Supremex, a North American manufacturer and marketer of a broad range of stock and custom envelopes and growing provider of packaging and specialty products, announced its results for the third quarter and nine-month period ended 30 September 2016 and declared a 9.1% increase to its regular quarterly dividend.
Third Quarter Highlights:
2016 Q3 revenues increased by 12.6% year-over-year, to $36.5 million.
Revenue from the Canadian envelope market decreased by 1.2%, to $24.1 million.Revenue from the U.S. envelope market continued to increase significantly, growing by 81.0% year-over-year to $9.9 million.Revenue from packaging and specialty products decreased by 1.6%, at $2.5 million. ? EBITDA1 was $5.5 million, a decrease of 16.4%.Net earnings grew by 2.2% to $2.8 million (or $0.10 per share). ? Maintained strong financial flexibility with a low debt ratio of 0.9x EBITDA2The Board of Directors approved a 9.1% increase to the quarterly dividend payment of $0.06 per share.Concluded the acquisition of Indiana-based Bowers Envelope Company, Inc. (“Bowers Envelope”) a manufacturer and printer of envelopes strategically located at the ‘Crossroads of America” in a robust envelope market.
“The third quarter was challenging as a result of the effects of the traditional seasonal mailing patterns, the Canada Post labour disruption threat and an exceptional comparable quarter last year. On a year-to-date basis, our strategy to diversify into growth markets and strengthening our envelope platform continues to yield positive results and sets the path for sustained future profitability,” said Stewart Emerson, President and CEO of Supremex.
“We are very happy with the integration of Premier Envelope Ltd. in Western Canada, which has demonstrated its ability to contribute to revenue growth while supporting our bottom line. With a strong operating base in Canada we were able to further pursue growth opportunities in the U.S. To this effect, our recent acquisition of Bowers Envelope in the Mid-West provides the capability and scale to serve approximately 60% of the U.S. envelope market cost-effectively, further entrenching our position as one of the largest envelope manufacturers in North America.” “We are steadfastly committed and focused on diversifying the business, while remaining true to our philosophy of building manufacturing and operating synergies, focused on cash flow generation and optimal capital allocation,” concluded Mr. Emerson.
Corporate updates:
The Board of Directors appointed Mr. Drew Sullivan as Director of the Company. Mr. Sullivan recently retired as President of RR Donnelley Canada, a position which he held since February 2012. RR Donnelley (Nasdaq: RRD) is the one of the world’s largest printing companies providing the industry's most diverse platform of products and services, with sales of $11.3 Billion US in 2015 and employed 1,500 people in Canada. Prior to his role as President, Mr. Sullivan held various sales executive positions with RR Donnelley/Moore Corporation which he joined in 2001 after spending 23 years with Relizon Canada. Mr. Sullivan has worked in the printing business since 1978. He was instrumental in transforming RR Donnelley Canada from a traditional Business Forms manufacturer to a leading edge and diversified provider of print and content management services utilizing many new and emerging technologies. Mr. Sullivan will bring invaluable industry knowledge and vast experience to the Board of Supremex.The Company announces that Benoi^t Crowe, Vice President of Finance, has resigned, effective November 18, 2016, from the Company to pursue other opportunities. Mr. Crowe has been with Supremex since January 2014. As part of the executive team, Mr. Crowe contributed to several important projects in support of Supremex’s strategic vision while also overseeing the Company’s financial planning and reporting activities. Management and the Board of Directors wish to thank Mr. Crowe for his contribution. Mr. Crowe will assist the Company with the transition over the next few weeks.The company announces that Lyne Bégin, Corporate Controller, has been appointed interim Vice President of Finance. Ms. Bégin has been with the Company since 2014 and is a seasoned executive, having been involved in every aspect of Supremex’s financial reporting, treasury management, planning and analysis.
Financial Results for the Third Quarter of 2016
Revenue in the third quarter of 2016 was up 12.6%, to $36.5 million, on strong growth in the U.S. envelope market, mostly from the contribution of the acquisition of Classic Envelope Inc. located in Massachusetts, and of the recent acquisition of substantially all of the assets of Bowers Envelope located in Indiana. Revenue from the Canadian envelope market was $24.1 million in the third quarter of 2016, down by 1.2% or $0.3 million.
Although the acquisition of substantially all of the assets of Premier Envelope Ltd. located in Western Canada helped offset the secular decline in the overall Canadian envelope market, the threat of a work stoppage at Canada Post during the summer negatively affected the volume of orders from customers.
Additionally, last year’s third quarter revenues benefited from the effects of a large order for the government that only occurs every four years. Overall, Canadian envelope volumes decreased by 2.4% and average unit selling prices grew by 1.3% due to product mix change. Revenue from the U.S. envelope market was $9.9 million, up by 81.0% or $4.4 million, on volume increases of 74.6% and higher average selling prices, which increased by 3.6% in CAD, with the depreciation of the USD having a negative impact of 0.3%.
The acquisitions of Classic Envelope Inc. concluded in October 2015 and Bowers Envelope at the end of August 2016 contributed to this growth. Revenue from packaging and specialty products decreased by 1.6%, from $2.6 million in the third quarter of last year to $2.5 million in the third quarter of 2016, on variations in the product mix.
EBITDA stood at $5.5 million for the three-month period ended September 30, 2016, compared with $6.6 million for the same period in 2015, a decrease of $1.1 million or 16.4%. The challenging environment in the Canadian envelope market and changes in the product mix weighted on this quarter’s EBITDA. As a result of these factors and of a growing presence in the U.S. where the envelope margins are lower, EBITDA margins stood at 15.1% in the third quarter of 2016 compared to 20.3% during the third quarter of last year.
Last year’s third quarter EBITDA was also positively affected by the contribution of the large order for the government that only repeats every 4 years. Net earnings grew by 2.2% to $2.8 million (or $0.0989 per share) comparable to the same period of 2015 (or $0.0964 per share).
Operating activities generated cash of $3.1 million compared with $5.2 million during the same period of 2015. During the third quarter of last year, the large order for the government contributed to sustain operating profitability while a challenging Canadian envelope market landscape in the third quarter of this year combined with higher working capital requirements reduced the level of cash flow generated by operating activities
Financial Results for the Nine-Month Period
Revenue for the nine-month period ended September 30, 2016, was $117.2 million compared with $101.0 million for the nine-month period ended September 30, 2015, an increase of $16.2 million or 16.0%. Revenue from the Canadian envelope market increased by $4.2 million or 5.5%, to $82.0 million during the first nine months of 2016. Although the Premier Envelope Ltd. acquisition performed well year-to-date and helped compensate for the secular decline in the envelope market, the recent Canada Post labor disruption threat impacted revenue during the third quarter.
During the nine-month period ended September 30, 2016, the number of units sold increased by 0.9% combined with higher average selling prices of 4.5% when compared to the equivalent period of last year, resulting from changes in the product mix and higher costs of raw materials.
Revenue from the U.S. envelope market continued to grow significantly as a result of the Classic Envelope Inc. acquisition and to a lesser extent from the acquisition of Bowers Envelope. During the first nine months of the year, revenue from the U.S. envelope market reached $27.3 million, representing an increase of $11.4 million or 71.4% over last year, on volume increases of 58.6% and 8.1% higher average selling prices denominated in CAD, of which 5.0% results from the appreciation of the USD.
Revenue from packaging and specialty products was $7.9 million during the nine-month period ended September 30, 2016, an increase of 7.9% from $7.3 million in the comparable period of 2015. EBITDA stood at $19.6 million for the nine-month period ended September 30, 2016, compared with $25.0 million for the same period in 2015, a decrease of $5.4 million or 21.7%. Excluding the non-cash gains totaling $5.0 million on amendments to the pension and post-retirement benefits plans recorded in 2015, the Adjusted EBITDA stood at $19.6 million for the nine-month period ended September 30, 2016, compared with $20.0 million last year, a decrease of $0.4 million or 2.4%.
Adjusted EBITDA margins stood at 16.7% in the first nine months of 2016 compared to 19.8% during the comparable period of last year, mostly on the increase in operating expenses resulting from the Company’s strategy to grow its presence in the U.S. envelope market and strengthen its platform in Canada, which resulted in the acquisition and integration of three businesses in the last twelve months.
Net earnings amounted to $10.0 million for the nine-month period ended September 30, 2016, compared with $12.1 million for the same period in 2015, a decrease of $2.1 million or 18.0%. Earnings per share amounted to $0.35 in the first nine months of 2016 compared with $0.42 in the comparative period of 2015.
Adjusted net earnings grew by 17.6% to $10.0 million (or $0.35 per share) for the nine-month period ended September 30, 2016, up from $8.5 million (or $0.29 per share) for the same period in 2015. Cash of $12.5 million was generated by operating activities during the nine-month period ended September 30, 2016, compared with $12.0 million during the same period of 2015 on efficient working capital management and increased profitability.
