ENNIS, INC. — Form 10-K summary
Reporting period: Fiscal year ended February 29, 2020. The filing also reports unaudited fourth-quarter results; it is an annual report, not a standalone quarterly filing. Amounts below are U.S. dollars.
Business context and financial performance
Ennis manufactures and sells business forms and other printed products, primarily through independent distributors, operating 61 U.S. manufacturing plants as one reportable segment. The filing describes ongoing industry contraction from digital substitution, competitive pricing and customer consolidation.
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $438.4 million | $400.8 million |
| Gross profit / margin | $128.9 million / 29.4% | $123.4 million / 30.8% |
| Operating income / margin | $50.8 million / 11.6% | $50.1 million / 12.4% |
| Net earnings | $38.3 million | $37.4 million |
| Diluted earnings per share | $1.47 | $1.45 |
| Cash from operating activities | $57.2 million | $51.3 million |
| Cash and working capital at year-end | $68.3 million; $111.9 million | $88.4 million; $134.5 million |
| Long-term debt at year-end | None | $30.0 million |
Fourth-quarter FY2020 sales were $106.7 million, gross profit was $29.9 million and net earnings were $8.6 million, compared with $100.7 million, $29.1 million and $8.2 million, respectively, in the prior-year quarter. Diluted EPS was $0.33 versus $0.32.
Material changes and liquidity
- Annual sales rose 9.4%, but acquisitions contributed approximately $55.3 million of FY2020 sales. Acquisitions also diluted reported gross margin; management cited integration and raw-material costs that were not fully passed through to customers.
- Gross margin fell 1.4 percentage points year over year. SG&A increased 6.4% to $78.2 million, while declining as a share of sales to 17.8% from 18.3%.
- Operating cash flow increased by $5.9 million. Investing activities used $21.4 million, including $18.7 million for acquisitions and $3.4 million of capital expenditures. Financing activities used $56.0 million, including repayment of $30.0 million of debt and $23.5 million of dividends.
- The company had no borrowings under its $100 million revolving facility at year-end, with approximately $99.3 million available after letters of credit. The facility matures November 11, 2021; the company reported covenant compliance.
- Quarterly dividends were $0.225 per share throughout FY2020; total dividends were $0.90 per share. The company repurchased 126,330 shares at an average $19.56, with $11.1 million remaining under its authorization.
Outlook, risks and unusual items
- Management could not estimate the ultimate effect of COVID-19 on FY2021 results, financial condition or liquidity. Plants were deemed essential and mostly operating near normal utilization as of the report date, though some staffing reductions had been made. Management then did not expect a material liquidity impact.
- Backlog was $21.8 million at February 29, 2020, versus $22.5 million a year earlier, and $17.5 million at April 30, 2020. The April figure reflects developments after fiscal year-end.
- Management expected FY2021 capital expenditures of $3–$5 million and pension contributions of $1.5–$3.0 million. It expected to continue share repurchases only if the Board considered them appropriate. No specific earnings or revenue guidance was provided.
- Principal risks include secular decline in printed forms, price competition, paper-price and supply volatility, reliance on a limited number of suppliers, customer credit risk, labor and freight costs, and COVID-19 effects on demand, operations and supply chains. One supplier represented 41% of materials purchases in FY2020.
- The pension plan was 87.2% funded on a projected-benefit-obligation basis. The discount rate fell to 2.65% from 4.10%, increasing the recorded pension liability; year-end liability was $8.9 million. Pension-related other comprehensive loss was $8.5 million for FY2020.
- No goodwill impairment was recorded in FY2020; goodwill was $82.5 million and net intangible assets were $56.6 million. The company adopted lease accounting, recording operating lease right-of-use assets and liabilities; adoption did not affect earnings or cash flows. Ordinary-course litigation was not expected to have a material adverse effect.
- Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting. Controls assessment excluded the two FY2020 acquisitions, which represented approximately 7% of assets and 8% of revenues.
Important facts for investors to verify
- How much of sales growth and future performance depends on acquired businesses, and whether their margins improve as integration proceeds.
- Whether pricing and cost actions offset paper, labor, freight and other input costs amid competitive pressure and declining traditional-print demand.
- COVID-19’s subsequent impact on backlog, customer collections, plant utilization, suppliers, cash flow and liquidity.
- Whether the company sustains its dividend and any repurchases while meeting pension funding needs and credit-facility covenants.
- How changes in pension assumptions and asset returns affect pension funding, liabilities and future contributions.