X-Rite Future Bright

April 24, 2006
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GRANDVILLE — Benjamin Franklin used to say that “a penny saved is a penny earned.” Shareholders in X-Rite Inc. can take that adage to heart when they look at the color measurement firm’s performance in the first quarter of 2006. The company’s diluted earnings for the first quarter were $0.01. At this time last year, shareholders suffered a $0.01 loss per share.

Although the two-cent swing may not seem like much of an improvement, there are other factors at play as X-Rite moves into 2006. And should the company’s plans go as expected, investors can look forward to substantially more pennies in the future.

The most important factor in X-Rite’s immediate future plans is its offer to buy out Swiss competitor Amazys Holding AG. Incorporating the European rival into X-Rite would nearly double the company’s size and give it a dominant position in the color field. X-Rite recently learned that it would not have to resort to a bidding war for Amazys, as a tentative buyout offer had been withdrawn by another Swiss firm, Eichoff Holding AG.

X-Rite’s one-penny profits in the first quarter could have been higher, had the company not invested $5.5 million in its future expansion. R&D spending was $4.9 million, up 26 percent from the same period in 2005. The company also spent more than $550,000 on “integration planning costs,” getting ready for the Amazys deal.

X-Rite’s first-quarter sales were down from the fourth quarter of 2005, although that is to be expected. The company’s sales often follow retail trends. Compared to the first quarter of 2005, however, sales for the first period of 2006 were up 9 percent to $30 million.

Just as X-Rite’s sales are somewhat sporadic, its profitability has risen and fallen dramatically in the past year as well. This quarter saw a $236,000 net profit. The final quarter of 2005 resulted in a $7.5 million net profit. Based on past performance, the second quarter should show slightly higher sales and profitability than the first, the purchase of Amazys notwithstanding.

Should the takeover pass muster with the European Union and the U.S. Federal Trade Commission, the company expects to close on the deal within a matter of months. After the merger, the two companies will become leaner, reducing duplication between facilities in Michigan, Massachusetts and Regensdorf, Switzerland. X-Rite President and CEO Michael Ferrara has suggested that the combination of the two companies will further cement X-Rite’s commitment to West Michigan, and that more jobs will be created here as a result.

“We have invested considerable global resources during the first quarter in preparation for our pending acquisition of Amazys. This will serve us well as we ready the company to move forward with one of the most unique business combinations that our market space has witnessed,” said Ferrara. “The combination of X-Rite and Amazys will provide or offer one of the deepest management teams and one of the strongest product sets, and bring our cultures of innovation together.”

Ferrara, 63, plans to retire from his position within 18 months of the completion of the merger. Amazys’ current CEO, Thomas J. Vacchiano Jr., will become president and COO of the combined company after the merger. At the point of Ferrara’s departure, he will likely take over as CEO. 

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