LABL

Multi-Color Corporation (LABL)

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Multi-Color Corporation (LABL)

F1Q09 (Qtr End 06/30/08) Earnings Call Transcript

July 31, 2008 11:00 am ET

Executives

Frank Gerace – President and CEO

Jim Reynolds – VP, Corporate Controller, Chief Accounting Officer

Dawn Bertsche – SVP of Finance, CFO and Secretary

Analysts

Meggan Friedman – William Blair & Company

Jon Lichter [ph]

Steve O'Neil – Hilliard Lyons

Tim Burns [ph]

Mark Cooper [ph]

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the first quarter Multi-Color Corporation earnings conference call. My name is Robin, and I will be your coordinator for today. At this time, all participants are in a listen-only mode, and we will conduct a question-and-answer session towards the end of this conference. (Operator instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to your host for today, Mr. Frank Gerace, CEO of Multi-Color Corporation. Sir, please proceed.

Frank Gerace

Thank you, Robin. Welcome to Multi-Color Corporation's fiscal 2009 first quarter conference call and webcast for the period ending June 30, 2008. We are also broadcasting this live over the Internet accessible through the Multi-Color website at www.multicolorcorp.com on our Investor Relations page.

Good morning. I'm Frank Gerace, President and CEO of Multi-Color, and I am joined today by Dawn Bertsche, our CFO, and Jim Reynolds, our Corporate Controller. Jim, before we get started, could you please review our Safe Harbor statement with our participants?

Jim Reynolds

Before we discuss our results, I want to call your attention to the Safe Harbor statement that was displayed on the registration page you viewed right after you logged onto our webcast and remind you that in accordance with the Private Securities Litigation Act of 1995, this presentation may contain some forward-looking statements that involve both known and unknown risks that may affect the outcome of our results. This Safe Harbor statement is also included in our earnings release and in our filings with the SEC.

Frank Gerace

Thanks, Jim. Today's conference call will follow the same format as we have used in the past. I will begin with a brief overview of how our company performed this quarter, and then Dawn will follow up with a detailed analysis of our financial results, and then at the end of that, I will conclude with final comments, and then we will take your questions.

As stated in our earnings release, our recently acquired international label business performed very well and as expected significantly contributing to our bottom-line. Our overall performance for the quarter fell short of our expectations due to a 7% organic sales decline in our North American business. In spite of healthy sales increases from most of our top 10 customers, our largest customer continued to order lower volumes as compared to last year.

Gross margins, on the other hand, remained steady at 19% during the quarter. Margins were negatively impacted by the reduced organic sales volume in North America and continued startup costs in our new Batavia, Ohio manufacturing facility. With reference to the startup of our new facility, we continued to experience productivity inefficiencies, high waste, excess operating supplies, and expedited freight costs. Our entire – and I assure you, our entire North American management team is very focused on getting us back to historic profit margins in that facility. On a positive note, the Collotype integration is going very well. The business is performing as we expected and is providing us with the market, geographic and financial balance we desired.

To provide more details on our first quarter results, I will now turn the call over to our CFO, Dawn Bertsche.

Dawn Bertsche

Thank you, Frank, and thank you all for joining us today. For those of you who are listening and viewing our webcast via the Internet, please take a look at slide number one, net revenues. For the first quarter, net revenues increased to $79.5 million or 52% over the prior year quarter. The sales increase attributable to the acquisition of Collotype was $30.7 million. And as Frank noted earlier, the increased revenue from Collotype was partially offset by the shortfall in orders from our largest customers.

Now please advance to slide number two, gross profit and margin. Gross profit also increased 52% over the prior year to $15 million due to the Collotype acquisition. However, gross profit was negatively impacted to the tune of about $850,000 of the startup costs at our new Batavia, Ohio facility that Frank previously mentioned. However, in spite of those issues, we were able to maintain a 19% gross margin for the quarter, as reflected on the slide.

The next slide is net income. This shows both net income from continuing operations and total net income for the first quarter of fiscal 2009 and fiscal 2008. Looking below the gross profit line we previously discussed, SG&A expenses increased $3.1 million due to the comparable expenses from Collotype, but were essentially flat as a percent of sale. Included in net income from continuing operations was a $2.1 million increase in interest expense due to the debt incurred to finance the Collotype acquisition.

In addition, our effective tax rate for the quarter was 36.4% compared to 37.4% in the prior year, due to earnings in lower tax jurisdictions. And our expected effective tax rate for fiscal year 2009 is 36%. Therefore, net income from continuing operations was $2.8 million or flat over the prior year. Total net income was $2.7 million for the quarter and included $143,000 of expense from discontinued operations due to additional tax expenses resulting from the sale of Quick Pak.

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