Multi-Color Corp. :LABL-US: Earnings Analysis: Q1, 2017 By the Numbers : August 12, 2016

Multi-Color Corp. reports financial results for the quarter ended June 30, 2016.

We analyze the earnings along side the following peers of Multi-Color Corp. – R.R. Donnelley & Sons Company, Cimpress N.V. and Cenveo, Inc. (RRD-US, CMPR-US and CVO-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 236.49 million, Net Earnings of USD 15.81 million.
  • Gross margins widened from 21.49% to 22.03% compared to the same period last year, operating (EBITDA) margins now 17.54% from 18.02%.
  • Year-on-year change in operating cash flow of -21.47% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth due to contribution of one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2015-06-30 2015-09-30 2015-12-31 2016-03-31 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 217.92 219.78 206.03 227.09 236.49
Revenue Growth (%YOY) 7.28 3.17 8.94 10.53 8.52
Earnings (mil) 13.25 16.57 9.63 8.29 15.81
Earnings Growth (%YOY) -0.35 47.13 0.89 -28.63 19.25
Net Margin (%) 6.08 7.54 4.67 3.65 6.68
EPS 0.79 0.98 0.57 0.49 0.93
Return on Equity (%) 17.6 21.33 12.3 10.04 18.35
Return on Assets (%) 5.44 6.44 3.72 3.14 5.93

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Market Share Versus Profits

Revenues History
Earnings History

LABL-US‘s change in revenue this period compared to the same period last year of 8.52% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that LABL-US is holding onto its market share. Also, for comparison purposes, revenues changed by 4.14% and earnings by 90.72% compared to the immediate last period.

Revenues Growth Versus Earnings Growth


Earnings Growth Analysis

The company’s earnings growth has been influenced by the year-on-year improvement in gross margins from 21.49% to 22.03%. However the company’s overhead costs have prevented it from fully capitalizing on these gross margin improvements. In fact, the company’s operating margins (EBITDA margins) showed no improvement over the same period last year.

Gross Margin Versus EBITDA Margin


Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

LABL-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 45.67 days from 46.56 days for the same period last year.

Gross Margin Versus Working Capital Days


Cash Versus Earnings – Sustainable Performance?

LABL-US‘s change in operating cash flow of -21.47% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth


Margins

The company’s operating (EBIT) margins contracted from 13.29% to 12.52%. In spite of this, the company’s earnings rose. This was influenced primarily by one-time items, which improved pretax margins from 9.09% to 9.77%.

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Multi-Color Corp.


Company Profile

Multi-Color Corp. is engaged in the business of global label solutions supporting various brands such as home and personal care, wine and spirit, food and beverages, healthcare and specialty consumer products. Its products include pressure sensitive labels, in-molds, glue-applied, heat transfer, and shrink sleeve labels. The company also provides services such as conversion of customer digital files and artwork into proofs, production of print layouts and printing plates, and product mock ups and samples for market research. The company was founded in 1916 and is headquartered in Batavia, OH.

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