Apparel labeling remains sound for future growth - Checkpoint

03 Nov '10

5 min read

Selected analysis and discussion for the third quarter of 2010:

• Net revenues increased 4.8%. Organic growth comprised 5.6% of the increase driven by the Shrink Management Solutions and Apparel Labeling Solutions business segments, notably Alpha High Theft Solutions and CheckView. Non-comparable acquisition growth contributed 2.4% of the increase resulting from the acquisition of Brilliant Label Manufacturing, Ltd. Foreign currency effects resulted in a 3.2% net revenues decline driven principally by the strengthened dollar versus the euro.
• Gross profit margin was 40.3% compared to 43.6% for the third quarter of 2009. The decrease was principally due to lower gross margins in the apparel labeling and EAS consumables businesses.
• GAAP operating income was $13.1 million compared to $13.4 million for the third quarter of 2009. Non-GAAP operating income excluding restructuring expense was $14.2 million, or 7.0% of net revenues. Non-GAAP operating income for the third quarter of 2009 was $13.6 million, or 7.0% of net revenues.
• Restructuring expense was $1.2 million due to our previously announced manufacturing restructuring plan and the initial stages of our selling, general, and administrative restructuring plan.
• Effective tax rate was 41.9% compared to 77.6% for the third quarter of 2009.
• Cash flow used in operating activities was $17.1 million compared to cash flow provided by operating activities of $22.5 million for the third quarter of 2009.
• At September 26, 2010, cash and cash equivalents were $164.3 million compared to $162.1 million at December 27, 2009, and total debt was $143.0 million compared to $116.9 million at December 27, 2009. Capital expenditures were $7.5 million for the third quarter of 2010.

Outlook for 2010

Based on an assessment of current market conditions, Checkpoint has updated guidance for 2010. 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 $825.0 million to $840.0 million.
• Non-GAAP diluted net earnings per share attributable to Checkpoint Systems, Inc. are expected to be in the range of $1.00 to $1.08.
• Non-GAAP operating income margin is expected to be in the range of 6.5% to 6.9%.
• An annualized tax rate is expected to be in the range of 16% to 18%.
• Free cash flow (cash flow from operations less capital expenditures) is expected to be in the range of $10.0 million to $20.0 million.

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 ofapparel labeling solutions, market-leading RFID applications, innovative high-theft solutions and its Web-based Check-Net data management platform.

Checkpoint Systems Inc

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