Multi-Color Corp. :LABL-US: Earnings Analysis: Q4, 2016 By the Numbers : June 1, 2016

Multi-Color Corp. reports financial results for the quarter ended March 31, 2016.

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

Highlights

  • Summary numbers: Revenues of USD 227.09 million, Net Earnings of USD 8.29 million.
  • Gross margins narrowed from 21.50% to 21.16% compared to the same period last year, operating (EBITDA) margins now 11.41% from 17.60%.
  • Narrowing of operating margins contributed to decline in earnings.

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

2015-03-31 2015-06-30 2015-09-30 2015-12-31 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 205.47 217.92 219.78 206.03 227.09
Revenue Growth (%YOY) 6.17 7.28 3.17 8.94 10.53
Earnings (mil) 11.61 13.25 16.57 9.63 8.29
Earnings Growth (%YOY) 280.31 -0.35 47.13 0.89 -28.63
Net Margin (%) 5.65 6.08 7.54 4.67 3.65
EPS 0.69 0.79 0.98 0.57 0.49
Return on Equity (%) 15.78 17.6 21.33 12.3 10.04
Return on Assets (%) 5.03 5.44 6.44 3.72 3.14

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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 10.53% 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 10.22% and earnings by -13.93% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 21.50% to 21.16%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 17.60% to 11.41% in this time frame. For comparison, gross margins were 19.23% and EBITDA margins were 15.27% in the previous period.

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 decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 47.48 days, compared to last year’s level of 47.32 days.

Gross Margin Versus Working Capital Days

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 12.55% to 11.41% and (2) one-time items that contributed to a decrease in pretax margins from 8.85% to 6.31%

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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