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Multi-Color Corporation Announces Fiscal 2018 EPS of $3.87 and Non-GAAP Core EPS of $3.76

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CINCINNATI, OHIO, May 29, 2018 - Multi-Color Corporation (NASDAQ: LABL) today announced fourth quarter and full year fiscal 2018 results.

"Stronger quarter at core EPS of $1.12 to finish the fiscal year at $3.76.  Legacy operations drove better results with Constantia Labels acquisition integration largely completed and synergy savings on track for FY19," said Nigel Vinecombe, Executive Chairman of Multi-Color Corporation.

Fiscal 2018 Highlights & Developments

  • Organic growth at 4% for the year was broadly based across regions.
  • March quarter organic growth at 1% was primarily due to timing of sales into April.  Organic growth for the 4 months ended April 2018 was 4%.
  • March quarter was the first full quarter with all FY18 acquisitions in it. Gross Margins were 20% in the quarter and SG&A was 9% in the quarter due to acquisition and integration expenses but 8% as core SG&A.
  • Acquired annualized revenues for acquisitions completed in fiscal 2018 were circa $750 million primarily due to Constantia Labels.
  • Free cash flow is expected to be circa $100 million in FY19 (with amortization over 2% of sales).  Primary use of free cash flow in FY19 will be to reduce debt.

Fiscal 2018:

  • Net revenues increased 41% or $377.6 million to $1,300.9 million compared to $923.3 million in the prior year.  Acquisitions occurring after the beginning of fiscal 2017, net of the sale of the Southeast Asian durables business, accounted for a 35% increase in revenues.  Increased revenues globally led by North America contributed to an organic revenue increase of 4% and foreign exchange rates, primarily driven by appreciation of the Euro, led to a 2% increase in revenues year to date. 
     
  • Gross profit increased 25% or $49.8 million compared to the prior year.  Acquisitions occurring after the beginning of fiscal 2017 contributed 21% or $41.6 million to gross profit, net of divestitures.  Increased volumes and improved operating performance led to $4.8 million of organic margin improvement.  The remaining increase of $3.4 million related to the favorable effects of foreign exchange.  Core gross profit, a non-GAAP financial measure, increased 28% or $55.7 million compared to the prior year.  Core gross margins were 19.4% of net revenues for fiscal 2018 compared to 21.4% in fiscal 2017.
     
  • Selling, general and administrative expenses increased $44.7 million compared to the prior year primarily related to acquisitions and acquisition-related expenses.  Core SG&A increased 31% or $25.9 million compared to the prior year, including $23.9 million related to acquisitions occurring after the beginning of fiscal 2017, net of divestitures.  Unfavorable foreign exchange contributed $1.5 million to SG&A and the remaining increase of $0.5 million primarily related to compensation expenses.  Core SG&A decreased as a percentage of sales to 8.4% from 9.1% in the prior year.  Non-core items related to acquisition and integration expenses were $19.9 million in fiscal 2018 compared to $1.1 million in the prior year.
     
  • Facility closure expenses increased 54% or $0.5 million compared to the prior year.  These expenses primarily relate to the consolidation of facilities in certain locations into other existing facilities.  The current year expenses primarily relate to consolidation of our manufacturing facility in Merignac, France into our plant in Libourne, France.  Expenses in the prior year primarily related to consolidation of our manufacturing facilities in Dublin, Ireland into a single location and consolidation of our manufacturing facilities in Glasgow, Scotland into a single location.
     
  • Operating income increased 4% or $4.6 million compared to the prior year.  Acquisitions occurring after the beginning of fiscal 2017, net of divestitures, increased operating income by $17.7 million.  Core operating income, a non-GAAP financial measure, increased 26% or $29.8 million compared to the prior year.  Non-core items in fiscal 2018 relate to inventory purchase accounting charges of $6.3 million, acquisition and integration expenses of $19.9 million, and facility closure expenses of $1.4 million.  
     
  • Interest expense increased $28.5 million compared to the prior year primarily due to the increase in debt borrowings to finance the Constantia Labels acquisition.  Core interest expense, a non-GAAP financial measure, increased $21.1 million compared to the prior year.  Non-GAAP items for the current fiscal year relate to $7.4 million for pre-acquisition interest and fees to secure financing for the Constantia Labels acquisition and the write-off of unamortized debt fees related to the prior credit agreement upon execution of a new agreement.
     
  • Other expense was $7.9 million in fiscal 2018 compared to other income of $2.7 million in the prior year.  Core other expense, a non-GAAP financial measure, was $1.7 million in fiscal 2018 compared to core other income of $1.2 million in the prior year.  The increase in costs primarily related to the unfavorable impact of the release of a $1.1 million foreign indemnification receivable in the current year, for which an offsetting tax liability was also relieved reducing the current year effective tax rate and gains and losses on foreign exchange.  Non-core items in the current year primarily relate to $5.6 million of net foreign currency losses for the acquisition and structuring of Constantia Labels and $0.5 million of loss on the sale of the Southeast Asian durables business.  In the prior year, non-core items of $0.9 million related to adjustments to reconcile certain supplemental purchase price accruals to management's estimate of the liability and $0.7 million related to an adjustment to state Multi-Color's 30% investment in Gironde Imprimerie Publicité at its fair value upon purchase of an additional 67.6% in the company (97.6% owned at March 31, 2017).
     
  • Income tax was a benefit of $18.2 million in fiscal 2018 compared to income tax expense of $26.8 million in the prior year.  The income tax benefit was primarily the result of tax rate changes enacted during the year in the U.S. and Belgium, which resulted in net benefits of $18.3 million and $15.2 million, respectively.  The effective tax rate on core net income, a non-GAAP financial measure, was 26% for the current year compared to 31% in the prior year.  The decrease in the tax rate is primarily due to discrete items that reduced income tax expense recognized in the current year, including the release of a tax liability related to a foreign indemnification receivable related to previous acquisitions for $1.1 million for which there was an offsetting impact in other expense and other discrete items.  Additionally, MCC adopted a new accounting standard to simplify share based payments during the current year which decreased our tax rate by 2% or $1.5 million compared to the prior year.  The Company expects its annual effective tax rate on core net income to be approximately 27% in fiscal 2019. 
     
  • Net income increased 18% or $11.0 million in fiscal 2018 compared to the prior year.  Core net income, a non-GAAP financial measure, increased 14% or $8.5 million compared to the prior year.
     
  • Diluted earnings per share (EPS) increased 8% or $0.29 per diluted share in fiscal 2018 compared to the prior year.  Excluding the impact of the non-core items noted below, core EPS, a non-GAAP financial measure, increased 4% or $0.15 per diluted share in fiscal 2018. 

The following table shows adjustments made to Net Income and Diluted EPS between reported GAAP and non-GAAP results for fiscal 2018 and 2017. Refer to the tables in Exhibit A for a reconciliation of adjustments made to gross profit, SG&A expenses, operating income, interest expense, other (income) expense, EBITDA, income before income taxes, and effective tax rate between reported GAAP and non-GAAP results. The sum of the EPS amounts may not equal the totals due to rounding.

  Year Ended
  03/31/18 Diluted 03/31/17 Diluted
  (in 000's) EPS (in 000's) EPS
Net income attributable to MCC and diluted EPS, as reported $   71,951 $   3.87 $ 60,996 $ 3.58
Inventory purchase accounting charges, net of tax     4,439     0.24     256     0.02
Acquisition and integration expenses, net of tax     15,267     0.82     1,070     0.06
Facility closure expenses, net of tax     945     0.05     706     0.04
Net foreign currency loss on acquisition, net of derivatives and related debt, net of tax     8,856     0.48     -     *
Net foreign currency gain on acquisition structuring loans, net of tax     (2,910)     (0.16)     -     *
Pre-acquisition financing costs and deferred loan fees, net of tax     4,857     0.26     -     *
Impact of US tax reform     (18,268)     (0.98)     -     *
Impact of Belgian tax reform     (15,164)     (0.82)     -     *
(Gains) losses on purchases/sales of businesses, supplemental purchase price adjustments and settlement of other related accruals, net of tax     (69)    *     (1,577)     (0.09)
Core net income and diluted EPS, (Non-GAAP) $ 69,904 $   3.76 $ 61,451 $ 3.61
*Diluted EPS is less than $0.01

Fourth Quarter Results

  • Net revenues increased 84% to $449.7 million compared to $244 million in the prior year quarter.  Acquisitions occurring after the beginning of the fourth quarter of fiscal 2017 accounted for a 78% increase in revenues, net of divestitures.  Organic revenues increased 1% and foreign exchange rates, primarily driven by appreciation of the Euro, led to a 5% increase in revenues quarter over quarter. 
     
  • Gross profit increased 64% or $34.5 million compared to the prior year quarter.  Acquisitions occurring after the beginning of the fourth quarter of fiscal 2017, net of divestitures, contributed 58% or $31.2 million to gross profit.  Organic gross profit increased 2% or $1.1 million.  The remaining increase of 4% or $2.2 million related to the favorable effects of foreign exchange.  Core gross profit increased 65% or $35.1 million compared to the prior year quarter.  Core gross margins, a non-GAAP financial measure, were 19.8% of net revenues for the current year quarter compared to 22.0% in the prior year quarter.
     
  • Selling, general and administrative expenses increased $17.2 million compared to the prior year quarter primarily related to acquisitions and acquisition-related expenses.  Core SG&A increased 67% or $14.6 million in the current year quarter compared to the prior year quarter.   Acquisitions occurring after the beginning of the fourth quarter of fiscal 2017, net of divestitures, and unfavorable foreign exchange contributed $13.3 million and $0.9 million, respectively, to the increase.  Core SG&A decreased as a percentage of sales to 8.1% from 8.9% in the prior year quarter.  Non-core items related to acquisition and integration expenses were $2.9 million in the current year quarter compared to $0.3 million in the prior year quarter.  Acquisition and integration expenses in the current year quarter primarily related to the Constantia Labels acquisition.
     
  • Facility closure expenses were $0.5 million in the current year quarter compared to $0.3 million in the prior year quarter.  The current quarter expenses primarily relate to the consolidation of our manufacturing facility in Merignac, France into our plant in Libourne, France.  Expenses in the prior year quarter primarily related to the consolidation of our manufacturing facilities in Glasgow, Scotland into a single location and the consolidation of our manufacturing facility in Sonoma, California into our Napa, California manufacturing facility.
     
  • Operating income increased 55% or $17.1 million compared to the prior year quarter.  Acquisitions occurring after the beginning of the fourth quarter of fiscal 2017, net of divestitures, increased operating income by 57% or $17.8 million.  Core operating income increased 64% or $20.6 million compared to the prior year quarter.  Non-core items in the current year quarter primarily related to inventory purchase accounting adjustments of $0.8 million, acquisition and integration expenses of $2.9 million, and facility closure expenses of $0.5 million.
     
  • Interest expense increased $13 million in the current year quarter compared to the prior year quarter, primarily due to the increase in debt borrowings to finance the acquisition of Constantia Labels. 
     
  • Other income was $0.4 million in the current year quarter compared to $1.1 million in the prior year quarter.  Core other expense was $0.5 million in the current year quarter compared to core other income of $0.4 million in the prior year quarter, excluding $0.8 million primarily related to net foreign currency losses for the acquisition and structuring of Constantia Labels in the current year quarter and the $0.7 million related to the gain on the purchase of the remaining interest in Gironde Imprimerie Publicité in the prior year.  
     
  • Income tax expense decreased 21% or $1.9 million compared to the prior year quarter, primarily due to tax rate changes enacted in fiscal 2018 in the U.S. and Belgium, which reduced income tax expense in the current year quarter.  The effective tax rate on core net income was 30% for the current year quarter compared to 36% in the prior year quarter primarily due to reductions in income tax rates in the U.S. and Belgium and other discrete items.
     
  • Net income increased 32% or $5.4 million compared to the prior year quarter.  Core net income increased 38% or $6.4 million compared to the prior year quarter.
     
  • Diluted EPS increased 10% to $1.08 per diluted share in the current year quarter compared to $0.98 per diluted share in the prior year quarter.  Excluding the impact of the non-core items noted below, core EPS increased 14% to $1.12 per diluted share compared to $0.98 in the prior year quarter.

The following table shows adjustments made to net income and diluted EPS between reported GAAP and non-GAAP results for the three months ended March 31, 2018 and 2017.  Refer to the tables in Exhibit A for a reconciliation of adjustments made to gross profit, SG&A expenses, operating income, interest expense, other (income) expense, EBITDA, income before income taxes, income tax expense, and effective tax rate between reported GAAP and non-GAAP results.  The sum of the EPS amounts may not equal the totals due to rounding.

  Three Months Ended
  03/31/18 Diluted 03/31/17 Diluted
    (in 000's) EPS   (in 000's) EPS
Net income attributable to MCC and diluted EPS, as reported $   22,123 $ 1.08 $ 16,722 $ 0.98
Inventory purchase accounting charges, net of tax     560     0.03     149     0.01
Acquisition and integration expenses, net of tax     400     0.02     295     0.02
Facility closure expenses, net of tax     352     0.02     219     0.01
Net foreign currency loss on acquisition, net of derivatives and related debt, net of tax     1,283     0.06     -     *
Net foreign currency loss on acquisition structuring loans, net of tax     776     0.04     -     *
Impact of US tax reform     (2,082)     (0.10
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