Strong growth in its folding carton sales, coupled with continued expansion in its commercial printing business, helped Mod-Pac Corp. more than double its first-quarter profits, the Buffalo-based printing company said Wednesday.
The 114 percent surge in its profits buoyed investors, who pushed Mod-Pac's shares up by 15.8 percent, or $1.73, to $12.67 on Wednesday.
Mod-Pac executives said the growth was due to an expanding customer base, as well as increased orders from its existing customers as the economy improves.
A significant portion of the surge in profits and the 40 percent increase in revenues came from the $1.8 million payment that Mod-Pac booked from its biggest customer, VistaPrint, for giving up its exclusive supplier rights in North America beginning in August.
But even without that payment, Mod-Pac's sales were up 25 percent as revenues from its custom folding carton products surged by 38 percent and its commercial printing business grew by 37 percent.
Mod-Pac's profits soared to $1.5 million, or 39 cents per share, from $654,000, or 17 cents per share. Sales grew to $16.2 million from $11.6 million, bolstered by the second $1.8 million installment payment from its $22 million VistaPrint agreement, which was paid in full during August but is being counted as revenue in 36 monthly payments spread out through September 2007.
Daniel G. Keane, Mod-Pac's president and chief executive officer, said he expects Mod-Pac's sales to VistaPrint to eventually decline as the printed products marketer opens its own plant in Windsor, Ont.
Mod-Pac has signed a new supply agreement with VistaPrint that runs through August 2006 and sets pricing that is expected to produce an 18 percent gross profit for Mod-Pac, Keane said. The agreement, which does not force VistaPrint to use Mod-Pac as a supplier, calls for additional surcharges if VistaPrint's purchases drop below $750,000 a month.
"We expect to see a fall-off in our VistaPrint sales, but the extent of that fall-off is unclear," Keane said. "We're comfortable with the arrangement we have with VistaPrint."
Mod-Pac recently launched an expanded line of commercial print products, aimed at small- to mid-sized business customers and marketed over the Internet to capitalize on the company's ability to handle large numbers of small orders. Keane said he believes the new product line, called PrintLizard, can grow as rapidly as its existing commercial print business.