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Amid rise in quarterly sales, Mod-Pac's losses continue

Mod-Pac Corp.'s losses widened in the third quarter, despite a 14 percent jump in sales, as the Buffalo-based printing company absorbed higher energy and paper costs, while focusing more on ways to reduce its expenses.

Mod-Pac's losses grew to $1.1 million, or 31 cents per share, during the quarter, from $717,000, or 21 cents per share, a year earlier. The company is struggling to fill its excess capacity created after it lost its biggest customer two years ago.

Since then, Mod-Pac has tried unsuccessfully to build its own online printed products business, similar to the $12 million in small-order work it had done for VistaPrint Ltd. before it started doing its own printing work.

The company earlier this year paid $850,000 to purchase Buffalo-based DDM-Digital Imaging, Data Processing and Mailing Services in an effort to branch out into the direct-mail business.

That acquisition accounted for most of the 27 percent growth in its print services business during the third quarter, but it hurt the company's overall profitability because of its low initial volumes, said Daniel G. Keane, Mod-Pac's president and chief executive officer. He expects DDM to be profitable going forward.

"Our challenge is to fill our capacity," Keane said Monday during a conference call. "It has been a longer, more difficult path than we initially thought."

As a result, Mod-Pac is focusing more on ways to reduce costs, including the elimination of seven higher-level management jobs, among them the company's vice president of operations, Keane said in an interview. The job cuts, with which Keane expects to save about $800,000 a year, swelled Mod-Pac's losses during the third quarter by about $300,000 because of severance costs.

At the same time, Keane said the company is not interested in selling any of its underutilized equipment, as some shareholders have advocated. Instead, Keane said he believes the company can generate better long-term returns for shareholders by working on ways to find additional work for its factories, which currently are running at about 60 percent of capacity.

During the third quarter, Mod-Pac's sales rose by 14 percent to $12.9 million from $11.3 million, fueled by a rebound in revenues from its custom folding carton business, which had lagged during the first half of the year.

The custom folding carton business grew by 15 percent during the third quarter to $8.3 million, led by rising orders from private-label food companies. The company's stock box business grew by 4 percent to $2.5 million.

Mod-Pac's commercial printing business more than doubled to $867,000 from $430,000 because of the DDM acquisition, while its personalized printed products business was flat at $1.2 million.

Keane hopes the 2008 elections will be a growing source of work for its DDM business, which can do fundraising and promotional mailings for candidates.

"That's giving us a lot of prospecting opportunities," he said.


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