X-Rite's Quarterly Sales Down

August 15, 2006
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GRANDVILLE — X-Rite Inc. revenues were down slightly for the quarter but up slightly for the first half of the year. A 3 percent decline in revenue in the second quarter was attributed primarily to the internal and external pressures of the company’s recent acquisition of Amazys Holding AG.

Second quarter net sales were down $1 million to $32 million compared with the second quarter of 2005, and operating income was $600,000 in the just-passed quarter versus $4.1 million in the year-ago quarter, the company reported Tuesday.

For the first half, net sales were $62 million, reflecting a 2.3 percent increase from the first half of 2005. Sales for the first six months decreased by about 1 percent as a result of unfavorable foreign currency translation, according to X-Rite.

Net income for the second quarter was $1.6 million, or 7 cents per diluted share, versus $2.9 million, or 14 cents per share, in the prior year’s second quarter. For the first half, net income was $1.9 million, or 9 cents per share, down from $2.6 million, or 12 cents per share, for the first half of 2005.

X-Rite’s graphic arts market generated 43 percent of the company’s total business in the second quarter, the retail paint market 17 percent, and the industrial paint market 25 percent. The company launched three new products during the quarter that are expected to ship in the second half.

Gross margins decreased in the quarter due to the phase-out of older products that were not compliant with new European regulatory standards and to labor overhead, said CFO Mary Chowning. She said the quarter’s “big news” is X-Rite’s successful acquisition of Amazys. On July 5, the company completed its tender offer for 99.7 percent of Amazys’ outstanding shares, at a total value of $280 million. The combined company is now being touted as “the new X-Rite.”

“This is a watershed event for the company and the industry, and it clearly positions X-Rite as a leader in the marketplace,” Chowning remarked.

She said the company anticipates yearly cost synergies totaling $25 million by the third anniversary of the close on the Amazys deal — $16 million of synergies annually from the operating expense areas and $9 million from the manufacturing area.

CEO Michael Ferrara characterized the company’s revenue performance for the second quarter and first half of 2006 as “adequate,” considering the incremental workload and activities related to the Amazys acquisition.

“We’re not satisfied with this level of growth and certainly don’t think it reflects the going-forward strategic opportunity,” he said. “However, over the last six months we’ve had the unique circumstances associated with the Amazys acquisition. I believe we effectively managed through this challenging time with both our customers and employees with minimal impact on our revenues.”

Ferrara said Amazys revenues for the first half were flat and essentially mirrored 2005 revenues. He noted that all information about Amazys will be reported on a consolidated basis beginning in the third quarter.

“We spent a great deal of time communicating with our customers to understand their views and perspective on the acquisition,” Ferrara commented. “Our strategic partners, our OEM relationships, are very positive about the transaction.

“The rationale for this transaction is ‘clear and compelling’ and will provide us with numerous potential opportunities strategically,” Ferrara said. “Each company has core areas of strength and they’re complementary to each other. With the acquisition of Amazys, X-Rite expects to increase market penetration and drive shareholder value. …”

In assessing X-Rite’s performance in the quarter and first half, Ferrara noted, management focused on three areas: The impact of the market and economic trends on X-Rite’s business; the impact of the Amazys acquisition on customers; and the impact of the Amazys acquisition on employees and their productivity.

He said the company’s distribution channel partners have been awaiting word as to which products are going to be manufactured, sold and supported by X-Rite once the companies are combined. X-Rite and Amazys have a great deal of overlap in the digital imaging market, Ferrara pointed out, and that has caused some ambiguity in the marketplace. Customers may delay purchases while they wait to see the results of the product line integration strategy — a process the company is “working diligently” on, he said.

For employees wondering what the Amazys deal will mean to them, much of the “distraction” will be lifted as the company rolls out a new organizational structure during the third quarter, Ferrara indicated.

X-Rite’s order backlog remains strong, and management continues to be encouraged by the demand for new products rolling out, he said. The company typically has a backlog of about $4 million, but the current backlog is $5.8 million. There exists good growth opportunities in Europe, North America, and in the Asia Pacific region, Ferrara said, and there aren’t any fundamentals or issues in those markets that management is concerned about.

The company expects revenue growth to be flat for the remainder of 2006. Preliminary estimates for full year 2007 revenue growth is in the 4 percent to 6 percent range.

X-Rite has made great progress over the last three years since refocusing its business on color, Ferrara said. The company’s engineering and innovation engine is healthy; it has strong, established relationships with strategic partners worldwide; and it has a very talented, experienced employee base, he said.

“This is the foundation that will serve us well as we integrate and execute this integration around Amazys,” he said. “The former X-Rite is ready to create the new X-Rite.”

Amazys Deal Pays Off For Management

The compensation committee of X-Rite’s board of directors awarded a special bonus in the aggregate amount of $525,000 for “excellent performance” in connection with the acquisition of Amazys Holding AG. The special bonus was distributed as follows:

Michael Ferrara President and CEOGRANDVILLE — X-Rite Inc. revenues were down slightly for the quarter but up slightly for the first half of the year. A 3 percent decline in revenue in the second quarter was attributed primarily to the internal and external pressures of the company’s recent acquisition of Amazys Holding AG.

Second quarter net sales were down $1 million to $32 million compared with the second quarter of 2005, and operating income was $600,000 in the just-passed quarter versus $4.1 million in the year-ago quarter, the company reported Tuesday.

For the first half, net sales were $62 million, reflecting a 2.3 percent increase from the first half of 2005. Sales for the first six months decreased by about 1 percent as a result of unfavorable foreign currency translation, according to X-Rite.

Net income for the second quarter was $1.6 million, or 7 cents per diluted share, versus $2.9 million, or 14 cents per share, in the prior year’s second quarter. For the first half, net income was $1.9 million, or 9 cents per share, down from $2.6 million, or 12 cents per share, for the first half of 2005.

X-Rite’s graphic arts market generated 43 percent of the company’s total business in the second quarter, the retail paint market 17 percent, and the industrial paint market 25 percent. The company launched three new products during the quarter that are expected to ship in the second half.

Gross margins decreased in the quarter due to the phase-out of older products that were not compliant with new European regulatory standards and to labor overhead, said CFO Mary Chowning. She said the quarter’s “big news” is X-Rite’s successful acquisition of Amazys. On July 5, the company completed its tender offer for 99.7 percent of Amazys’ outstanding shares, at a total value of $280 million. The combined company is now being touted as “the new X-Rite.”

“This is a watershed event for the company and the industry, and it clearly positions X-Rite as a leader in the marketplace,” Chowning remarked.

She said the company anticipates yearly cost synergies totaling $25 million by the third anniversary of the close on the Amazys deal — $16 million of synergies annually from the operating expense areas and $9 million from the manufacturing area.

CEO Michael Ferrara characterized the company’s revenue performance for the second quarter and first half of 2006 as “adequate,” considering the incremental workload and activities related to the Amazys acquisition.

“We’re not satisfied with this level of growth and certainly don’t think it reflects the going-forward strategic opportunity,” he said. “However, over the last six months we’ve had the unique circumstances associated with the Amazys acquisition. I believe we effectively managed through this challenging time with both our customers and employees with minimal impact on our revenues.”

Ferrara said Amazys revenues for the first half were flat and essentially mirrored 2005 revenues. He noted that all information about Amazys will be reported on a consolidated basis beginning in the third quarter.

“We spent a great deal of time communicating with our customers to understand their views and perspective on the acquisition,” Ferrara commented. “Our strategic partners, our OEM relationships, are very positive about the transaction.

“The rationale for this transaction is ‘clear and compelling’ and will provide us with numerous potential opportunities strategically,” Ferrara said. “Each company has core areas of strength and they’re complementary to each other. With the acquisition of Amazys, X-Rite expects to increase market penetration and drive shareholder value. …”

In assessing X-Rite’s performance in the quarter and first half, Ferrara noted, management focused on three areas: The impact of the market and economic trends on X-Rite’s business; the impact of the Amazys acquisition on customers; and the impact of the Amazys acquisition on employees and their productivity.

He said the company’s distribution channel partners have been awaiting word as to which products are going to be manufactured, sold and supported by X-Rite once the companies are combined. X-Rite and Amazys have a great deal of overlap in the digital imaging market, Ferrara pointed out, and that has caused some ambiguity in the marketplace. Customers may delay purchases while they wait to see the results of the product line integration strategy — a process the company is “working diligently” on, he said.

For employees wondering what the Amazys deal will mean to them, much of the “distraction” will be lifted as the company rolls out a new organizational structure during the third quarter, Ferrara indicated.

X-Rite’s order backlog remains strong, and management continues to be encouraged by the demand for new products rolling out, he said. The company typically has a backlog of about $4 million, but the current backlog is $5.8 million. There exists good growth opportunities in Europe, North America, and in the Asia Pacific region, Ferrara said, and there aren’t any fundamentals or issues in those markets that management is concerned about.

The company expects revenue growth to be flat for the remainder of 2006. Preliminary estimates for full year 2007 revenue growth is in the 4 percent to 6 percent range.

X-Rite has made great progress over the last three years since refocusing its business on color, Ferrara said. The company’s engineering and innovation engine is healthy; it has strong, established relationships with strategic partners worldwide; and it has a very talented, experienced employee base, he said.

“This is the foundation that will serve us well as we integrate and execute this integration around Amazys,” he said. “The former X-Rite is ready to create the new X-Rite.”

Amazys Deal Pays Off For Management

The compensation committee of X-Rite’s board of directors awarded a special bonus in the aggregate amount of $525,000 for “excellent performance” in connection with the acquisition of Amazys Holding AG. The special bonus was distributed as follows:

Michael Ferrara President and CEO                                          $205,000

Mary Chowning Vice President Finance and CFO                    $155,000

Jeffrey Smolinski Vice President Operations                             $55,000

Bernard Berg Senior Vice President and CTO                           $55,000

James Weaver Vice President Marketing and Development      $55,000

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