XRite Ends Profitable 2005

February 27, 2006
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GRANDVILLE — If things go well for X-Rite Inc., next year's numbers are going to be a lot higher than the fourth-quarter and year-end results the company recently reported.

That's not to say those numbers were poor — in fact, the Grandville-based color analysis company had record-setting quarterly revenue and a healthy profit. X-Rite expects a stronger 2006 because of its recently announced $280 million plan to purchase a European competitor, Amazys Holding AG.

In the meantime, the company is on a solid footing. The company showed a healthy profit for the year and for its final quarter, although a few one-time events skewed the appearance of the company's strength. X-Rite recorded net profits of $7.5 million, or 35 cents per share, in the fourth quarter. The company logged improvement in operating income and gross profit as a percentage of sales. However, an $8.9 million plus last year and a $400,000 minus this year gave this year's net profits an anemic appearance compared to 2004.

That $8.9 million gain in the fourth quarter of 2004 was related to a change in valuation in certain liabilities and equity. Put in layman's terms, it would be the equivalent of a homeowner learning that his home had a higher value and a lower mortgage balance than he thought.

Partly as a result of that, annual income for 2005 was $11.1 million, 10 percent lower than 2004's $12.4 million.

No such poor luck for sales, however. Quarterly revenue was nearly $42 million, up 8 percent from the last quarter of 2004. Annual revenue was up, though not as dramatically. This year's $131 million was up just 3.7 percent from the previous year.

"While our full-year revenue growth is lower than what we would like, we were able to shore up Asia and our digital imaging business, and invest in our future growth," said CEO Michael Ferrara in a statement accompanying the release of the financial results.

Throughout the year, the company has pointed to Asia to explain questions about lackluster sales and profits. Again, the company has continued growing its revenues and has maintained profitability, but that performance has not necessarily lived up to company or Wall Street expectations.

On the brighter side, the company has seen substantial growth in its retail sales business segment. X-Rite is the nation's leader in retail color-matching — technology most commonly associated with custom paint color mixing in major home improvement centers such as Lowe's and Home Depot. This segment of X-Rite's business was up 44.8 percent for the fourth quarter, and 29 percent for the year.

The purchase of Amazys Holding AG needs to be approved by shareholders and federal regulators. X-Rite expects that to happen in late spring. Until then, the company is not releasing performance estimates for 2006. However, in a recent interview with the Business Journal, Ferrara suggested that the addition of roughly $100 million in Amazys sales, combined with improved efficiencies through the merger, would put X-Rite in a good position to take advantage of the new markets Amazys would present.

X-Rite's stock is rallying in recent months. The share price was in the high single digits when Ferrara took over as CEO in mid-2003. The value grew steadily until April 2005, when disappointing performance — again related to Asian sales — caused the stock to fall by more than one-third, below $11. The share price has been relatively steady since the April plunge, though it dipped to around $10 at the end of 2005. Since then, share values have risen beyond $12 per share.    

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