Checkpoint Systems (CKP) Misses Q2 EPS by 3c, Reaffirms FY Guidance, Announces $30M Buyback

Checkpoint Systems (NYSE: CKP) reported Q2 EPS of $0.10, $0.03 worse than the analyst estimate of $0.13. Revenue for the quarter came in at $147.6 million versus the consensus estimate of $156.76 million.Checkpoint Systems reaffirmed FY2015 guidance.

Share Repurchase Program

The Board of Directors has authorized the repurchase of up to $30 million of common shares over the next two years. Mr. Babich added, “This share repurchase authorization reflects our confidence in Checkpoint’s financial strength and our long-term growth prospects, including the broader adoption of RFID technology by our retail customers. Share repurchases are a key element of our capital allocation strategy which aims to maximize stockholder value while maintaining the financial flexibility to pursue organic investments and strategic acquisitions as opportunities arise.”

Outlook for 2015

Based on an assessment of market conditions, current customers' orders and commitments, and assuming continuation of current foreign exchange rates, Checkpoint is reaffirming its guidance for 2015. This guidance does not include the impact of acquisitions, divestitures, restructuring and one-time or unusual charges resulting from litigation fees or settlements and gains or losses generated by non-routine operating matters which we may record during the year.

Projected income taxes for the year can be impacted by changes in the mix of pre-tax income and losses in the countries in which we operate. The valuation allowance on U.S. deferred tax assets results in a GAAP tax rate on U.S. pre-tax income or losses of essentially 0%. When the mix of income or losses shifts from the U.S. to a country where the income tax rate is in the normal range, our effective tax rate will increase. Additionally, we continue to monitor our profitability in the U.S. to determine whether there is sufficient evidence that may result in a full or partial release of the U.S. valuation allowance. Should this occur, the current GAAP tax rate in the U.S. will be significantly impacted. The combination of these factors can have a material effect on the amount of reported income tax expense, and therefore our earnings per share, when compared with the projections that are the basis of our outlook.

James Lucania, Acting Chief Financial Officer and Treasurer, said, “We will continue to face some margin pressures for the remainder of 2015, especially in EAS Consumables where lower production volumes are driving under absorption, exacerbated by rising material and direct labor costs in the factories. In our ALS businesses, market overcapacity in certain geographies is generating some significant pricing pressures which we expect will continue. However, we expect that the incremental income from our new EAS contract will help to offset these pressures and we continue to expect 2015 results within our prior guidance range.”

• Net revenues are expected to be in the range of $575 million to $625 million, unchanged from prior guidance.
• Adjusted EBITDA is expected to be in the range of $55 million to $68 million, unchanged from prior guidance.
• Non-GAAP diluted net earnings per share is expected to be in the range of $0.40 to $0.50, assuming an effective tax rate of approximately 35%, unchanged from prior guidance.

For earnings history and earnings-related data on Checkpoint Systems (CKP) click here.

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