Business Overview

Ennis, Inc. was organized under the laws of Texas in 1909 and has since grown to become the largest provider of business forms, pressure-seal forms, labels, tags, envelopes, and presentation folders to independent distributors in the United States. The company operates 58 manufacturing plants throughout the United States in 20 strategically located states as one reportable segment. Approximately 94% of the business products Ennis manufactures are custom and semi-custom products, constructed in a wide variety of sizes, colors, number of parts, and quantities on an individual job basis, depending upon the customers’ specifications.

Ennis distributes its business products and forms throughout the United States primarily through independent distributors. This distributor channel encompasses independent print distributors, commercial printers, direct mail, fulfillment companies, payroll and accounts payable software companies, and advertising agencies, among others. Interestingly, Ennis also sells products to many of its competitors to satisfy their customers’ needs, highlighting the company’s strong position in the market.

While it is not possible to determine Ennis’ exact share of the total business products market, management believes the company is the largest producer of business forms, pressure-seal forms, labels, tags, envelopes, and presentation folders in the United States distributing primarily through independent distributors. This unique position sets Ennis apart in an industry that generally sells its products either predominantly to end users (a market dominated by a few large manufacturers) or through a variety of independent distributors and distributor groups.

Financial Overview

Ennis’ financial performance has shown resilience over the years, despite the challenges faced by the traditional printing industry. For the fiscal year ended February 29, 2024, the company reported revenue of $420.1 million, a slight decrease of 2.7% from the previous year’s $431.8 million. Net income for the same period was $42.6 million, or $1.64 per diluted share, compared to $47.3 million, or $1.82 per diluted share, in the prior year.

The company’s gross profit margin improved from 30.3% in the previous fiscal year to 29.8% in the latest reporting period, demonstrating its ability to navigate the competitive landscape and maintain profitability.

For the fiscal year 2024, Ennis generated operating cash flow of $69.07 million and free cash flow of $62.57 million, indicating strong cash generation capabilities.

In the most recent quarter (Q2 2024), Ennis reported revenue of $99.04 million, a decrease of 7.3% year-over-year. This decline was primarily attributed to weaker volume demand and increased competition on pricing, partially offset by contributions from recent acquisitions. Net income for the quarter was $10.31 million, down 5.5% from the same period last year. Operating cash flow and free cash flow for the quarter were $11.84 million and $10.73 million, respectively, remaining relatively flat compared to the prior year period.

The gross profit margin for Q2 2024 was 30.1%, down from 31.0% in the same period last year, as the company worked to maintain margins amidst challenging market conditions through cost management and pricing strategies. Selling, general, and administrative (SG&A) expenses decreased 9.7% to $16.56 million, reflecting operational efficiencies. Income from operations was $13.18 million, or 13.3% of net sales, compared to $14.71 million, or 13.8% of net sales, in the prior year quarter.

For the six-month period ended August 31, 2024, Ennis generated net sales of $202.15 million, a decrease of 7.3% year-over-year. The gross profit margin was 30.0%, down from 30.8% in the same period of the prior year. SG&A expenses declined 8.1% to $33.73 million, and income from operations was $26.91 million, or 13.3% of net sales, compared to $30.40 million, or 13.9% of net sales, in the prior year six-month period.

Liquidity

Ennis’ strong balance sheet is evidenced by its current ratio of 6.26 and quick ratio of 5.03 as of August 31, 2024, indicating a solid liquidity position. Additionally, the company’s debt-to-equity ratio of 0.01 underscores its financial discipline and conservative approach to leverage.

As of August 31, 2024, Ennis had $99.98 million in cash and $22.66 million in short-term investments. The company also had $0.30 million outstanding under a standby letter of credit arrangement secured by a cash collateral bank account.

Operational Highlights

Ennis’ diversified product portfolio and strategic acquisitions have been key drivers of its growth and resilience. In June 2024, the company acquired Printing Technologies, Inc. (PTI), a leading manufacturer of innovative media solutions, further expanding its capabilities and customer base. This acquisition, along with the previous additions of Eagle Graphics, Diamond Graphics, UMC Print, and Stylecraft Printing, has strengthened Ennis’ presence in various geographic regions and product segments.

The company’s focus on operational efficiency and cost management has also been instrumental in maintaining profitability. Ennis has consistently invested in technology and process improvements to enhance its manufacturing capabilities and meet the evolving needs of its customers.

Product Segments and Offerings

Ennis is a leading manufacturer and distributor of business forms, pressure-seal forms, labels, tags, envelopes, and presentation folders in the United States. The company’s products are primarily custom and semi-custom, constructed in a wide variety of sizes, colors, number of parts, and quantities based on customer specifications. Key product categories include snap sets, continuous forms, laser cut sheets, tags, labels, envelopes, integrated products, jumbo rolls, and pressure sensitive products. These are sold under various brand names such as Ennis, Royal Business Forms, Block Graphics, ColorWorx, Enfusion, VersaSeal, and many others.

In addition to its core business forms and related products, Ennis also offers complementary solutions such as Point of Purchase advertising through the Adams McClure brand, presentation folders through the Admore, Folder Express, and Independent Folders brands, as well as custom and stock tags and labels through the Ennis Tag Label, Allen-Bailey Tag Label, Atlas Tag Label, Kay Toledo Tag, and Special Service Partners brands.

Market Dynamics and Competitive Landscape

The printing industry, in which Ennis operates, has faced significant challenges in recent years, including the shift towards digital communication and the ongoing consolidation of traditional supply channels. However, Ennis has demonstrated its ability to adapt to these changes by diversifying its product offerings and continuously exploring new market opportunities.

The company competes with a range of players, from large national providers to smaller regional players. Ennis’ strategic geographic footprint, strong customer relationships, and reputation for quality and service have been key factors in maintaining its competitive edge.

Pandemic Impact and Response

The COVID-19 pandemic had a moderate impact on Ennis’ operations, as the company navigated supply chain disruptions and shifts in customer demand. However, the company’s agile response, including the implementation of cost-saving measures and the optimization of its manufacturing footprint, helped to mitigate the effects of the pandemic.

Ennis’ commitment to the health and safety of its employees was also evident during this challenging period, as the company quickly adapted its workplace protocols to prioritize the well-being of its workforce.

Outlook and Future Prospects

Looking ahead, Ennis remains cautiously optimistic about its future prospects. The company’s diversified product portfolio, strategic acquisitions, and focus on operational excellence position it well to navigate the evolving printing and business services landscape.

Management has provided guidance for the full year 2022, anticipating earnings per share (EPS) in the range of $2.80 to $3.00. This represents an increase from the company’s previous guidance of $2.60 to $2.90 in EPS for the full year 2022. The updated guidance reflects the strong performance of the business in the first half of the year and management’s confidence in the company’s ability to continue delivering solid results.

The company’s strong cash flow generation and healthy balance sheet provide the financial flexibility to pursue strategic initiatives, invest in innovation, and enhance shareholder value through dividends and share repurchases.

Conclusion

Ennis Inc. (EBF) has demonstrated resilience and adaptability in the face of industry challenges, leveraging its diversified product portfolio, strategic acquisitions, and operational excellence to maintain its position as a leading provider of printing and business solutions. With a solid financial foundation, a focus on innovation, and a commitment to serving its customers, Ennis is well-positioned to navigate the evolving market landscape and continue delivering value to its shareholders.

The company continues to focus on managing costs, maintaining margins, and pursuing strategic acquisitions to strengthen its product portfolio and market position amidst the challenging industry conditions. As Ennis works to transform its product portfolio and invest in new technologies to adapt to ongoing industry trends, including product obsolescence and competition from digital alternatives, it remains committed to its core strengths and customer-centric approach.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.