Checkpoint Systems, Inc. Announces 3Q 2014 Results

Checkpoint Systems, Inc. reported financial results for the third quarter ended Sept. 28, 2014. Net revenues from continuing operations in the third quarter of 2014 decreased 8.2%, to $160.6 million from $174.9 million in the third quarter of 2013. During the quarter, gross profit margins were 44.2% compared with 40.3% in the 2013 third quarter.

Operating income in the third quarter of 2014 was $10.8 million, $2.8 million lower than $13.6 million in the same period last year.

Net loss from continuing operations in the third quarter of 2014 was $0.10 per diluted share versus income of $0.17 per diluted share in the same period last year. The net loss in the third quarter of 2014 reflects an $11.6 million net non-cash charge related to certain tax valuation allowances.

Adjusted non-GAAP operating income from continuing operations was $11.5 million in the third quarter of 2014, $3.3 million lower than $14.8 million in the same period last year. Adjusted EBITDA was $19.2 million in the third quarter of 2014, $3.4 million lower than $22.6 million in the third quarter of 2013. Adjusted non-GAAP net earnings from continuing operations in the third quarter of 2014 was $0.22 per diluted share compared to $0.22 per diluted share in the same period last year.

“I am pleased with our third quarter performance as we continue to execute our three-year plan,” said orge Babich, Checkpoint Systems’ president and CEO. “Process improvement and margin enhancement initiatives continue to deliver exceptional results. Gross profit margins in the third quarter increased nearly 400 basis points over the same period last year, and have increased nearly 400 basis points year to date.

“Gross profit margins were again higher across nearly all product lines, driven by continued manufacturing cost reductions, the benefits of Project LEAN and manufacturing and supply chain efficiencies,” Babich added. “Gross margins were also favorably impacted by the mix of revenues toward EAS consumables, reflecting the recurring portion of our recent market share gains.”

“Retailers continue to be cautious with their in-store capital investments, resulting in delays of some previously planned project launches,” Babich continued. “Despite these headwinds, we remain on track to achieve our EBITDA and earnings estimates for 2014. We remain confident in the growth trajectory of our RFID businesses and will continue to invest in growth opportunities for the future, both through organic R&D and SG&A investments as well as strategic acquisitions of adjacent products and solutions.”

“Checkpoint has delivered $14.5 million of free cash flow in the third quarter and $29.1 million year to date versus 2013 free cash flow burn of $23.8 million in the third quarter and $10.2 million for the first nine months, respectively,” Jeff Richard, executive vice president and CFO, said, “Our balance sheet remains at its strongest level in several years, with cash exceeding total debt by $56.2 million. Modest increases in SG&A and the uptick in our capital expenditures during the quarter reflect the initial investments in future growth opportunities.”

Based on an assessment of market conditions, current customers’ orders and commitments, and assuming continuation of current foreign exchange rates, Checkpoint is adjusting certain components of its guidance for 2014. Net revenues are expected to be in the range of $640 million to $665 million, compared with previous guidance of $675 million to $715 million. Non-GAAP diluted net earnings per share attributable to Checkpoint Systems, Inc. are expected to be in the range of $0.65 to $0.75, which is unchanged from previous guidance. EBITDA is expected to be in the range of $70 million to $80 million, which is unchanged from previous guidance.