Checkpoint Systems, Inc. Announces Q3 2009 Results
Sequential Quarter Improvement Continues in Key Financial Metrics
THOROFARE, N.J. -- Checkpoint Systems, Inc. (NYSE: CKP) today reported financial results for the third quarter ended September 27, 2009.
Net revenues for the third quarter of 2009 were $194.1 million compared to net revenues for the third quarter of 2008 of $234.0 million. Net earnings attributable to Checkpoint Systems, Inc. for the third quarter of 2009 were $2.6 million, or $0.07 per diluted share, compared to net earnings attributable to Checkpoint Systems, Inc. for the third quarter of 2008 of $12.8 million, or $0.32 per diluted share. Non-GAAP net earnings attributable to Checkpoint Systems, Inc. for the third quarter of 2009 excluding restructuring expense and the impact of a change in valuation allowances were $6.4 million, or $0.16 per diluted share. Non-GAAP net earnings attributable to Checkpoint Systems, Inc. for the third quarter of 2008 were $12.6 million, or $0.32 per diluted share. (See accompanying Reconciliation of GAAP to Non-GAAP Financial Measures.)
"Our third quarter continued to deliver improving results. We achieved sequential quarter improvement in key financial metrics: net revenues, gross margin, and operating margin. We continued to narrow the gap in key financial comparisons to comparable prior year quarters; and our global cost-reduction initiatives provided the significant savings we had expected since their implementation. As we progress through the fourth quarter, we are confident that the actions taken this year will lead to a traditionally strong year-end quarter," said Rob van der Merwe, Chairman, President and Chief Executive Officer of Checkpoint Systems.
Mr. van der Merwe concluded, "Since the beginning of the year we remained unwavering in our focus to manage the business for the future, despite a very challenging retail environment. We steadily moved forward on our stated strategy to seize opportunities we see in the converging fields of shrink management, merchandise tracking and visibility, and apparel labeling. The key business initiatives put in place to realize that strategy, coupled with the acquisitions we made in the last two years, have provided a pathway for achieving our stated long-term financial goals in an economy that continues to improve."
Selected analysis and discussion for the third quarter of 2009:
* Net revenues decreased 17.1% due to an organic decline of 15.7% primarily attributable to global softness in demand in the Shrink Management Solutions segment, particularly in EAS systems and CheckViewTM store monitoring solutions. Foreign currency effects resulted in a 3.1% net revenues decline driven principally by the strengthened dollar versus the euro. Acquisition growth was 1.7%.
* Gross profit margin was 43.6% compared to 41.7% for the third quarter of 2008. The increase was primarily due to higher margins in the Shrink Management Solutions segment, notably in EAS labels, and in the Apparel Labeling Solutions segment.
* GAAP operating income was $13.4 million compared to $18.1 million in operating income for the third quarter of 2008. Non-GAAP operating income was $13.6 million, or 7.0% of net revenues. Non-GAAP operating income for the third quarter of 2008 was $18.5 million, or 7.9% of net revenues. (See accompanying Reconciliation of GAAP to Non-GAAP Financial Measures.)
* Restructuring expense was $0.2 million arising from general and administrative cost reductions. In addition, the Company continues to implement the previously announced manufacturing and supply chain restructuring program and expects annualized cost savings of approximately $6.0 million when the program is complete in 2010.
* Effective tax rate was 77.6% compared to 19.0% for the third quarter of 2008. The current year was impacted due to the recognition of valuation allowances on tax loss carryforwards in Japan and Italy. Excluding the impact of the valuation allowances, the effective tax rate for the third quarter of 2009 was 37.3%.
* Cash flow provided by operating activities was $22.5 million compared to $7.8 million for the third quarter of 2008. Cash flow provided by operating activities for the nine month period ended September 27, 2009 was $54.2 million compared to $27.0 million for the comparable period in 2008.
* At September 27, 2009, cash and cash equivalents were $114.8 million compared to $132.2 million at December 28, 2008, and total debt was $127.8 million compared to $145.3 million at December 28, 2008. Capital expenditures were $4.1 million for the third quarter of 2009.
Outlook for 2009
Based on an assessment of current market conditions, Checkpoint Systems is providing guidance for 2009. This guidance does not include the impact of unusual charges, such as additional restructuring expense, that the Company may incur during the year, and assumes a continuation of current exchange rates.
* Net revenues are expected to be in the range of $765 million to $780 million.
* Non-GAAP diluted net earnings per share attributable to Checkpoint Systems, Inc. are expected to be in the range of $0.70 to $0.80.
* Non-GAAP operating income margin is expected to be in the range of 5.3% to 6%.
* An annualized tax rate of approximately 23%, which is impacted by the anticipated release of tax reserves in the fourth quarter.
* Free cash flow (cash flow from operations less capital expenditures) is expected to be in the range of $50 million to $55 million.
Checkpoint Systems will host a conference call today, November 4, 2009, at 11:00 AM Eastern Time, to discuss its third quarter 2009 results. The conference call will be simultaneously broadcast live over the Internet. Listeners may access the webcast at http://ir.checkpointsystems.com. A replay will be available following the event.
Checkpoint Systems, Inc.
Checkpoint Systems is a global leader in shrink management, merchandise visibility and apparel labeling solutions. Checkpoint enables retailers and their suppliers to reduce shrink, improve shelf availability and leverage real-time data to achieve operational excellence. Checkpoint solutions are built upon 40 years of RF technology expertise, diverse shrink management offerings, a broad portfolio of apparel labeling solutions, market-leading RFID applications, innovative high-theft solutions and its Web-based Check-Net® data management platform. As a result, Checkpoint customers enjoy increased sales and profits by improving supply-chain efficiencies, by facilitating on-demand label printing and by providing a secure open-merchandising environment enhancing the consumer's shopping experience. For more information, visit www.checkpointsystems.com.