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Multi-Color Corporation (NASDAQ:LABL)

Q4 2008 Earnings Call

May 16, 2008 11:00 am ET

Executives

Frank Gerace – President & CEO

Dawn Bertsche – Sr. VP Finance & CFO

James Reynolds – Corporate Controller & CAO

Analysts

Casey Flavin – CJS Securities

Megan Friedman – William Blair & Company

Jonathan Lecture – Feroda and Company

Steve O’Neill – Hilliard Lyons Inc.

[Larry Rader – Long Management]

Operator

Good day ladies and gentlemen and welcome to the Multi-Color Corporation fiscal 2008 fourth quarter and year-end conference call webcast. (Operator Instructions) I would now like to turn the call over to your host for today, Mr. Frank Gerace, President and CEO; please proceed.

Frank Gerace

Welcome to Multi-Color Corporation’s fiscal 2008 fourth quarter conference call and webcast for the period ending March 31, 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’m joined today with Dawn Bertsche our CFO and Jim Reynolds our Corporate Controller. We are pleased to report to you on another successful quarter and year and to use this opportunity to communicate with you in a direct and open forum. Jim would you please review our Safe Harbor Statement with the participants. 

James H. Reynolds 

Thanks Frank. 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. 

I also want to call your attention to the special items that were included in our financial results for both 2008 and 2007 as reported in our earnings release this morning. During the quarter ended March 31, 2008 we recorded a pre-tax gain of $8.6 million and other income and expenses to reflect the change in fair value of foreign currency forward contracts associated with our acquisition of Collotype. In order to protect ourselves from a weakening dollar, we entered into these forward contracts to purchase Australian dollars and these contracts were then settled upon completion of the transaction in February.

Also during the quarter we recorded a pre-tax and one-time charge of $560,000 in accordance with financial accounts standard 141 business combinations due to our acquisition of Collotype. And lastly we incurred $172,000 of expenses related to our previously announced manufacturing expansion plan. Combined and on an after-tax basis these items increased EPS by $0.47 per diluted share.

As previously announced I want to remind you that we sold our packaging services business, Quick Pak, on July 2, 2007. As a result the operations of Quick Pak are presented as discontinued operations in our consolidated financial statements for all periods and we no longer report any segment results.

Frank Gerace

Thank you Jim. So this conference call will follow the same format as in the past, I will begin with a brief overview of how our company performed this quarter and then Dawn will follow up a detailed analysis of our financial results and then I will conclude with some final comments and then we’ll take your questions.

As stated in our earnings release fiscal 2008 was a record year, although the fourth quarter did not meet our expectations. Although we started out the fourth quarter with a strong order level, as the quarter progressed we experienced a significant pull-back from two customers in the homecare market. We believe the pull-back was caused by inventory builds earlier in the year for the new concentrated laundry detergent launch which these customers began working off in the fourth quarter. Thus far this quarter, one of those customers has returned to normal order levels and we expect the other customer to resume normal order patterns in the next 30 to 60 days.

Now some of you may be wondering what impact the current economic slowdown could be having on our business. Although current economic data suggests that there has been a decline in consumer spending, and I have read reports of the potential for consumers to move to lower cost private label alternatives, I do not have any confirmation that this has had any impact on our fourth quarter results. In fact, we experienced gains from several consumer product customers during our last quarter but the gains did not offset the declines from the two customers mentioned earlier.

The completion of the Collotype acquisition during the quarter was a transformational event for Multi-Color. We are very excited about the growth opportunities as a result of this acquisition. Nigel Vinecombe and his international business unit team are continuing to grow and improve their existing businesses. And in addition we have many worldwide opportunities we are examining in the marketplace. Our North American business unit led by Donald Kneir, is moving forward with the expansion plans in Batavia, Ohio. Consolidating two plants into the new facility is progressing as planned albeit with the types of start-up challenges you would normally expect in a project of this magnitude.

So during the quarter we did have some operational inefficiencies as we installed new presses, brought them up to speed and trained new operators. We are expecting these changes to normalize towards the end of the current quarter. To provide more details of our fourth quarter results, I’ll now turn the call over to our CFO, Dawn Bertsche.

Dawn Bertsche

Thank you Frank and than you all for joining us today. For those of you who are listening and viewing our webcast over the internet, please take a look at slide number one, net revenues. For the fourth quarter net revenues increased to $57.7 million, or 14% over the prior year. The sales increase attributable to the acquisition of Collotype was $9.3 million. With Collotype, sales fell 4% for the fourth quarter. As Frank mentioned certain significant homecare customers pulled back on their orders during the quarter. In addition, year-to-date net revenues increased to $210.3 million representing a 9% increase over the prior year. Without Collotype our sales growth for fiscal 2008 was 4%, below our target growth rate of 7% to 8% due to the pull-back experienced in the fourth quarter for the two customers mentioned.

Now take a look at slide number two, operating income. Operating income for the fourth quarter was $4.7 million or flat compared to the prior year. In addition to the one-time special items reflected in the adjusted operating income on the chart, there were two operational issues affecting earnings for the quarter. Those are the transition costs related to moving to our larger facility in Batavia, Ohio were approximately $700,000. These costs were incurred due to inefficiencies experienced in the installation of our new presses, getting them up to speed and operator training.

The sales shortfall in the fourth quarter resulted in lost contribution margin of approximately $600,000. The gross margins were 19% of sales compared to 20% in the prior year as a result of the sales shortfall and the transition costs previously mentioned. SG&A expenses as a percent of sales were flat year-over-year for the quarter. Therefore operating margins for the quarter decreased to 8% of sales from 9% in the prior year driven by the sales shortfall and transition costs previously mentioned.

For the 12 months ended March 31, 2008 operating income increased to $17.5 million from $13.8 million. Excluding the special items from both periods, operating income increased over 9%. The next slide shows both income from continuing operations and total net income for the fourth quarter and year-to-date for fiscal 2008 and 2007. Now I realize this slide looks very busy however due to the special items and the divestiture of Quick Pak, we have presented adjusted numbers in order for you to better understand our results. The red bars on the chart represent the adjusted numbers in this slide.

Income from continuing operations for the fourth quarter increased to $8.2 million from $3.2 million in the prior year. Excluding the special items from both periods, income from continuing operations declined $174,000 compared to the prior year. Included in income from continuing operations was a $650,000 increase in interest expense due to the acquisition debt incurred in the fourth quarter. Also our effective tax rate from continuing operations increased to 34.5% from 30.6% in the prior year due to year-end tax adjustments in 2007.

Our annual effective tax rate for fiscal 2008 is 35.5%. On an adjusted basis, total net income for the quarter decreased from $3.9 million to $3 million primarily as a result of the divestiture of Quick Pak. Next we look at year-to-date ended March 31, 2008 income from continuing operations increased to $16 million from $8.6 million in the prior year. Excluding the special items income from continuing operations increased 11% to $11.7 million from $10.5 million due to the sales growth and a reduction in SG&A expense. Year-to-date total adjusted net income increased from $12.9 million to $18.7 million due to the gain on the divestiture of Quick Pak.

Now advance to slide number four, earnings per share. Excluding the special items EPS from continuing operations decreased to $0.27 per diluted share for the fourth quarter and increased to $1.10 per diluted share for the 12 months ended March 31, 2008. Excluding the impact of the one-time purchase accounting charge, Collotype would have contributed $0.03 per diluted share in March. As previously announced we expect Collotype to contribute $0.22 to $0.24 of earnings per diluted share for fiscal year 2009.

Moving to the graph on the right, adjusted EPS for the quarter decreased from $0.37 to $0.27 due to the divestiture of Quick Pak. Adjusted EPS for the year-to-date period increased to $1.76 from $1.27 due to the gain on the sale of Quick Pak recorded in the second quarter. The next slide shows the growth in shareholders equity which increased by $55.5 million from March 31, 2007 primarily due to the issuance of shares in the Collotype acquisition, our increased earnings and gain on divestiture of Quick Pak. Now I’d like to turn the presentation back over to Frank.

Frank Gerace

Thanks Dawn, before opening up the conference call for questions, I’d like to comment on a few other important items. The last several months have changed our company in many positive ways. Ways that will make us stronger by reducing manufacturing costs, bigger by increasing capacity, more flexible by adding capabilities and more balanced by expanding into new markets and regions of the world.

The bottom line is that we continue to execute our strategy in order to build a company with sustained growth and predictable earnings. The new year has plenty of challenges and we are mindful of the rise in energy costs and energy-related materials, lower consumer spending and the overall economic slowdown in the US. But remember, the markets we serve and the brands we support historically have been the least affected during economic shifts.

Furthermore we are well positioned to take full advantage of the opportunities that the next business cycle will present. In closing, our growing team of highly motivated and talented global associates is ready and prepared to compete and win in the regions and markets that we serve. I want to thank them all in North America, Australia, and South Africa for their commitment and their contributions to our company.

This concludes the formal presentation and now let’s open up the discussion and entertain your questions.

Question-and-Answer Session

Operator

(Operator Instructions)

Your first question comes from the line of Casey Flavin – CJS Securities

Casey Flavin – CJS Securities

In looking at the revenue in the quarter, you’ve been impacted by the timing of order shipments in the past, can you just give us a better sense of how much this shortfall during this quarter was related to timing versus a more global slowdown in demand for personal care items and also has your view of core growth in ’09 changed at all based on the results?

Frank Gerace

I don’t have any evidence that the slowdown in sales specifically in the homecare area only was related to any move-away from the brands that we support as a result of any macroeconomic slowdown that has been talked about every single day in the news media. And we’re very, very confident – it really involved two specific customers that had gone through a significant inventory build in our second and third quarter and they just decided to stop ordering in the fourth quarter and start working off of those inventories. As I stated earlier as a matter of fact, one of them now recently within the last couple of weeks have returned to normal order patterns and the other one we expect will return to normal order patterns over the next 30 to 60 days.

Now relative to our organic growth rate for 2009 as we’ve stated repeatedly our target growth rate is in the 7% and 8% range. Given what we’ve experienced in the fourth quarter and so far a little bit into our first quarter, there’s no question that it’s going to be a challenge for us to achieve the 7% to 8% target but here we are again, it’s too early to predict for sure. I don’t have a crystal ball on that. As we’ve stated again in the past we really only get at best a four-week view into the future as far as orders are concerned. We’re not going to change our target. We’re not going to change our expectations as far as sales growth is with our sales force, but there’s no question that I think we’re starting a little bit behind here and it will be challenging as we move through the year to make that up.

Casey Flavin – CJS Securities

In terms of the two customers that reduced some of their orders, you mentioned one is already back up to normal levels, can you just touch on or would you be willing to speak to which one is your larger customer, are they currently resumed or is this the one that you expect to resume in a couple of weeks?

Frank Gerace

The larger – we expect the larger customer to resume in the next 30 to 60 days.

Casey Flavin – CJS Securities

Now in addition to Collotype, have you considered at all entering additional end-markets to further diversify any of your revenue streams?

Frank Gerace

Absolutely, my personal goal – one of my main objectives personally, is to continue to expand our customer base and reduce the customer concentration and I’m happy to report that I think we’ve done a very good job with that over the past year and with the addition of Collotype it even impacts it further. With all of the skill and experience from a printing standpoint that Collotype has in the wine area, one of the things that we’ve been talking about is looking at a spirits strategy and getting more involved into the spirits area. On the domestic side of the business, we’re looking into more automotive type things. So we’re constantly looking at expanding our markets. Again, our objective here is to become a more and increasingly balanced company so that we will never be dependent on one market, one customer, or one region. The answer to that is yes, yes and yes.

Casey Flavin – CJS Securities

This is the first time we’ve seen some numbers out of Collotype, I guess my first question is we’ve been expecting an 8-K, are we going to see that today and then secondly how were the Collotype revenues that you reported versus your expectations and can you give us a full-year revenue number for Collotype in ‘07?

Dawn Bertsche

The 8-K is going to be filed today. It’s an 8-K (a) and it’s going to be filed later today and we have not actually disclosed a full-year for ’09 for Collotype. We did disclose that their sales in the last 12 months were about $130 million. It is subject to the translation of their currencies involved so we do expect there to be growth in that number.

Frank Gerace

We don’t have obviously, we don’t give guidance with regards to what we expect our sales are going to be for our domestic business but our target has always been 7% to 8% growth, we’ve just discussed that, and quite frankly that’s the exact same growth target that we expect of Collotype.

Casey Flavin – CJS Securities

In terms of, can you provide a little bit of color as far as the seasonality, from what I understand the summer months or the next couple that are coming up here, a little stronger for the business, can you give us a sense of how we should think about revenues for Collotype over the next quarter or two?

Dawn Bertsche

Well you’re absolutely correct, the first four months of the calendar year are the slowest and then the next May, June, July, August, September are their strongest months. I don’t have specific numbers to give you but I would certainly move a couple – rather than just 25% a quarter, I would move a percentage or two into the next few months and take them out of the last several.

Frank Gerace

And getting back to the question how did we feel they performed in the month of March and we’ve already got April’s numbers by the way, they’re performing the way we expect them to perform and consistent with previous and historical patterns and as I mentioned before we closed the deal, they are a very well managed business and with a lot of excellent talent and we are extremely excited about having them with us.

Casey Flavin – CJS Securities

In terms of gross margins, those were a nice surprise in the quarter despite a little bit softer revenues, do you believe that there’s a [inaudible] about these levels and how much of the margin expansion do you think was contributed by Collotype versus your general plant efficiencies in the quarter?

Frank Gerace

We were somewhat pleased with our gross margins in the quarter and obviously with all of the activity that took place, I guess we should be happy with them but I expect, as we said before, there’s no reason why this company can’t sustain gross margins in the 20% to 21% range. As we come out of our manufacturing consolidation plan and start filling the capacity in Batavia, and as orders begin to resume in our homecare area, I think that you can count on those margins being consistent to what you’ve seen historically. And that would go for Collotype also.

Operator

Your next question comes from the line of Megan Friedman – William Blair & Company

Megan Friedman – William Blair & Company

I wanted to just try to get a little bit more detail on Q1 so far, you talked about the two customers and their production plans, but can you talk a little bit about broadly what you’re seeing, quarter-to-date?

Frank Gerace

We’re just one month into the quarter and I guess I would characterize April to be similar to what we experienced in March. And again this is very identifiable and it’s very specific to one particular category that we support and that’s the homecare area. The rest of our business looks very, very good and very strong but the homecare area has slipped a little bit and we believe it’s because of the inventory builds that we experienced last year. The backlog is firming up. And I recall back in the last quarter I made a comment so that you all don’t have to remind me, I made a comment in the last quarter that we had had a record orders entered like in the second week or third week of January. And I kick myself for making that comment then because I got myself excited and our organization and probably all of you with regards to how the fourth quarter was going to end up and so I – but you see what happens. I mean our view into the future is not great but what I would tell you is that the backlog that we currently have over the last two or three weeks has firmed up and so I’m not discouraged and I’m not overly concerned around how the business is going to perform and our sales growth is going to perform going forward.

Megan Friedman – William Blair & Company

Switching gears to Collotype, can you provide, I know you’ve only been a combined company for a couple of months now, but can you provide any examples of synergy, either operational synergy or revenue synergy that’s been realized, or that you’re working on?

Frank Gerace

There’s very little that I would say has been realized at this point but I can speak to some of the stuff that we’re working on. A lot of it is in the purchasing area. We’ve identified somewhere in the area of sales to common suppliers in the are of $50 million to $70 million, not sales excuse me, purchases from common suppliers in the range of $50 million to $70 million and our purchasing folks here in the States and in Australia are working diligently together and approaching those suppliers and asking for consideration relative to volume and global discounts. They are having weekly and monthly conference calls exchanging pricing and material specifications. And we do expect to get some benefit from that. Honestly I’m not prepared to say how much that’s going to be at this point but I do expect us to get purchasing synergies; I’m sure of that.

There have been a couple of examples on the sales end where our North American pricing folks have worked with our South African and Australian pricing counterparts on a couple of tenders related to common global customers. The jury is still out on how successful we’re going to be there but it really does cement and play right into our strategy relative to being able to take advantage of global relationships number one, and the additional intelligence we now have across regions and making sure that our pricing is competitive and that our raw materials and sourcing are in line so that we can take full advantage of the tenders and hopefully going forward win and I’m confident that we will win going forward.

From a management perspective we have begun now – we’re in the process of standardizing our management reporting. What I would tell you is there’s very little difference though, I mean again, Collotype was very, very well managed and so all of the key indicators and metrics that they had set for themselves to achieve are either identical or very, very similar to the metrics that we have set for ourselves and really its just a question of formatting more than anything else. But we are already having monthly accountability meetings and operational meetings with our colleagues at Collotype and so that’s moving forward. And we’re learning more and more about each other’s business and I’m sure as we continue to learn, we’re going to find many other areas that we’re going to be able to create synergies and help each other with.

I’ll give you another example, something as simple as – for instance, management structures. Where they have a certain organizational structure that is somewhat different than ours and so we’re looking at this and saying well, which one is the most affective and which one is most efficient and are there any opportunities to remove layers and things of that nature as we go forward. We’re going to be – there is nothing set in concrete relative to how – the only thing that’s set in concrete and its not negotiable is our profitability and our growth. But as far as everything in between and how we get there, we’re going to look at every opportunity to reduce costs, to continue to maintain our position as low-cost manufacturers and to grow our business.

Megan Friedman – William Blair & Company

Can you just share the cash balance at the end of the quarter as well as D&A and CapEx for the quarter?

Dawn Bertsche

Sure, CapEx for the quarter was $4.4 million. That put us for the year at $19.3 million. Depreciation for the quarter was about $3 million and amortization was a couple hundred thousand dollars, and the cash balance at the end of the year was $4 million.

Megan Friedman – William Blair & Company

In terms of, can you shed any light on CapEx expectations for ’09; does Collotype need any expansion of their facilities?

Dawn Bertsche

Well there’s always some level of maintenance CapEx but for the year we’re looking at a much lower number than what we did last year because we had a very big investment in ’08 and our target is around $10 million including Collotype.

Frank Gerace

And Collotype has been very, very well capitalized and they’ve done a good job in maintaining and updating their equipment and we don’t see any significant capital needs at this point for Collotype in the near future.

Megan Friedman – William Blair & Company

In terms of the tax rate expectations for the company?

Dawn Bertsche

We’re still working on that, 35.5% is where we ended the year but quite frankly I expect that to be a little bit less. But I don’t have a firm answer for you right now.

Operator

Your next question comes from the line of Jonathan Lecture – Feroda and Company

Jonathan Lecture – Feroda and Company

Was that $700,000 that Dawn you mentioned was the move to Batavia?

Dawn Bertsche

Actually those were the inefficiencies; the cost of inefficiencies because of the move to Batavia, yes. It wasn’t necessarily the cost of moving.

Frank Gerace

Its things like loss in productivity, training, quite frankly there’s always a little bit more waste then your standard waste as a result of new operators running equipment; its things of that nature.

Jonathan Lecture – Feroda and Company

And when did you expect to recapture that?

Frank Gerace

We expect things to normalize towards the end of this quarter. I don’t like using the word recapture; it’s not easy to recapture something once you’ve lost it unfortunately but I do expect things to normalize and things have been improving as the weeks go on but to get back to a steady state towards the end of this quarter.

Jonathan Lecture – Feroda and Company

The $9.3 million Collotype sales, is that a good run rate for a fourth quarter for them?

Dawn Bertsche

For our fourth quarter, yes and that’s in US dollars so again we’re going to have to be dealing with currency fluctuations going forward but depending on what the dollar does to the Australian and to the South African rand next year will be another story.

Jonathan Lecture – Feroda and Company

And were there any customer dislocations because of the acquisition, did everyone stay on board?

Frank Gerace

Everyone stayed on board. Collotype has deep and broad relationships with their customers and as I may have mentioned in the last conference call, I personally either had breakfast, lunch or dinner and met almost all of their key customers and they have very, very strong support from their customer base. There have been no dislocations and I don’t expect any. As a matter of fact I expect their customer base to continue to grow.

Jonathan Lecture – Feroda and Company

I think you mentioned there would have been $0.03 in accretion from Collotype in the month, I guess then how come you’re not expecting greater than the $0.23 or so in accretion for the year?

Dawn Bertsche

I guess because I am a long-term view, and you guys have short-term views. One quarter, one month I should say, we only had it for one month and I think its unrealistic to take a look at what happens in one month and say that’s the way it will be so that’s why we’re sticking to the $0.22 to $0.24.

Frank Gerace

And Dawn will probably kick me under the table for saying this but, I do want to reinforce and emphasize and maybe just kind of put a little bit of a hurdle up for our management team, that $0.22 to $0.24 though does not include any synergies.

Jonathan Lecture – Feroda and Company

Do you expect, would you expect to do first another acquisition or to aggressively pay down debt?

Dawn Bertsche

Well considering that we’re already aggressively paying down debt, the answer is that’s what we’re doing first.

Frank Gerace

That’s a great segue and I’m sure a question in many minds is where are we as far as acquisitions are concerned, we still have plenty of opportunities as far as acquisitions are concerned both domestically and internationally. We are in early discussions with a number of interested parties that we are also interested in. But I want to reinforce and emphasize that our people are very focused on completing the projects, two big projects that we have in front of us.

Once successfully completing the move to our new supercenter in Batavia and getting that operating efficiently and affectively which I have all the confidence in the world will take place. But it’s a big project. And two there’s a lot of integration from a reporting and from a financial perspective that has taken place and will continue to take place over the next few months relative to Collotype. But the good news is that I think we have the organization and the talent to do both of those quickly and while not going to sleep or slowing down relative to any acquisitions opportunities that are both strategically and financially beneficial to our shareholders.

Relative to paying down debt, you all know I don’t like debt and so we will have a big focus outside of acquisitions, we will have a big focus this year on aggressively managing our inventories, our payables, our receivables, we’re going to scrutinize capital expenditures, so that I’m very confident in our ability to pay down debt but the faster we pay it down the more value that we provide to our shareholders in earnings per share. So that’s definitely going to be a big focus of mine this year and next year.

Jonathan Lecture – Feroda and Company

Did the move to March for Easter, did that have any impact on the quarter?

Frank Gerace

No.

Operator

Your next question comes from the line of Steve O’Neill – Hilliard Lyons Inc.

Steve O’Neill – Hilliard Lyons Inc.

Frank, first of all I want to make sure I heard it correctly in the homecare area what was the type of product that led to the somewhat inventory lowering?

Frank Gerace

The technical name that the consumer products companies call it is heavy duty laundry detergent. And that is the item. That is the category and it’s all related to the move over the last year really with the strong encouragement of Wal-Mart to go to concentrated laundry detergents and virtually all of the majors have done that at the same time.

Steve O’Neill – Hilliard Lyons Inc.

And so what was the dynamics of that situation? Has that launch occurred? Were comparisons difficult with a year ago or did you see some inventory reduction in this quarter, I’m just trying to understand the dynamics of the situation.

Frank Gerace

The launch has occurred and most of it starting getting rolled out in the last quarter, the last calendar quarter which would have been our third fiscal quarter last year and continued through the fourth quarter and so when we were all really elated and jumping for joy when we saw the tremendous organic growth that we were getting in our first and second quarter, that in essence was the inventory build with these people getting ready to launch this concentrates in our third and fourth quarters. And it’s continuing. And by the way, I haven’t honestly gotten any feedback or any information on exactly how the concentrates are doing in the marketplace.

Steve O’Neill – Hilliard Lyons Inc.

Can you give me what cash flow was for the year?

Dawn Bertsche

It kind of depends on how you define cash flow but if you look at it from our cash provided by operations and then less CapEx, it’s about a negative $12 million because of our very large CapEx this year versus last year our free cash flow was like $23 million.

Steve O’Neill – Hilliard Lyons Inc.

What were CapEx last year then?

Dawn Bertsche

It was $2.5 million we spent in CapEx last year.

Steve O’Neill – Hilliard Lyons Inc.

I was really actually looking for cash flow before CapEx.

Dawn Bertsche

Okay cash flow before CapEx this year is $7.3 million.

Steve O’Neill – Hilliard Lyons Inc.

Okay because it was around, cash flow for operations last year and I want to make sure we’re not mixing apples and oranges, cash flow from operations last year was about $25 million that was cash flow from operations including working capital changes and that sort of thing.

Dawn Bertsche

Right, we had a lot of and the detailed cash flow statement will be filed with the 10-K, but there were a lot of unusual items this year as we went through in the call, we had the big gain on the forward contracts with the foreign currency purchase and we had a big gain on the sale of Quick Pak and taxes on all that and those things really do have an impact on those numbers. So it’s very difficult to compare. When you look at our receivable levels, we actually improved cash flow in the receivable area, inventories were actually up a bit, and that as Frank said, is being aggressively managed now so those details will be in the 10-K.

Steve O’Neill – Hilliard Lyons Inc.

The purchase accounting charge, could you elaborate what the nature of that was and was that in SG&A?

James Reynolds

That charge was in purchase accounting, everything has to be written up to fair value including the inventory so in this case finished goods are written up to fair value. Essentially the margin is eliminated. Inventory turns about 12 times a year so it comes back out through the P&L in the first month. That’s behind us and won’t occur again. That charge is in cost of sales in terms of the geography of the P&L.

Steve O’Neill – Hilliard Lyons Inc.

It would have been in cost of sales.

James Reynolds

Correct.

Steve O’Neill – Hilliard Lyons Inc.

Which actually means that if you adjust for that your gross margin for the quarter was actually pretty good then?’

Frank Gerace

Yes, we knew someone would pick up on that.

Steve O’Neill – Hilliard Lyons Inc.

Can you tell me how many shares were issued in connection with the Collotype acquisition?

Dawn Bertsche

It was 2,026,000 shares.

Steve O’Neill – Hilliard Lyons Inc.

And then there’s been some talk about synergy and that sort of thing and I wanted to make a couple of observations and kind of get your thinking on where you might be going with some of this but Collotype does have international consumer labels and you do serve multi national companies, maybe this is kind of throwing you a curve ball, but I wondered what your thoughts were on how that figures into your long-term strategy and also just looking at Miller, Collotype has an operation in South Africa which is where SAB Miller is based, and I’ve also noticed that Miller [Chill] was launched, its first international launch was in Australia. So I’m just kind of seeing those things and wondering how that figures into the Collotype Multi-Color relationship.

Frank Gerace

It enters large into it. As a matter of fact, I made some inference earlier in the Q&A where there were a couple of tenders that we were involved in on a global basis, leveraging our global relationships in our folks in South Africa and our folks in the US and Australia have been working together on responding to these tenders. One of those tenders was South African Brewery. Although the jury is somewhat out as far as how that business is going to be awarded and I don’t think anyone is going to get all of it, quite frankly at this point. But I think it’s just really important to note that these are exactly the types of things and the type of opportunities that we expect to see on an ongoing basis. And its not just South African Brewery, it’s Proctor & Gamble, its Unilever, its Pepsi, its Coke, its all of these global people and we are and we will become more and more of a valuable to supplier of those folks on an international basis. That’s our strategy, to take advantage of that to help us grow and to turbo charge our growth. And not be just dependent on what’s going on in North America. So we’ve very excited about it and quite frankly it happened a lot faster than I expected it to. Within two weeks of closing the deal, we were already engaged in those types of things which are really exciting for me.

Steve O’Neill – Hilliard Lyons Inc.

When you mentioned that the first accounting charge would have been in cost of products sold, I’m calculating a gross margin of 20.4% versus 20.2%. With everything you had going on and the lower organic volume that seems very good. And I wanted to –

Frank Gerace

Well Steve quite frankly we have -- the good news a Multi-Color is we have incredibly high expectations of ourselves. We’re disappointed in the fourth quarter. It did not meet our expectations but when I put everything together and thank you for opening the door because I don’t want anyone ever to believe that I’m in denial about where we’re at, but when I put the whole thing together and look at it, I’ve got to tell you what, I think our folks did an unbelievable job, you look at some of the activity and the initiatives and projects that we have either taken on or completed, I’m walking into fiscal ’09 and onward, this company is stronger than its ever been from a business perspective. And I’m very excited about our future.

Operator

Your next question comes from the line of [Larry Rader – Long Management]

[Larry Rader – Long Management]

I just wanted to touch in what you see in the acquisition area in terms of multiples, quality of companies, etc. and the ability to negotiate.

Frank Gerace

There’s a lot of quality out there. Just within the last 30 days, I’ve had meetings with folks whose companies would be great adds to our club or to our portfolio of companies. Very well managed businesses run by people who share the same results orientation and business principles that we have at Multi-Color and so I don’t think that we’re going to have any difficulty in finding quality both domestically and internationally which is exceptionally exciting for me.

[Larry Rader – Long Management]

What about price?

Frank Gerace

On price it’s all over the board. I would say it depends on the size of the acquisition. A lot of the pricing really is related to how big the acquisition is. So on your smaller deals, they could be as low as four or five times EBITDA. On your larger deals you’re still talking in the range of around six to seven. And as far as negotiation, I think that the impact of the capital markets and there’s been a little bit, I’ve experienced a little bit of a draw back or pull back in private equity and they aren’t out there going crazy like they were about a year ago. My experience is this though I will tell you, most of the people that I sit and talk with, they would rather sell to a strategic. They would rather entrust their business to a strategic buyer who is committed to the industry, committed to their people, committed to their people’s growth than sell it to a private equity people as long as the pricing is competitive.

Operator

Your next question is a follow-up from the line of Casey Flavin – CJS Securities

Casey Flavin – CJS Securities

Just wanted to make sure with your Batavia facility, have you received that third press and is it up and running at this point?

Frank Gerace

The third press just showed up yesterday or the day before yesterday and is in the process of being installed and we expect that to be running commercial product within the next two weeks. So at that point we will have received all of our presses and all of them will be running. And I’m very, very pleased by the way, the first one that’s in there, the 20 inch [Omat Flexo] we are getting just great quality results off of that press and we expect the productivity just to continue and improve from here on in. They’re doing everything we expected them to do from a quality perspective and from a capability perspective.

Casey Flavin – CJS Securities

And I assume as you’ve spoken before, that gives you the opportunity to pursue some different types of technologies and applications are there any that you can speak to at this moment or are those sort of in the works?

Frank Gerace

Well those presses have a lot, they’re just much more capable than the presses that we’ve had in the past to really allow us to aggressively attack personal care and health and beauty. And that’s precisely what we have on our radar screen in our crosshairs.

Another very important point here though I’d like to make for all the participants. We closed two facilities, or are in the process of, one of totally closed and the other one is in the process of being closed, and these two facilities were like 20,000 square feet and maybe 35,000 square feet for a total of 50,000, 60,000 square feet. We had no room to put in any additional capacity in the way of presses. This new facility is 247,000. We have enough space now in that facility that as our sales force goes out and wins new business, now its just a question of adding a press, adding a press, adding a press, and that facility, again Dawn’s going to kick me for probably saying this, where those two other facilities only had let’s say approximately $40 million in sales, this facility has the capacity for alone to be $150 million plant. So that kind of gives you some directionally where we believe that plant is headed over the next five years or so.

Casey Flavin – CJS Securities

So you have significant room there for growth, that’s great. In terms of Collotype to get back to that, Dawn I was just looking in your response to one of the questions of the $9.3 being a good run rate for Q4 would suggest sort of something in the $28 million range and that would suggest that your busier quarters again, the sort of first, second calendar year quarters would be something closer to 30% versus that 25% number. Is something north of $35 million; is that being way too aggressive? The sequential increase seems pretty substantial there.

Dawn Bertsche

I think you’re asking two questions there. If you look at that $9.3 million and then if you do the math it would come to about 22% of their annual sales. So we talked earlier about taking rather than 25% a quarter, its probably closer to the 22%, 23% in those quarters and then higher in the other quarters. So I think that does foot with what we said earlier.

Casey Flavin – CJS Securities

Okay I’m just trying to confirm because it appears sequentially that’s quite jump but you’re suggesting that it is pretty significant over the next –

Dawn Bertsche

Sequentially by quarter you mean, yes, they are much more seasonal then we are.

Casey Flavin – CJS Securities

And just on gross margin, obviously it was even, strong gross margin [masked] even a little bit, are you currently achieving greater than 20% gross margins in Collotype?

Frank Gerace

You know as much as I love you, I’m not going to answer that question. I would be doing my shareholders and probably my customers also a disservice by disclosing that kind of information for competitive reasons and confidential reasons. They are a great company, managed by great key people and they have great customers.

Casey Flavin – CJS Securities

Okay you’ve broken out gross margins before with your other businesses so I figured we’d see that in the 8-K but is sounds like that is not going to be the case then.

Frank Gerace

That’s not going to be the case. This speaks to the question of –

James Reynolds

From a [inaudible] perspective what you used to see was segment reporting because we were in two different lines of business as you recall, the label business, decorating solutions and in the packaging services business. Now we have even with the acquisition a larger company but it’s all within the label business. So we will make some limited geographic disclosures as required by GAAP but you will not see segment reporting.

Operator

We have no further questions; I’d like to turn the call back over to Mr. Gerace for closing remarks.

Frank Gerace

I’d like to close by first of all thanking all of the participants on today’s call. I sincerely appreciate your questions, interest and support of our company and I look forward to talking with you and seeing many of you soon in the near future. And lastly just to reiterate, the story line here is that we’re going to remain focused on being a low-cost manufacturer globally. We’re going to continue to, and my personal goal, of expanding our customer base to work on our customer concentration. I intend on capitalizing on the new markets and regions that we have recently entered and all of us at Multi-Color and I met of all of us in South Africa and Australia and here, we’re very energized about our future and our ability to continue to create shareholder value. So with that, once again I would thank you and ask that you have a wonderful weekend.

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Source: Multi-Color Corporation F4Q08 (Qtr End 03/31/08) Earnings Call Transcript
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