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CPAC INC. EXPECTS PROFITS WILL DECLINE 15% IN QUARTER

Heightened competition in its imaging markets, coupled with the impact of the United Parcel Service strike on its direct-selling business, will cause CPAC Inc.'s second-quarter profits to fall by 15 percent to 21 percent, the company warned Thursday.

The announcement that CPAC's earnings would tumble for the second straight quarter sent the company's stock plunging by 10 percent, or 1 1/8 , to equal a 52-week low of $10, Thursday in trading on the Nasdaq system.

The Leicester-based firm, which makes imaging chemicals plus cleaning and personal care products, warned that its profits would slide to a range between $1.79 million, or 25 cents per share, and $1.93 million, or 27 cents per share. That's down from earnings of $2.26 million, or 31 cents per share, in the same period a year ago.

CPAC, which had a string of 16 straight quarters of higher profits broken by an 8 percent dip in its first-quarter earnings, blamed the decline partly on weakness at its imaging group, which is being hurt by intense competition.

As a result, CPAC said it expects sales from its imaging group, which totaled $12.5 million a year ago, to fall by about 7 percent to around $11.6 million as pricing pressures lead to weaker profit margins from that business.

Thomas N. Hendrickson, CPAC's president and chief executive officer, said the company is working to find new business outside the United States to help its imaging unit replace the volume it has lost. "Reducing operating costs and improving manufacturing efficiencies will continue to be a priority," he said.

The company also said its Stanley Home Products and Fuller Brush Co. direct-selling businesses were hurt by the 15-day UPS strike in August, which forced those units to use other, more costly delivery services.

CPAC said those two direct-selling businesses lost more than $350,000 in sales because of the UPS strike, while their distribution costs rose by $100,000 due to the need to use other delivery services.

Hendrickson said the acquisition of IVAX Industries' commercial cleaning chemical business in July should start contributing to CPAC's earnings during the first three months of next year.

CPAC said its total sales are expected to have increased by more than 10 percent during the quarter that ended on Tuesday, compared with $24.9 million a year ago, because of the IVAX acquisition.

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