Checkpoint Systems CEO Discusses Q3 2010 Results – Earnings Call Transcript
Checkpoint Systems, Inc. (
)
Q3 2010 Earnings Call Transcript
November 2, 2010 10:00 am ET
Executives
Bob Powers – VP, IR
Rob van der Merwe – Chairman, President and CEO
Ray Andrews – SVP and CFO
Analysts
Reik Read – Robert W. Baird
Bob Labick – CJS Securities
Ajit Pai – Stifel Nicolaus
Jerome Lande – MMI Investments
Michael Kim – Imperial Capital
Chris McGinnis – Sidoti & Company
Presentation
Operator
Compare to:
Previous Statements by CKP
»
Checkpoint Systems, Inc. Q2 2010 Earnings Call Transcript
»
Checkpoint Systems Inc. Q1 2010 Conference Call Transcript
»
Checkpoint Systems, Inc. Q4 2008 Earnings Call Transcript
»
Checkpoint Systems, Inc., Q3 2008 Earnings Call Transcript
Greetings and welcome to the Checkpoint Systems third quarter 2010 conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Vice President of Investor Relations for Checkpoint Systems. Thank you. Mr. Powers, you may begin.
Bob Powers
Thank you, Christine. Good morning and welcome to Checkpoint Systems Third Quarter 2010 Results Conference Call. On the call from the company are Rob van der Merwe, Chairman, President and Chief Executive Officer; and Ray Andrews, Senior Vice President and Chief Financial Officer.
If you have not yet received the copy of this morning's third quarter 2010 results release, it's available on the company's website; click on the Investors tab. Additionally, an archived version of this conference call will be available on our website.
Before we begin, I would like to remind you that statements made on this conference call reflecting our future plans and strategies are forward-looking statements that are based on current expectations and assumptions. These expectations and assumptions are subject to risks and uncertainty, which could affect our future plans.
Checkpoint's actual results and the timing and occurrence of expected events could differ materially from our plans and expectations due to a number of factors, such as changes in the global economy and changes in the legal environment, as well as those factors disclosed in the earnings release and in our filings with the Securities and Exchange Commission.
Please be aware that all information disclosed and discussed in this conference call is as of November 2nd, 2010. Checkpoint undertakes no duty to update any forward-looking statements to conform the statements to actual results or changes in the company's expectations.
At this time, I would like to turn the call over to Rob van der Merwe. Rob?
Rob van der Merwe
Thanks, Bob and good morning, everyone. Thank you for joining us today. I will briefly discuss our third quarter results, after which Ray will share more financial details with you. At the conclusion of Ray's comments, I will provide some closing remarks and then we will be available to take your questions.
So today, I would like to stress three points. First, while we reported positive revenue momentum overall, it was a mixed result. July and August, which is typically slow for us given the customary summer vacations in Europe, started off the third quarter even slower than anticipated. However, we did follow with our usual very strong September, but not sufficient enough to recover the previous month's revenue shortfall and as a result, did not meet our expectations for the quarter.
Some of our businesses posted excellent results this quarter, while others continued to be affected by the ongoing retailer caution and hesitation to spend. Our major geographic regions all continued to realize organic revenue growth. The Alpha business continued to deliver strong results for the quarter across all product lines and in all geographic regions, which is the trend that has continued since the beginning of the year.
Second, gross margins suffered primarily as a result of our Apparel Labeling Solutions business and the impact of revenue mix changes, including the higher percentage of revenues from our Brilliant Label base of business. Our overall product mix was skewed to lower-margin business, resulting from the revenue declines previously mentioned.
Now, our Apparel Labeling business, particularly in China, experienced an unexpected and significant increase in labor costs earlier this year when the Chinese government unilaterally raised compensation for local workers by almost 20%. Cost recover plans at Brilliant are advanced and include productivity improvements, as well as price increases that should frankly fully work through by year-end or at least early next year.
Also, the month of July and August are a particularly slow period for apparel suppliers and that resulted in factory overhead underabsorption at Brilliant concurrently. On a positive note, the revenue synergies we expected from Brilliant are growing, as new customers have either approved us as a supplier or, in many cases, closed on orders going into next year.
So in conclusion, we believe the margin mix situation is likely, if we look at it conservatively, going to be expended into the fourth quarter, but is temporary.
Third, the first phase of the SG&A restructuring plan that we announced late last year has moved forward. The full plan we announced today provides for a program that is expected to reduce SG&A costs by $20 million to $25 million with roughly $15 million to $17 million of the restructuring savings expected to be realized in 2011 with the full benefit in 2012.
We will provide more specific details of this plan at a later date, but in general, it is a broad program that is aligned with our strategy and includes the streamlining of certain operations, movement to a shared services platform in a number of countries, and an overall improvement in productivity.
Ray will now guide you through our third quarter results and the outlook for the balance of the year.
Read the rest of this transcript for free on seekingalpha.com
