TOLLAND, CT – Gerber Scientific, Inc reported revenue and operating results for its fiscal 2011 third quarter ended January 31, 2011.
Summary of Results from Continuing Operations for FY 2011 Third Quarter versus FY 2010 Third Quarter
* Reported revenue increased 12.8% to $112.0 million, or up 14.7% on a constant currency basis;
* Gross profit increased $7.3 million to $37.1 million, reflecting higher volume and an improvement in gross margin from 30.0% to 33.1%. The gross margin expansion reflects a higher mix of Apparel and Industrial sales, lower warranty expenses and higher seasonal supplier rebates in the Sign Making and Specialty Graphics segment, as well as the benefit of $2.8 million in cost reductions in the Apparel and Industrial segment;
* Selling, general and administrative (SG&A) expenses were $29.9 million, or 26.7% of sales, compared with $25.3 million, or 25.5% of sales. Approximately $0.8 million of cost reductions were offset by the restoration of temporary wage reductions and incentive compensation totaling $2.4 million and an increase of $1.0 million in commissions due to volume and channel mix;
* Excluding restructuring and other expenses, operating income was up $2.4 million to $3.1 million. Restructuring and other expenses fell from $1.5 million to $0.6 million and reported operating income increased to $2.5 million versus an operating loss of $0.7 million;
* Income from continuing operations was $1.1 million, or $0.04 per diluted share, versus a loss of $1.3 million, or $0.05 per diluted share, reflecting the benefit of lower interest expense. Net income was $1.7 million, or $0.07 per diluted share, compared with a net loss of $0.8 million, or $0.03 per diluted share;
* Due primarily to an increase in inventory levels, excluding discontinued operations, the Company used $3.1 million in cash flow from operations, including capital expenditures, compared to cash generation of $2.5 million in the prior year;
* Total outstanding debt was $20 million, down from $45 million at the Company’s fiscal year end of April 30, 2010, due principally to the application of the proceeds from the Gerber Coburn sale.
"This was a solid performance quarter for Gerber, with revenue gains across all product segments and geographic regions," said Marc Giles, Gerber Scientific President and Chief Executive Officer. "Market demand remained strong in the Apparel and Industrial segment with 17% sales growth overall, and 22% growth from our key strategic markets in Greater China. Across the company, China revenue, including exports, was up a strong 68% in the third quarter. Spandex, our aftermarket distribution business, posted 10% year-over-year currency-neutral revenue growth and reported sales gains across almost every region that it serves.
"Equally important, we made substantial progress on the strategic front. First, we divested Gerber Coburn, which allowed us to refocus our efforts on higher growth segments. Second, we reduced our debt by another $15 million during the quarter, cutting our outstanding debt by 56% since our fiscal year end. And, finally, we continued to make progress in the execution of our cost reduction initiatives. In fact, year to date we have realized $6.3 million in cost reductions against our full year 2011 target of $7.2 million and have already completed $8.1 million in reductions against next year’s target of $14.9 million."
Outlook and Guidance
"With the strong performance posted this past quarter and a more stable outlook, we are revising upward our annual revenue guidance for fiscal 2011 from a range of $435 million to $440 million to a range of $450 million to $455 million," said Mr. Giles. "In addition, with the strong order backlog at quarter end and greater certainty regarding our cost reduction initiatives, we are now confident in providing revenue and operating earnings guidance for fiscal 2012. For fiscal 2012 we are forecasting annual revenue growth between 3% and 5% and operating margins, excluding restructuring and other charges, to range between 5% and 7%. This forecast is in line with our stated objective of achieving and sustaining a 10% operating margin by fiscal 2013."
The Company reported that it completed a facilities rationalization project in February 2011, in which the Company’s corporate offices in South Windsor, CT were relocated and consolidated with certain of its other operations located in Tolland, CT. As part of the transaction, the Company completed a non-cash exchange of its owned facility in Tolland, CT for a leased facility in South Windsor, CT, under the same terms and conditions of the lease. The Company now owns the South Windsor, CT facility and will potentially be able to monetize this under-utilized facility. The South Windsor, CT facility will be recorded as an asset and a financing liability will be established on the Company’s balance sheet of approximately $8.9 million as of February 2011.
The Company also reported that it completed an amendment to its current revolving credit facility that provides for a lower interest rate grid and extends the maturity from January 31, 2012 to March 1, 2016. The amount of the commitment increased to $75 million from $60 million and the financial covenants targets were eased to allow for the facilities rationalization project, among other items.
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