Ennis, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended February 28, 2022. Although the request metadata says “2021 Q4,” this filing is an annual report and does not provide standalone fourth-quarter results. Unless otherwise noted, figures are for the full fiscal year and are compared with FY2021.
Business context
Ennis manufactures and sells business forms and other printed products, including labels, tags, envelopes, folders, and pressure-seal products, primarily through independent U.S. distributors. It operated 55 manufacturing plants in 20 states as one reportable segment. The company says digital substitution and contraction in traditional forms are ongoing industry challenges; acquisitions and expanded custom-product offerings are part of its response.
Financial results and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $400.0 million | $358.0 million | +11.7% |
| Gross profit | $114.7 million | $103.8 million | +10.6% |
| Gross margin | 28.7% | 29.0% | Down 0.3 percentage points |
| Operating income | $43.6 million | $35.9 million | +21.4% |
| Operating margin | 10.9% | 10.0% | Up 0.9 percentage points |
| Net earnings | $29.0 million | $24.1 million | +20.3% |
| Diluted EPS | $1.11 | $0.93 | +$0.18 |
| Operating cash flow | $50.7 million | $52.8 million | Down $2.1 million |
- Revenue and earnings: Sales partially recovered from pandemic-related declines. Acquisitions made in FY2021 and FY2022 contributed approximately $23.9 million of year-over-year sales and $0.08 of diluted EPS, according to management. FY2022 sales remained below FY2020’s $438.4 million.
- Costs and margins: Cost of goods sold rose 12.2%, faster than sales, amid paper-price pressure and timing delays in passing cost increases through on unproduced orders. SG&A rose 4.5% but fell to 17.9% of sales from 19.1%.
- Cash and liquidity: Cash was $85.6 million, up $10.4 million. Working capital was $127.8 million, up $14.8 million; the current ratio was 4.4-to-1. The filing reports a quick ratio of 3.35.
- Debt: No long-term debt was outstanding. The revolving credit agreement expired November 11, 2021 and was not renewed. A $0.6 million standby letter of credit was secured by a cash-collateral account.
- Investing and capital returns: Capital expenditures were $6.5 million; cash used for acquisitions was $4.3 million. Dividends paid were $25.4 million, or $0.975 per share. Ennis repurchased 254,679 shares for an average $18.81 per share; $5.1 million remained under its repurchase authorization.
- Pension: The pension plan was 91% funded on a projected-benefit-obligation basis and 98% on an accumulated-benefit-obligation basis. The recorded pension liability was $5.7 million. FY2022 included a $1.1 million settlement charge.
Material changes versus FY2021
- Sales, operating income, and net earnings rebounded from FY2021, which had been significantly affected by pandemic-related economic conditions and lower volume.
- Despite the sales recovery, gross margin edged lower as paper and other input costs rose. Management reported that price adjustments were being made, but order backlogs created a lag.
- Cash increased, while operating cash flow declined modestly. Cash used in investing fell mainly because acquisition spending was lower; cash used in financing increased with higher dividends and share repurchases.
- The effective tax rate rose to 30.9% from 27.6%. Management cited distributions from a terminated deferred-compensation plan and a prior-year audit assessment, including matters related to discontinued operations.
Outlook, risks, and other matters
- Management expects FY2023 capital expenditures, excluding potential acquisitions, to be $3 million to $5 million, funded from cash flows. It anticipates pension contributions of $1 million to $3 million in FY2023, depending on plan funding.
- No specific revenue or earnings guidance is provided. Management expected paper pricing to increase entering FY2023, while expressing the view that paper prices would remain within a range that would not unfavorably affect margins. It also said supply tightness and inflation could continue.
- Key risks include continued digital substitution for printed documents; paper and other raw-material price or availability pressures; dependence on a limited number of suppliers; labor and freight cost increases; competitive pricing; distributor consolidation; customer credit risk; and uncertainty around the pandemic, economic conditions, and supply chains.
- One supplier represented 51% of material purchases in FY2022, up from 43% in FY2021. No single customer represented 5% or more of net sales or receivables.
- Ennis reported $38.4 million of firm-order backlog at February 28, 2022, compared with $23.6 million a year earlier; the filing does not quantify how much of the increase reflects timing or future cancellations.
- Management stated that current litigation is not expected to have a material adverse effect. The independent auditor gave unqualified opinions on the financial statements and internal controls and reported no critical audit matters. Management reported effective internal control, excluding AmeriPrint from its assessment under acquisition-related SEC guidance.
Important facts for investors to verify
- How much of FY2022’s sales and earnings recovery came from organic volume and pricing versus acquisitions, and whether the recovery continued after year-end.
- Whether paper, labor, and freight cost increases were passed through to customers, and the effect of backlog and production delays on gross margin.
- The persistence and composition of the $38.4 million backlog, including delivery timing and cancellation terms.
- The status of paper supply and the company’s exposure to its largest supplier, which accounted for 51% of material purchases.
- Future cash allocation among dividends, repurchases, capital spending, acquisitions, and pension contributions, particularly after expiration of the revolving credit agreement.
- The pension plan’s funding assumptions and contribution needs, and the potential effect of interest-rate or asset-market changes.