Cenveo's Financials Mixed; Deals on Horizon?

STAMFORD, CT—Cenveo Inc. released results for the three and six months ended June 29, 2013. The company generated net sales of $415.7 million for the three month segment, compared to $433.2 million for the same period last year. Cenveo generated net sales of $844.0 million for the six month measure, compared to $883.0 million for the same period last year.

The decrease in net sales for both periods was primarily due to lower sales volumes in its commercial printing operations, mainly resulting from production timing and lower customer demand, lower sales of office product envelopes due to the transition of a low margin account out of its operating platform, lower average selling price from our direct envelopes due to Cenveo's initiatives to gain market share, as well as pricing pressures primarily from a competitor now in bankruptcy protection. These decreases were offset in part by higher sales volume from direct envelopes due to Cenveo's initiatives to increase market share and increased direct mail demand.

Operating income was $19.2 million for the three month segment, compared to $28.6 million for the same period last year. The decrease in operating income was primarily due to lower sales volumes and higher input costs in ancillary raw material categories. Non-GAAP operating income was $24.9 million for the three months, compared to $35.9 million for the same period last year.

Operating income was $33.5 million for the six months ended June 29, compared to $42.7 million for the same period last year. The decrease in operating income was primarily due to lower sales volumes and higher input costs in ancillary raw material categories, offset in part by lower restructuring, impairment and other charges. Non-GAAP operating income was $45.6 million for the six-month measure, compared to $67.4 million for the same period last year.

For the three months ended June 29, Cenveo had a loss from continuing operations of $17.6 million, or $0.28 per share, compared to a loss of $0.2 million, or $0.01 per share for the same period last year. Non-GAAP loss from continuing operations was $0.5 million, or $0.01 per share, for the three months ended June 29, as compared to non-GAAP income from continuing operations of $8.0 million, or $0.13 per share, for the same period last year.

For the six months ended June 29, Cenveo had a loss from continuing operations of $36.5 million, or $0.57 per share, compared to a loss of $22.8 million, or $0.36 per share for the same period last year. Non-GAAP loss from continuing operations was $9.8 million, or $0.15 per share, for the six months ended June 29, as compared to non-GAAP income from continuing operations of $11.2 million, or $0.18 per share, for the same period last year.

Cash flow provided by operating activities of continuing operations for the six months ended June 29 was $9.6 million, compared to cash flow provided by operating activities of continuing operations of $15.9 million for the same period in 2012. The change in Cenveo's cash flows year-over-year is due to an inventory build related to potential supply constraints and pending price increases for certain raw materials and the timing of interest and vendor payments in the first six months compared to prior year.

Adjusted EBITDA for the three months ended June 29 was $42.0 million, compared to adjusted EBITDA of $52.6 million for the same period last year. Adjusted EBITDA for the six months ended June 29 was $78.3 million, compared to adjusted EBITDA of $99.4 million for the same period in 2012.

“Our second quarter performance was mixed," said Robert Burton, chairman and CEO of Cenveo. "Our labels and packaging operations had a solid quarter with positive revenue growth up 2.5 percent despite continued disruption from the press fire that occurred earlier this year. I am very proud of our team's performance during this difficult period of time and I remain optimistic about our future prospects in our packaging business as the replacement press became fully operational in late June.

"We continue to expect that the performance of our print operations will begin to stabilize as we enter the back-half of the year as important industry verticals, such as managed care and travel and leisure, enter seasonally stronger periods. In the meantime, we continue to remain vigilant on costs and increasing sales within this segment. Our envelope operations have continued to see significant improvement in direct mail as credit card mailing volumes have increased over 20 percent in the first half of the year, the strongest performance we have experienced since 2011. Despite this improvement in volume, we have experienced pricing pressures due to industry competitive dynamics.”

Cenveo has initiated reviews of all strategic options for some of its operating assets. Its recent focus has narrowed on divesting certain underperforming assets or assets that do not fit future strategic plans. Cenveo is continuing discussions with multiple parties for certain assets. The firm began evaluating distressed assets within certain industries that it operates and may look to potentially integrate them into its existing platform.

While Cenveo stopped short of saying that any deals were imminent, it expects that any potential transaction currently being considered regarding the distressed assets would be in the best interests of its customers and shareholders, as it must be deleveraging to the company's capital structure and must be accretive to earnings and cash flow per share.