Multi-Color climbs on revenue beat, guidance
Shares of label solutions company Multi-Color Corporation (LABL) are rising after the company's quarterly revenue slightly exceeded analysts' expectations and provided better than expected guidance for fiscal 2018. EARNINGS: On Tuesday, the company reported third quarter earnings per share of 71c, missing analysts' estimates of 73c. Revenue of $352.7M narrowly beat the $351M consensus. Acquisitions occurring after the beginning of Q3 accounted for a 57% increase in revenues, net of the sale of the Southeast Asian Durables business. Organic revenues increased 7% and foreign exchange rates, primarily driven by appreciation of the Euro, led to a 3% increase in revenues quarter over quarter. EXECUTIVE COMMENTARY: "Our focus now is twofold. Firstly, maintaining stronger organic growth than in prior years; and secondly the performance of the Constantia Labels acquisition from October 31, 2017, especially given that our legacy operations are now past prior quarters significant inefficiencies," said executive chairman Nigel Vinecombe. GUIDANCE: On the Q3 earnings conference call, Vinecombe guided to FY18 revenue of $1.78B-$1.82B, higher than analysts' consensus of $1.74B. He said he expects challenges like lower synergies from the Constatia Labels acquisition to continue into Q4 but said the company expects to overcome "some poor execution issues" in the quarter and is "well placed" for FY19. "In addition, we believe that FY19 offers the opportunity for continued decent organic growth, in the 3%-5% range, and that we will experience better profit value from this growth than we have in 2018," he said, adding, "We also expect further synergy savings for FY20 from some limited number of small bank consolidation in FY19, and we also expect this will achieve previously announced $100M of free cash flow in FY19, which will give us an opportunity going forward to pay down debt in 2019 and beyond, and beyond 2019, subsequently start looking at acquisitions again." ANALYST COMMENTARY: On Tuesday, Hilliard Lyons analyst Spencer Joyce upgraded Multi-Color to a Long-Term Buy from Neutral with a $105 price target on the stock. Joyce said he is comfortable with the company's balance sheet and expects it to delever through FY19 in lieu of additional mergers and acquisition. The company's long-term accretion guidance for Constantia and its "constructive organic narrative" remains intact, the analyst said, which bolsters his view of longer-term risk/reward. Meanwhile, KeyBanc analyst Adam Josephson upgraded Multi-Color to Sector Weight citing valuation with the stock down 11% year-to-date. The stock has reached the analyst's downside price target of $67. However, on Wednesday, BMO Capital analyst Mark Wilde lowered his price target on Multi-Color to $75 and kept his Market Perform rating after the Q3 earnings miss. The analyst said the company was hit with a number of issues with Constantia -- " lower mix, higher amortization, lower synergies, and operating inefficiencies" -- and believes it will not be able to make its FY18 EPS target of $3.80-$3.90. He added that he remains on the sidelines as the company's execution continues to be "uneven." PRICE ACTION: Shares of Multi-Color Corporation are up 2.4%, or $1.60, to $68.30 in morning trading.