High-Yield Equity Spotlight: Courier Corp.

| About: Courier Corporation (CRRC)

Given where interest rates are today, if you see a stock with a yield of around 8%, you have to salivate.

The good news is that many such stocks really exist. The bad news is that the best of them come with more baggage than you'll see at a luggage superstore. Mr. Market isn't nearly the fool legend makes him out to be. If he's offering a yield like that, expect him to take back a pound of flesh in the form of a larger-the-usual number of dividends that get reduced or omitted as companies find it hard to keep pumping out the cash.

The question is whether the high payouts you actually receive are worth the pain from those that fall through. The latest iteration of a stock screening strategy based on high yield which I introduced on Seeking Alpha as the Prudent Yield Hog, produced a total return of 6.2% in the 2012 first quarter, and backtest results suggest an annualized total return of 10.0% from 12/31/03 through 3/28/12. These numbers compare well to benchmarks: The iShares Select Dividend Index (DVY) returned 4.71% in the 2012 first quarter and delivered 3.77% annual returns from 12/31/03 through 3/28/12. The iShares Dow Jones US Utilities ETF (IDU) lost 2.31% in the 2012 first quarter (a reasonable correction following an incredibly strong 18.67% gain in 2011) and returned 7.84% annually from 12/31/03 through 3/28/12. Still, this isn't the best income model I have. But for those who really do need income per se (as opposed to total return), this results (backtested prior to 2012 and with real money this year) suggest it can be accomplished without driving over a cliff.

Today, I'd like to look closely at Courier Corp. (CRRC), a stock that's presently in my high-yield screen.

The Basics

  • The company makes books. No, this isn't a euphemism for accounting consultation or gaming. It really makes (prints, binds, etc.) those things with pages that include lots of words, and often pictures, charts, etc., the things many have stopped buying, or are buying less of, as they migrate to e-readers., the things that used to be sold by Borders before that chain went belly up.
  • CRRC's book-production focuses on three areas: Educational (key clients include Pearson, McGraw Hill (MHP) and Houghton Mifflin Harcourt), Religious (Zondervan, Gideon's, American Bible Society), and Specialty Trade (Wiley, Random House, Norton). The largest customers in 2011 were Pearson (30% of sales) and Gideon (23% of sales).
  • The company also has a smaller (16% of 2011 revenue) specialty publishing operation featuring three imprints: Dover (specialty items in such areas as arts, crafts, music scores, puzzles, scientific topics, etc.), REA (study guides for students and test-preparation books), and Creative Homeowner (home decoration, design, gardening and landscaping, etc.).


  • Book manufacturing . . . oy vey! Given the growth of e-reading, it's not hard to recognize this as the main source of company baggage. And as baggage goes, this isn't like the little case you can squeeze into the overhead bin of an airplane. It's like the huge trunk that might prompt the airline to charge extra for excess weight.
  • The Borders bankruptcy isn't just a problem for the book manufacturing operation. It also hits specialty publishing, so much as to have prompted CRRC to write down the value of REA by about $8.4 million.
  • The weak housing market has been plaguing CRRC's Creative homeowner imprint. It's not necessarily tied to housing starts; owners of existing homes also engage in the activities covered by the books - but not when they're short of cash and/or credit.
  • The impact of the Borders disappearance and the emergence of e-books is, essentially, permanent. And Borders may not be the last book vendor to go away. This is a tough, shrinking, business.
  • Technology, even in the manufacture of physical books, is changing. One of CRRC's facilities had become non-competitive and was shut down.


  • A funny thing has been happening on the way to oblivion. The company doesn't seem to be getting there.
  • Despite the traumas articulated above, CRRC posted a 0.9% rate of revenue growth in fiscal 2011 (ended September 30th). That's not bad considering external conditions could easily have caused shrinkage.
  • Actually, the worst of the sales trends were in specialty publishing. Sales in book manufacturing were up 9% last year due to an acquisition and strong college publishing. And a new deal with Pearson suggests further growth in this important area.
  • The same general trends persisted into this year's first quarter: book manufacturing up and specialty publishing down albeit at a lesser rate than last year.
  • We need to be careful about over-generalizing the impact of the spread of e-books. The sort of material produced by CRRC, especially college textbooks, are going electronic much more slowly than other areas. In fact, the new Pearson deal prompted CRRC to increases its investment in production capability relating to four-color custom books. And speaking of custom . . .
  • Although book production is not a growth business any more, CRRC is good at what it does and is able to handle customization (i.e., different universities, schools, professors and classes want different things) and short print runs, a big consideration nowadays.
  • The Borders impact has largely worked its way through comparisons. And assuming Barnes & Noble (NYSE:BKS) stays afloat, it's unlikely other bookstore failures will hit CRRC that hard.
  • Creative Homeowner is likely at the trough of its business cycle and looking generally in an upward direction.
  • CRRC isn't sitting out the digital revolution. Its specialty book division has a big library of titles being and to be converted to e-book format. The company is also working on digital products such as mobile apps and online study centers.
  • While Borders may be gone, CRRC is developing other channels, such as on-line and mass merchants.
  • Cash from operations has been running in the $30-$35 million a year range ($35.2 million in the trailing 12 months) while the dividend costs about $10.2 million. Capital spending spiked in fiscal 2010 to $28.4 million (to incorporate new technologies) but usually has been about $10-$15 million in non-spike years.
  • In the latest quarter, the company had $1.8 million in short-term debt, $16.7 million in long-term debt and $153.3 million in shareholder equity. Current assets were $81.5 million and current liabilities were $31.4 million. The latest current-account totals, as well as the key sub-items (receivables, inventories, payables, etc.) were in line with historic norms.

Summing Up

  • Life in a declining industry is never easy, so as an income play, CRRC probably can expect to be indefinitely ensconced in the high-risk, high-yield group.
  • But compared to other firms in this arena, CRRC seems to be about as well positioned as might be expected. It's not by any means a shoo-in, but relative to other high-yield equities, I think the risks here are tolerable.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: I don’t own it at the moment, because it wasn’t in the screen the last time I rebalanced my portfolio. But if it’s still there when I re-balance at the end of the month, I’ll buy it.