Cimpress (CMPR) Lags Q2 Earnings & Revenues, Stock Falls

Business services provider Cimpress N.V.CMPR reported lackluster second-quarter fiscal 2017 results missing both GAAP earnings and revenue estimates. GAAP earnings for the quarter were $35.0 million or $1.07 per share compared with $59.3 million or $1.81 per share in the year-ago quarter. The significant year-over-year decrease, despite higher revenues, was primarily due to higher operating costs in the quarter.

The reported earnings missed the Zacks Consensus Estimate by 6 cents. Share prices fell 11.8% on the below par earnings performance to close at $86.57 on the following day.

Inside the Headlines

Total revenue in second-quarter fiscal 2017 jumped 16% year over year to $576.9 million but missed the Zacks Consensus Estimate of $583 million. Excluding foreign currency translation impact and inorganic growth during the past 12 months, revenues increased 8% year over year. The improvement in revenues was primarily due to superior performance in the Vistaprint business unit and Upload and Print segment, partially offset by a decline in All Other segment due to the winding down of two partnerships.

Revenues from the Vistaprint segment came in at $379.4 million, up from $354.8 million in the year-ago quarter due to strong sales on higher customer traction. Organic revenue growth on a constant-currency basis was 9%. However, revenue growth was pressed by the loss of certain partner revenue and a reduction in Vistaprint shipping prices.

Revenues from the Upload and Print segment increased significantly to $152.4 million from $93.3 million in the year-earlier quarter. Revenues from All Other Business declined 7% year over year to $45.0 million from $48.2 million in the prior-year quarter.

Gross margin in the reported quarter contracted to 52.0% from 60.2% in the year-ago period. The fall was primarily due to the increased weighting of lower margin Upload and Print businesses, planned investments, currency headwinds and production inefficiencies. GAAP operating income declined to $33.7 million from $67.6 million a year ago.

Adjusted net operating profit after tax (adjusted NOPAT) in the reported quarter was $50.6 million, considerably down from $82.5 million in the year-ago period.

Cimpress N.V Price, Consensus and EPS Surprise

Cimpress N.V Price, Consensus and EPS Surprise | Cimpress N.V Quote

Decentralized Organizational Structure

Management has decided to implement a radical change in the organizational structure by decentralizing operations in order to improve accountability for customer satisfaction and capital returns, simplify decision-making and improve the speed of execution. With operations in about 50 locations spanning 30 countries across six continents, decentralized decision making will enable the company to be nimble and entrepreneurial. The evolved corporate structure will likely lead to more accountability as the company expands its wings in new geographical boundaries and markets to strengthen its position as a leading provider of mass customization business products.

Cimpress expects to complete most of these organizational changes during the third quarter of fiscal 2017. The company anticipates incurring pre-tax restructuring charge of approximately $28 million to $31 million, which includes $22 million to $25 million of severance-related expenses and approximately $6 million of other restructuring charges. On completion of the process, Cimpress expects annualized pre-tax operating expense savings of approximately $55 million to $60 million and pre-tax free cash flow savings of approximately $45 million to $50 million owing to lower share-based compensation expense.

Other Significant Quarter Details

During the quarter, Cimpress raised its ownership stake in Pixartprinting and its business in Japan to 100% for $24.0 million. The company sold its stake in a joint venture in Japan for $6.3 million, as part of this transaction, for a gain of $2.3 million.

In addition, Cimpress completed the acquisition of National Pen, a manufacturer and marketer of custom writing instruments for small and medium businesses, for $206.2 million. With distinct yet complementary products, strong production and related supply chain capabilities will likely meet the low-volume needs of small businesses and is expected to be a strategic fit for Cimpress.

Balance Sheet & Cash Flow

As of Dec 31, 2016, the company had $49.6 million in cash and cash equivalents and long-term debt of $830.0 million. At the quarter end, the company had $220.7 million of borrowing capacity available under its committed credit facility.

Capital expenditures in the reported quarter were $16.9 million or 2.9% of revenues. During the quarter, the company generated $105.1 million of cash from operations compared with $134.9 million in the year-ago quarter. Cimpress repurchased 593,763 shares during the quarter for $50.0 million, at an average price of $84.22 per share.

Cimpress currently has a Zacks Rank #2 (Buy). Some other favorably ranked stocks in the industry include Kornit Digital Ltd. KRNT , Hill International, Inc. HIL and Gartner, Inc. IT , each carrying Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Kornit has a long-term earnings growth expectation of 42.8% and is currently trading at a forward P/E of 35.1x.

Hill International has a long-term earnings growth expectation of 25% and is currently trading at a forward P/E of 19.8x.

Gartner has a long-term earnings growth expectation of 17.3% and has beaten estimates in each of the trailing four quarters for a positive earnings surprise of 14.5%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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