MODPAC CORP. (MPAC) filed Quarterly Report for the period ended 2009-10-03.
Mod-Pac Corp is a specialized short-run printer and a designer and manufacturer of paperboard packaging. They provide products in two primary categories folding cartons and full color print-on-demand. In addition to the commercial print market they also provide distinctive designs for social occasions. They personalize specialty items such as invitations napkins and stationery. Modpac Corp. has a market cap of $10.9 million; its shares were traded at around $3.94 with and P/S ratio of 0.2.
Highlight of Business Operations:
For the third quarter of 2009, total revenue was $12.6 million, relatively unchanged from the third quarter of 2008. The custom folding carton product line sales were $9.4 million compared with $8.2 million in the third quarter of 2008. The 14.8% increase was mainly due to substantial growth with several large existing customers and sales to one large new customer, offset partially by decreased business with several existing customers and decreased waste sales due to a drop in the recycled paperboard market. Sales of the Company’s stock packaging product line were $2.2 million compared with $2.3 million in the third quarter of 2008, down 1.7% primarily due to weakness in general business conditions. Personalized print sales for the third quarter of 2009 were $0.8 million compared with $1.0 million in 2008, a decrease of 17.5%, mainly due to weakness in general business conditions. There were no specialty print and direct mail sales in the third quarter of 2009 due to the product line rationalization that took place at the end of the second quarter of 2009. Specialty print and direct mail sales were $1.1 million in the third quarter of 2008.
For the first nine months of 2009, total revenue was $36.1 million compared with $35.3 million in 2008, an increase of 2.4%. The custom folding cartons product line sales were $25.9 million compared with $22.2 million in 2008. This was an increase of 16.7% due to increased business volumes from several customers including substantial growth from several large existing customers and sales to one large new customer, that was partially offset by decreased business from several existing customers and decreased waste sales due to a drop in the recycled paperboard market. Sales of the Company’s stock packaging product line were $5.9 million, compared with $6.4 million in the prior year, a decrease of 7.9% mainly due to weakness in general business conditions. Personalized print sales for the first nine months of 2009 were $2.4 million compared with $3.1 million in the same period of 2008, a decrease of 22.5% primarily due to general soft market conditions. Specialty print and direct mail sales for the first nine months of 2009 were $1.5 million compared to $3.2 million in the first nine months of 2009. There were no specialty print and direct mail sales in the third quarter of 2009 due to the product line rationalization that took place at the end of the second quarter of 2009.
Gross margin was 12.2% for the first nine months of 2009, down from 13.0% for the same period of 2008. The current year gross margin for the first nine months was negatively affected by a generally weaker sales mix, decreased waste sales due to a drop in the recycled paperboard market, and increased repairs expense, offset slightly by lower depreciation expense in the current year. Selling, general, and administrative costs decreased 3.2% to $5.8 million in the first nine months of 2009 from $6.0 million during the same period in the prior year. This slight decrease was driven primarily by lower professional service costs, offset partially by higher depreciation expense. Included in the first nine months of 2009 SG&A, was $65 thousand in workforce reduction costs that were the result of the Company’s rationalization of the specialty print and direct mail product lines in the second quarter of 2009. Additionally, $2.2 million of expense was incurred that was associated with the write-down of impaired assets in the second quarter of 2009. This impairment resulted from the Company’s rationalization of the specialty print and direct mail product line in the second quarter of 2009 and the write-down of its Blasdell, NY facility to fair market value based on expected selling prices net of costs to sell.
The net income for the third quarter of 2009 was $1.0 million, compared with a net income of $0.01 million in the third quarter of 2008. In addition to the fluctuations discussed above, other income was $0.4 million in the third quarter of 2009. Included in this balance is a $0.3 million fair value adjustment to increase the balance of assets held for sale associated with the rationalized product line based on bids received in a public auction held in September 2009. These assets had previously been written down in the second quarter of 2009. Also included in other income was a $0.1 million gain on the sale of assets associated with the rationalized product line. Diluted income per share was $0.29 in the third quarter of 2009 and $0.00 in the third quarter of 2008.
The Company has access to a $5.0 million committed line of credit with a commercial bank, which expires in March 2010. At October 3, 2009, $0.6 million was borrowed and an additional $0.2 million was in use through standby letters of credit. The borrowed amount is a decrease of $0.4 million from the balance at December 31, 2008. Interest on the line of credit is either LIBOR plus 150 basis points or the prime rate plus 50 basis points at the Company’s option.
Capital expenditures driven primarily by productivity improvement and upgrade investments, for the first nine months of 2009, were $0.8 million compared with $1.6 million for the first nine months of 2008. Depreciation and amortization for the first nine months of 2009 was $2.5 million compared with $2.9 million in the same period last year.
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