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Buyout fee from former customer causes Mod-Pac's profits to soar

Mod-Pac's fourth-quarter profits more than quadrupled, but only because it booked $14 million from a buyout fee paid by its biggest former customer that offset a $1.2 million loss from its remaining business.

The earnings report, while enhanced by the buyout fee, showed that the Buffalo specialty printing firm is struggling to replace the sales that vanished after losing its biggest customer, online printed products marketer VistaPrint Ltd. last August.

"The transition we are going through may take some time," said Daniel G. Keane, Mod-Pac's president and chief executive officer.

Mod-Pac is targeting the fragmented commercial printing market, hoping to take advantage of the ability to process large numbers of small orders that it developed while it was working with VistaPrint.

Mod-Pac in June launched its own Web portal, called PrintLizard, to try to bring in orders for business cards, calendars, stationary and other printed products to replace the business it once did for VistaPrint.

But sales have grown slowly, with PrintLizard generating $81,000 in revenues during the fourth quarter, up from $59,000 in the third quarter, even though the site drew more than 300,000 visitors during the final three months of the year.

"We are disappointed with our order conversion rate," Keane said Friday, noting that the company will redesign the Web site this quarter to focus on sales and merchandise. PrintLizard also may offer additional promotions, such as a starter set of envelopes, business cards and stationery aimed at small businesses for $50 to $100.

The company also has signed deals to produce personalized printed products sold through other firms or Internet marketers, ranging from the and to Proforma printed products distribution franchises.

While Keane expressed confidence Friday that Mod-Pac will be able to rebuild its business, the loss of VistaPrint is having a painful impact on the company. While the buyout fee boosted Mod-Pac's profits to $8 million, or $2.30 per share, from $1.7 million, or 45 cents per share a year ago, the company would have lost $1.2 million, or 36 cents per share, without it.

Excluding the buyout fee, Mod-Pac's sales tumbled by 21 percent to $10.3 million from $13.1 million a year ago.

Factoring out the $4.3 million in sales to VistaPrint during the fourth quarter of last year, Mod-Pac's remaining business grew by 17 percent from $8.8 million a year ago. Its custom folding carton sales jumped by 33 percent to $6 million, while stock box sales slipped by 3 percent to $3.3 million. Personalized printing revenues rose 10 percent to $808,000.

But with Mod-Pac's factories running at 40 percent to 50 percent of capacity, the company's profitability was hurt by its remaining overhead costs and higher raw material expenses. Without including the buyout fee, Mod-Pac's gross profit margin plunged to 5.8 percent from 22 percent a year ago.

Mod-Pac has been reducing its work force gradually through attrition, trimming staff by about 10 percent, but Keane said he would prefer to retain the company's trained employees in anticipation of a rebound in sales.

Mod-Pac had been booking $1.4 million of the $22 million buyout fee it received from VistaPrint in August 2004 as revenue during each quarter, but officials decided to recognized the remaining $14 million all at once now that VistaPrint is no longer a customer.


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