reconciliation of these non-GAAP measures.

Management Adjusted EBITDA
Management adjusted EBITDA for the third quarter of 2012 was $11.9 million compared to $15.7 million for the prior-year period. Please refer to the “Reconciliation of Non-GAAP 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 26 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.

Source: Schawk.