Market Overview

Multi-Color Corporation Announces EPS of $0.55 and Non-GAAP Core EPS of $0.50 for Q3 FY2019

Share:

Announces Ongoing Strategic Alternatives Process to Enhance Shareholder Value

CINCINNATI, OHIO, February 11, 2019 - Multi-Color Corporation (NASDAQ: LABL) today announced third quarter fiscal 2019 results.

"While fiscal 19 performance remains below expectations, primarily due to lower sales growth and operating inefficiencies in the U.S., we continue to make progress on executing our strategy and see positives for fiscal 20 in terms of new business development, benefits from acquisition synergies, and increased cost savings and productivity," said Nigel Vinecombe, Executive Chairman of Multi-Color Corporation. "We expect improvements from accelerated growth initiatives and operating efficiencies in fiscal 20, however these will be offset by a loss of revenues and earnings from a recent major customer contract renewal impacting Q4 fiscal 19 and fiscal 20. As a result, we expect forecast revenues and core EBITDA for fiscal 20 to be similar to fiscal 19.  Fiscal 19 core EPS guidance revised to the $3.50 to $3.90 range."

Mr. Vinecombe continued, "We also announced today that our Board is exploring strategic alternatives to help ensure that Multi-Color Corporation is best positioned for success going forward. We are committed to taking the necessary actions to create value for our shareholders, while taking into account the interests of our employees, customers and other stakeholders." 

Q3 Fiscal 2019 Highlights

  • Third quarter organic revenues were flat year over year, primarily due to softer beverage volumes (approximately 1% of total revenues) and lost personal care volumes (approximately 1% of total revenues) in the U.S.  Fiscal year to date organic revenues were up 2% year over year.
  • Core gross profit, a non-GAAP financial measure, fell 120 bps for the quarter and 60 bps fiscal year to date, primarily due to lower sales and operating inefficiencies in the U.S.
  • Core SG&A, a non-GAAP financial measure, fiscal year to date is stable at 8.5% of revenues.

Third Quarter Results

  • Net revenues increased 13% to $397 million compared to $352.7 million in the prior year quarter.  Acquisitions occurring after the beginning of the third quarter of fiscal 2018 accounted for a 16% increase in revenues.  Organic revenues were negatively impacted by 1% related to timing of revenue recognition due to the adoption of the new ASC 606 revenue standard on April 1, 2018.  The remaining organic revenues were flat due to softer volumes primarily in the U.S., partially offset by strong organic growth in developing markets. Foreign exchange led to a 3% decrease in revenues primarily driven by depreciation of the Euro and the Australian dollar quarter over quarter.   
     
  • Gross profit increased 14% or $8.1 million compared to the prior year quarter.  Core gross profit, a non-GAAP financial measure, increased 5% or $3.1 million compared to the prior year quarter.  Acquisitions occurring after the beginning of the third quarter of fiscal 2018 contributed 15% or $9.3 million to core gross profit. Core organic gross profit decreased $4.9 million, net of startup costs of $0.6 million incurred in relation to a new IML facility in North America due primarily to softer volumes and operating inefficiencies in the U.S.  Unfavorable foreign exchange decreased gross profit by $1.3 million.  Core gross margins, a non-GAAP financial measure, were 16.5% of net revenues for the current year quarter compared to 17.7% in the prior year quarter.
     
  • Selling, general and administrative (SG&A) expenses decreased 12% or $4.9 million compared to the prior year quarter. Core SG&A, a non-GAAP financial measure, increased 17% or $5.1 million compared to the prior year quarter.  Acquisitions occurring after the beginning of the third quarter of fiscal 2018 contributed $4.1 million to the core SG&A increase, partially offset by favorable foreign exchange of $0.7 million. The remaining increase of $1.7 million primarily related to compensation costs and professional fees, including $0.6 million relating to modification of our Term Loan B, which will reduce interest expense in future periods.  Core SG&A increased as a percentage of sales from 8.4% to 8.7% compared to the prior year quarter due to amortization expenses in relation to the Constantia Labels acquisition. Non-core items related to acquisition, integration and strategic review expenses were $2 million in the current year quarter compared to $12 million in the prior year quarter.
     
  • Operating income increased 91% or $13.7 million compared to the prior year quarter primarily due to acquisitions, related synergies and lower acquisition and related costs. Core operating income, a non-GAAP financial measure, decreased 6% or $2.1 million compared to the prior year quarter.  Core operating income includes $5.2 million in relation to acquisitions occurring after the beginning of the third quarter of fiscal 2018.  Unfavorable foreign exchange led to a $0.6 million reduction in core operating income.
     
  • Interest expense decreased 12% or $2.7 million primarily due to interest payments made in the prior year quarter related to the Constantia Labels acquisition.  Core interest expense, a non-GAAP financial measure, increased 34% or $4.8 million compared to the prior year quarter primarily related to the increase in debt to finance the Constantia Labels acquisition.  Core interest expense for the prior year quarter excluded $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 the new agreement.
     
  • Other income was $0.5 million in the current year quarter compared to other expense of $9.7 million in the prior year quarter.  Core other income, a non-GAAP financial measure, was $0.5 million in the current year quarter compared to core other expense of $0.2 million in the prior year quarter.  Non-core items in the prior year quarter of $9.5 million primarily related to net foreign currency losses for the acquisition and structuring of Constantia Labels.  The remaining change in core other income/expense related to gains and losses on foreign exchange.
     
  • Our effective tax rate was (12)% in the current year quarter compared to 226% in the prior year quarter.  The effective tax rate on core net income, a non-GAAP financial measure, was 15% for the current year quarter compared to 25% in the prior year quarter. The decrease in the tax rate is primarily due to tax rate changes in the U.S. and Belgium. 
     
  • The Company expects its annual effective tax rate on core net income to be approximately 19% in fiscal 2019 or 22% excluding the release of the indemnification receivable, which occurred in a prior quarter of fiscal 2019. 
     
  • Net income decreased 45% or $9.2 million in the current year quarter compared to the prior year quarter.  Core net income, a non-GAAP financial measure, decreased 26% or $3.5 million compared to the prior year quarter.
     
  • Diluted EPS decreased 48% to $0.55 per diluted share in the current year quarter compared to $1.06 per diluted share in the prior year quarter.  Excluding the impact of the non-core items noted below, core EPS, a non-GAAP financial measure, decreased 30% to $0.50 per diluted share compared to $0.71 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 December 31, 2018 and 2017.  Refer to the tables in Exhibit A for a reconciliation of adjustments made to gross profit, gross margin, SG&A expenses, operating income, EBITDA, interest expense, other (income) expense, 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
  12/31/18 Diluted 12/31/17 Diluted
    (in 000's) EPS   (in 000's) EPS
Net income attributable to MCC and diluted EPS, as reported $   11,286 $ 0.55 $ 20,532 $ 1.06
Inventory purchase accounting charges, net of tax     -     -     3,588     0.18
Acquisition, integration and strategic review expenses, net of tax     1,514     0.07     10,165     0.52
Facility closure expenses, net of tax     40    -     507     0.03
Net foreign currency loss on acquisition, net of derivatives and related debt, net of tax     -    -     9,465     0.49
Net foreign currency gain on acquisition structuring loans, net of tax     -      -     (3,686)     (0.19)
Pre-acquisition financing costs and deferred loan fees, net of tax     -      -      4,857     0.25
Impact of U.S. tax reform     (953)     (0.05)     (16,186)     (0.83)
Impact of Belgian tax reform     (1,589)     (0.08)     (15,409)     (0.79)
Core net income and diluted EPS, (Non-GAAP) $   10,298 $   0.50 $ 13,833 $ 0.71
*Diluted EPS is less than $0.01                

Fiscal 2019 Results

  • Net revenues increased 51% to $1,288 million compared to $851.2 million in the nine months ended December 31, 2017.  Acquisitions occurring after the beginning of fiscal 2018 accounted for a 50% increase in revenues, net of divestitures.  Organic revenue increased 2% with growth in developed markets in the low single digits and growth in developing markets in the high single digits. The impact of timing of revenue recognition with the adoption of the new ASC 606 revenue standard on April 1, 2018 resulted in a net $3.8 million reduction in revenue compared to the prior year. Foreign exchange led to a 1% decrease in revenues. 
     
  • Gross profit increased 51% or $81.6 million compared to the nine months ended December 31, 2017.  Core gross profit, a non-GAAP financial measure, increased 47% or $76.4 million compared to the prior year.  Acquisitions occurring after the beginning of fiscal 2018 contributed 46% or $74.7 million to core gross profit, net of divestitures.  Core organic gross profit increased 2% or $2.7 million.  The remaining decrease of $1 million related to the unfavorable effects of foreign exchange.  Core gross margins were 18.7% of net revenues for the current year compared to 19.3% in the prior year.
     
  • Selling, general and administrative expenses increased 31% or $28.3 million compared to the nine months ended December 31, 2017 primarily related to acquisitions and acquisition-related expenses.  Core SG&A, a non-GAAP financial measure, increased 50% or $36.8 million compared to the prior year.  Acquisitions occurring after the beginning of fiscal 2018, net of divestitures contributed $31.5 million to the core SG&A increase, offset by favorable foreign exchange of $0.6 million.  The remaining increase of $5.9 million related to compensation expenses and professional fees, including $0.6 million relating to modification of our Term Loan B, which will reduce interest expense in future periods.  Core SG&A decreased as a percentage of sales to 8.5% from 8.6% in to the prior year.  Non-core items related to acquisition, integration and strategic review expenses were $8.4 million in the current year, primarily related to the Constantia Labels acquisition, compared to $17 million in the prior year. 
     
  • Facility closure expenses were $0.2 million in the nine months ended December 31, 2018 compared to $0.9 million in the prior year and were primarily related to the consolidation of our manufacturing facility in Merignac, France into our facility in Libourne, France.
     
  • Operating income increased 80% or $54.1 million compared to the nine months ended December 31, 2017 primarily due to acquisitions, related synergies and lower acquisition and related costs.  Core operating income increased 44% or $39.5 million compared to the prior year.  Core operating income includes $43.2 million in relation to acquisitions occurring after the beginning of fiscal 2018, net of divestitures.  Non-core items in the current year related to inventory purchase accounting adjustments of $0.2 million, acquisition and integration expenses of $8.4 million, and facility closure expenses of $0.2 million.
     
  • Interest expense increased $22.2 million in the nine months ended December 31, 2018 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 $29.7 million to $56.9 million for the nine months ended December 31, 2018, excluding $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 in the prior year period.
     
  • Other expense was $2.4 million in the nine months ended December 31, 2018 compared to $8.2 million in the nine months ended December 31, 2017. Core other expense, a non-GAAP financial measure, was $2.4 million in the nine months ended December 31, 2018 compared to $1.2 million in the prior year.  Core other expense included the release of foreign indemnification receivables in the amount of $3.1 million in the current year and $1.1 million in the prior year for which offsetting tax liabilities were relieved reducing the current and prior year tax rates.  Non-core items in the prior year primarily related to $6.5 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.
     
  • The effective tax rate was 14% for the nine months ended December 31, 2018 compared to (104)% in the prior year.  The effective tax rate on core net income was 20% for the current year compared to 25% in the prior year, which included the release of tax liabilities related to foreign indemnification receivables related to previous acquisitions for $3.1 million in the current year and $1.1 million in the prior year for which there were offsetting impacts in other expense.
     
  • Net income increased 7% or $3.4 million for the nine months ended December 31, 2018 compared to the prior year.  Core net income increased 20% or $9.5 million compared to the prior year.
     
  • Diluted EPS decreased 7% or $0.19 for the nine months ended December 31, 2018 compared to the prior year.  Excluding the impact of the non-core items noted below, core EPS increased 5% to $2.74 compared to $2.61 in the prior year.

             
The following table shows adjustments made to net income and diluted EPS between reported GAAP and non-GAAP results for the nine months ended December 31, 2018 and 2017.  Refer to the tables in Exhibit A for a reconciliation of adjustments made to gross profit, gross margin, 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.

  Nine Months Ended
  12/31/18 Diluted 12/31/17 Diluted
  (in 000's) EPS (in 000's) EPS
Net income attributable to MCC and diluted EPS, as reported $   53,180 $   2.59 $ 49,828 $ 2.78
Inventory purchase accounting charges, net of tax     121     0.01     3,879     0.22
Acquisition, integration and strategic review expenses, net of tax     6,705     0.33     14,867     0.83
Facility closure expenses, net of tax     134    0.01     593     0.03
Net foreign currency loss on acquisition, net of derivatives and related debt, net of tax     -     -     7,573     0.42
Net foreign currency gain on acquisition structuring loans, net of tax     -      -   
View Comments and Join the Discussion!
 
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com