02.08.2007 11:30:00
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Checkpoint Systems, Inc. Announces Second Quarter 2007 Results
Checkpoint Systems, Inc. (NYSE: CKP) today reported financial
results for the second quarter ended July 1, 2007.
Revenue for the second quarter of 2007 was $195.7 million, an increase
of 19.4%, compared to revenue of $163.9 million in the second quarter of
2006. Excluding revenue from the ADS acquisition, revenue increased
15.6%. Foreign currency had a positive impact of 4.6% on revenues.
Earnings from continuing operations for the second quarter were $14.6
million, or $0.36 per diluted share, compared to earnings from
continuing operations of $4.7 million or $0.11 per diluted share in the
second quarter of 2006.
Included in earnings from continuing operations for the second quarter
of 2007 is a charge of $0.2 million associated with restructuring
initiatives. Included in earnings from continuing operations for the
second quarter of 2006 is a charge of $0.4 million associated with
restructuring initiatives and a charge of $1.5 million related to the
settlement of legal proceedings.
Net income for the second quarter of 2007 was $15.1 million, or $0.37
per diluted share, compared to net earnings of $4.6 million or $0.11 per
diluted share in the second quarter of 2006.
"We continued to make good progress in the
second quarter,” said George Off, Chairman and
Chief Executive Officer of Checkpoint. "Our
financial performance was driven by strong demand across all of our
business segments and geographies. Significant contributors to our
revenue performance on a constant Dollar basis included 39% growth in
our global CheckNet®
service bureau business, 37% growth in our U.S. CCTV business, and 9%
growth in our European EAS business. The performance in our CheckNet®
business was driven by both organic growth and the acquisition of ADS
Worldwide in the fourth quarter of 2006. Our expanded revenue base and
efforts to manage costs contributed to the growth in our operating
margins to 9.5% in the second quarter of 2007 compared to 3.3% in the
second quarter of 2006.”
Mr. Off continued, "During the quarter we
continued to make necessary investments in our business to develop
additional avenues for sales to new and existing customers, which
include some of the most important retailers across the globe. In the
second quarter we introduced innovative new products including the ORT
Solutions Suite, which is designed to help retailers mitigate the impact
of Organized Retail Theft, and a line of Enhanced Performing RF EAS
labels that deliver customers a substantial improvement in both
flexibility and performance over current technology while also reducing
label size.”
Financial highlights for the second quarter of 2007:
Revenue for the second quarter of 2007 was $195.7 million, compared to
revenue of $163.9 million in the second quarter of the prior year.
Foreign exchange had a positive impact on revenue of $7.5 million, or
4.6%, in the second quarter 2007, as compared to the second quarter
2006.
Gross profit was $83.0 million, or 42.4% of revenue, compared to $69.6
million, or 42.5% of revenue, in the second quarter of 2006.
Selling, general, and administrative expenses (SG&A) for the current
year period were $59.9 million, compared with $56.4 million a year
ago. As a percentage of revenue, SG&A expenses decreased to 30.6% in
the second quarter of 2007, versus 34.4% in the second quarter of 2006.
Research and development expenses for the second quarter of 2007
totaled $4.1 million, or 2.1% of revenue, compared with $5.0 million,
or 3.1% of revenue, in the second quarter of 2006.
Other gain (loss) for the second quarter of 2007 was a gain of $0.1
million primarily due to foreign exchange gains.
Operating income was $18.7 million in the second quarter of 2007,
compared to $5.4 million in 2006. Non-GAAP operating income excluding
restructuring expense in the second quarter of 2007 was $19.0 million,
or 9.7% of revenue. Non-GAAP operating income excluding restructuring
expense and litigation settlement costs was $8.3 million, or 5.1% of
revenue, in the second quarter of 2006. (See accompanying "Reconciliation
of GAAP to Non-GAAP Measures”.)
The tax rate on continuing operations was 26.1%.
Earnings from continuing operations for the second quarter of 2007 was
$14.6 million, or $0.36 per diluted share, compared to $4.7 million,
or $0.11 per diluted share, for the second quarter of 2006.
Net earnings for the second quarter of 2007 was $15.1 million, or
$0.37 per diluted share, compared to net earnings of $4.6 million, or
$0.11 per diluted share, for the second quarter of 2006. Net earnings
for the second quarter of 2007 included $0.5 million of income, or
$0.01 per diluted share, from discontinued operations due to post
closing adjustments from the 2006 sale of the barcode systems business.
Non-GAAP earnings from continuing operations excluding restructuring
expense for the second quarter of 2007 were $14.8 million, or $0.36
per diluted share. Non-GAAP earnings from continuing operations
excluding restructuring expense and litigation settlement costs for
the second quarter of 2006 were $6.5 million, or $0.16 per diluted
share. (See accompanying "Reconciliation of
GAAP to Non-GAAP Measures”.)
Cash flow from operations was $14.0 million in the second quarter of
2007 compared to $4.3 million in the second quarter of 2006.
At July 1, 2007 cash and cash equivalents were $161.3 million, working
capital was $302.3 million and long-term debt was $16.3 million.
Capital expenditures in the quarter were $3.5 million.
Financial highlights for the six months ended July 1, 2007:
Reported revenue of $366.9 million, compared to $303.9 million in the
same period of 2006. Foreign exchange had a positive impact on revenue
of approximately $14.9 million, or 4.9% for the first six months of
2007, compared to 2006.
Gross profit for the first six months of 2007 was $153.3 million, or
41.8% of revenue, compared to $126.0 million or 41.5% of revenue for
the first six months of 2006.
Operating income was $24.8 million for the first six months of 2007,
compared to $4.3 million for the same period of 2006. Non-GAAP
operating income excluding restructuring expense in the first six
months of 2007 was $25.5 million, or 6.9% of revenue. Non-GAAP
operating income excluding restructuring expense and the litigation
settlement in the first six months of 2006 was $7.4 million, or 2.4%
of revenue. (See accompanying "Reconciliation
of GAAP to Non-GAAP Measures”.)
Earnings from continuing operations for the first six months of 2007
was $19.5 million, or $0.48 per diluted share, compared to $4.7
million, or $0.11 per diluted share for the first six months of 2006.
Net earnings for the first six months of 2007 was $20.1 million, or
$0.50 per diluted share, compared to net earnings of $6.2 million, or
$0.15 per diluted share, for the first six months of 2006. Net
earnings for the first six months of 2007 included $0.5 million of
income, or $0.02 per diluted share, from discontinued operations due
to the 2006 sale of the barcode systems business. Net earnings for the
first six months of 2006 included $1.5 million of income, or $0.04 per
diluted share, from discontinued operations primarily due to the gain
on the sale of the barcode systems business.
Non-GAAP earnings from continuing operations excluding restructuring
costs for the first six months of 2007 was $20.0 million, or $0.50 per
diluted share. Non-GAAP earning from continuing operations excluding
restructuring costs and litigation settlement costs for the first six
months of 2006 was $6.7 million, or $0.17 per diluted share. (See
accompanying "Reconciliation of GAAP to
Non-GAAP Measures”.)
Cash flow from operations was $24.1 million in the first six months of
2007 compared to $26.3 million of cash flow used in operations in the
first six months 2006.
Mr. Off concluded, "We believe that we have
the right strategy in place to achieve long term growth and improved
operating margins. We are seeing solid demand for our products, and the
investments we are making in our business should position us for growth
for the remainder of 2007 and beyond. We are pleased with our continued
strong financial and operational performance in the first half, but are
cautious about the potential for a softer retail marketplace in the
second half of the year.”
Based on current market conditions, Checkpoint Systems provided updated
guidance for its 2007 full year financial results:
Revenues, at current exchange rates, up 11% to 13% versus 2006
Non-GAAP diluted earnings per share from continuing operations of
between $1.30 and $1.40, excluding any restructuring charges
An annualized tax rate of approximately 25%
Free cash flow (cash flow from operations less capital expenditures)
of between $50 million and $60 million
This guidance does not include the impact of unusual charges, such as
restructuring charges, that the Company may incur during the year, and
assumes a continuation of current exchange rates.
Checkpoint Systems will host a conference call today, August 2, 2007, at
10:00 A.M. Eastern Time, to discuss its second quarter 2007 results. The
conference call will be simultaneously broadcast live over the Internet.
Listeners may access the live webcast at the Company’s
homepage, www.checkpointsystems.com,
by clicking on the "Conference Calls”
link or entering the "Investors”
section of this site. Please allow 15 minutes prior to the call to visit
the site and download and install any necessary audio software. The
webcast will be archived at the Company’s
homepage beginning approximately 90 minutes after the call ends until
the next quarterly conference call.
Checkpoint Systems, Inc. is a multinational manufacturer and marketer of
integrated systems solutions for retail security, labeling, and
merchandising. Checkpoint is a leading provider of EAS and RFID systems,
source tagging, hand-held labeling systems and retail merchandising
systems. Applications include automatic identification, retail security
and pricing, and promotional labels. Operating directly in 31 countries,
Checkpoint has a global network of subsidiaries and provides
professional customer service and technical support around the world.
Checkpoint Systems, Inc.'s website is located at www.checkpointsystems.com.
Caution Regarding Forward-Looking
Statements This press release includes information that constitutes
forward-looking statements. Forward-looking statements often
address our expected future business and financial performance, and
often contain words such as "expect,” "anticipate,” "intend,” "plan,” believe,” "seek,” or "will.”
By their nature, forward-looking statements address matters that are
subject to risks and uncertainties. Any such forward-looking statements
may involve risk and uncertainties that could cause actual results to
differ materially from any future results encompassed within the
forward-looking statements. Factors that could cause or
contribute to such differences include: changes in international
business conditions; foreign currency exchange rate and interest rate
fluctuations; lower than anticipated demand by retailers and other
customers for our products; slower commitments of retail customers to
chain-wide installations and/or source tagging adoption or expansion;
possible increases in per unit product manufacturing costs due to less
than full utilization of manufacturing capacity as a result of slowing
economic conditions or other factors; our ability to provide and market
innovative and cost-effective products; the development of new
competitive technologies; our ability to maintain our intellectual
property; competitive pricing pressures causing profit erosion; the
availability and pricing of component parts and raw materials; possible
increases in the payment time for receivables as a result of economic
conditions or other market factors; changes in regulations or standards
applicable to our products; the ability to implement cost reduction in
field service, sales, and general and administrative expense, and our
manufacturing and supply chain operations without significantly
impacting revenue and profits; our ability to maintain effective
internal control over financial reporting; and additional matters
disclosed in our Securities and Exchange Commission filings. We
do not undertake to update our forward-looking statements, except as
required by applicable securities laws. Checkpoint Systems, Inc. Consolidated Statements of Operations (Thousands except per share amounts) (unaudited)
Quarter
Six Months (13 weeks) Ended
(26 weeks) Ended
July 1,
June 25, July 1, June 25, 2007 2006 2007 2006
Net revenues
$
195,702
$
163,863
$
366,904
$
303,856
Cost of revenues
112,707
94,217
213,630
177,852
Gross profit
82,995
69,646
153,274
126,004
Selling, general, and administrative
expenses
59,947
56,351
119,748
109,222
Research and development
4,060
5,000
8,048
9,368
Restructuring expense
329
609
654
856
Litigation settlement
–
2,251
–
2,251
Operating income
18,659
5,435
24,824
4,307
Interest income
1,210
1,149
2,392
2,274
Interest expense
270
555
601
969
Other gain/(loss), net
131
44
(393)
416
Earnings from continuing operations
before income taxes and minority interest
19,730
6,073
26,222
6,028
Income taxes
5,158
1,417
6,745
1,393
Minority interest
(2)
(18)
(63)
(69)
Earnings from continuing operations
14,574
4,674
19,540
4,704
Earnings (loss) from discontinued
operations, net of tax
523
(55)
523
1,518
Net earnings
$
15,097
$
4,619
$
20,063
$
6,222
Basic Earning per Share:
Earnings from continuing operations
$
0.37
$
0.12
$
0.49
$
0.12
Earnings from discontinued
operations, net of tax
$
0.01
–
$
0.02
$
0.04
Basic earnings per share
$
0.38
$
0.12
$
0.51
$
0.16
Diluted Earnings per Share:
Earnings from continuing operations
$
0.36
$
0.11
$
0.48
$
0.11
Earnings from discontinued
operations, net of tax
$
0.01
–
$
0.02
$
0.04
Diluted earnings per share
$
0.37
$
0.11
$
0.50
$
0.15
Checkpoint Systems, Inc. Summary Consolidated Balance Sheet
(Thousands)
July 1, December 31, 2007 2006
(unaudited)
Cash and Cash Equivalents
$
161,342
$
143,394
Working Capital
$
302,307
$
254,024
Current Assets
$
472,139
$
447,597
Total Debt
$
16,294
$
16,534
Shareholders' Equity
$
508,704
$
473,581
Total Assets
$
813,958
$
781,191
Reconciliation of Non-GAAP Financial Measures
Checkpoint Systems, Inc. reports financial results in accordance with
U.S. GAAP and herein provides some non-GAAP measures. These non-GAAP
measures are not in accordance with, nor are they a substitute for, GAAP
measures. These non-GAAP measures are intended to supplement the
Company's presentation of its financial results that are prepared in
accordance with GAAP. The Company uses the non-GAAP measures presented
to evaluate and manage the Company's operations internally. The Company
is also providing this information to assist investors in performing
additional financial analysis that is consistent with financial models
developed by research analysts who follow the Company.
Set forth below is a reconciliation of the non-GAAP financial measures
used in this release to the most directly comparable measures based on
GAAP.
Checkpoint Systems, Inc. Reconciliation of GAAP to Non-GAAP Financial Measures (Thousands) (unaudited)
Quarter Ended Six Months Ended (13 Weeks) (26 Weeks)
July 1, June 25, July 1, June 25, 2007 2006 2007 2006
Reconciliation of GAAP to Non-GAAP Operating Income:
Net revenues
$
195,702
$
163,863
$
366,904
$
303,856
GAAP operating income
$
18,659
$
5,435
$
24,824
$
4,307
Non-GAAP adjustments:
Restructuring expense
329
609
654
856
Loss from settlement of lawsuit with ID Security Systems Canada
Inc.
–
2,251
–
2,251
Adjusted Non-GAAP operating income
$
18,988
$
8,295
$
25,478
$
7,414
GAAP operating margin
9.5%
3.3%
6.8%
1.4%
Adjusted Non-GAAP operating margin
9.7%
5.1%
6.9%
2.4%
Checkpoint Systems, Inc. Reconciliation of GAAP to Non-GAAP Financial Measures continued (Thousands except per share amounts) (unaudited)
Quarter Ended Six Months Ended (13 Weeks) (26 Weeks)
July 1, June 25, July 1, June 25, 2007 2006 2007 2006
Reconciliation of GAAP to Non-GAAP Earnings from Continuing Operations:
Earnings from continuing operations, as reported
$
14,574
$
4,674
$
19,540
$
4,704
Non-GAAP adjustments:
Restructuring expense, net of tax
246
405
507
548
Loss from settlement of lawsuit with ID
Security Systems Canada Inc., net of tax
–
1,463
–
1,463
Adjusted earnings from continuing operations
$
14,820
$
6,542
$
20,047
$
6,715
Reported diluted shares
40,704
40,539
40,464
40,478
Adjusted diluted shares
40,704
40,539
40,464
40,478
Reported earnings per share from continuing operations –
diluted
$
0.36
$
0.11
$
0.48
$
0.11
Adjusted earnings per share from continuing operations - diluted
$
0.36
$
0.16
$
0.50
$
0.17
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