Ennis Inc. (EBF) is a leading provider of business forms, pressure-seal forms, labels, tags, envelopes, and presentation folders in the United States. Headquartered in Midlothian, Texas, the company has a rich history spanning over a century, having been founded in 1909. Ennis has strategically positioned itself as a key player in the commercial printing industry, leveraging its extensive network of 57 manufacturing plants across 20 states to serve a diverse customer base.

Business Overview

Ennis, Inc. was originally organized under the laws of Texas in 1909. The company and its subsidiaries print and manufacture a broad line of business forms and other business products. 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. Ennis also sells products to many of its competitors to satisfy their customers' needs.

Management believes Ennis is the largest provider of business forms, pressure-seal forms, labels, tags, envelopes, and presentation folders to independent distributors in the United States. 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.

The printing industry has experienced significant challenges, including consolidation of traditional supply channels, product obsolescence, paper supplier capacity adjustments, and increased pricing and potential supply allocations due to demand-supply curve imbalance. To address these challenges, Ennis has focused on transforming its portfolio of products, making investments in new and existing technology, and developing key strategic business relationships. The company has also looked for new market opportunities and niches through acquisitions, such as the addition of its envelope offerings, tag offerings, folder offerings, healthcare wristbands, specialty packaging, direct mail, pressure seal products, secure document solutions, innovative in-mold label offerings and long-run integrated products with high color web printing. These actions have helped Ennis differentiate itself from its competition and offset the decline in demand for traditional business documents.

Financials

Ennis reported annual revenue of $420.11 million, $431.84 million, and $400.01 million for the fiscal years ending February 29, 2024, February 28, 2023, and February 28, 2022, respectively. The company's net income stood at $42.60 million, $47.30 million, and $28.98 million for the same respective periods. Operating cash flow was $69.07 million, $46.78 million, and $50.68 million, while free cash flow reached $62.57 million, $42.44 million, and $44.14 million.

For the most recent quarter (Q3 2024), Ennis reported revenue of $99.77 million and net income of $10.20 million. Year-over-year revenue decreased 4.6% from $104.62 million in Q3 2023, primarily due to weaker volume demand at legacy plants, partially offset by an increase in revenues from recent acquisitions. The company faces increased competition and softer demand in some markets as customers transition from print to digital products.

For the nine months ended November 30, 2024, Ennis reported net sales of $301.92 million, a decrease of 6.4% compared to the same period in the prior year. Gross profit margin was 29.8%, down slightly from 30.3% in the prior year period, as the company faced increased competition and softening demand in some of its product markets. Operating income was $39.96 million, or 13.2% of net sales, compared to $43.52 million, or 13.5% of net sales, in the prior year period. The company's net earnings for the nine-month period were $31.20 million, or $1.19 per diluted share, compared to $32.45 million, or $1.25 per diluted share, in the same period of the prior year.

Liquidity

Ennis maintains a strong financial position, as evidenced by its consistent cash flow generation and well-funded pension plan. The company's liquidity is further supported by its efficient capital allocation strategy, which includes regular dividend payments and a share repurchase program.

As of November 30, 2024, Ennis had $55.70 million in cash and cash equivalents and $12.86 million in short-term investments. The company's working capital decreased to $120.10 million at the end of the third quarter, primarily due to a special dividend paid to shareholders during the period. Ennis continues to invest in capital expenditures, spending $4.25 million during the first nine months of fiscal 2025 to maintain and improve its operational capabilities.

The company's debt-to-equity ratio stands at 0.04, indicating a low level of debt. Ennis had $0.30 million outstanding under a standby letter of credit arrangement secured by a cash collateral bank account as of November 30, 2024. The current ratio is 4.72, and the quick ratio is 3.50, both indicating strong short-term liquidity.

Transitioning to Digital: Navigating Industry Shifts

The printing industry has undergone significant technological advancements, with the rise of digital printing and electronic distribution of documents posing challenges to traditional business forms. Ennis has proactively addressed these industry shifts by transforming its product portfolio and investing in new technologies. The company has successfully diversified its offerings, expanding into areas such as pressure-seal products, secure document solutions, and innovative in-mold label offerings.

Acquisitions Fuel Growth

Ennis has demonstrated its strategic agility through a series of strategic acquisitions, which have bolstered its capabilities and market presence. In the past two years, the company has acquired Stylecraft Printing Company, UMC Print, Eagle Graphics, Diamond Graphics, and Printing Technologies, Inc. (PTI). These acquisitions have strengthened Ennis' production capabilities, expanded its geographic footprint, and diversified its product portfolio, positioning the company to better serve its customer base.

Operational Efficiency and Cost Management

Ennis has been vigilant in managing its operational costs and maintaining a lean cost structure. The company has implemented various initiatives to streamline its manufacturing processes, leverage its buying power with suppliers, and optimize its overhead expenses. These efforts have enabled Ennis to maintain its profitability and navigate the challenges posed by increased competition and price pressures in the industry.

Pension Plan and Capital Allocation

Ennis' pension plan is well-funded, with the company contributing between $1 million and $3 million annually to the plan. This proactive approach to pension management has helped the company maintain a strong balance sheet and allocate capital efficiently. Ennis has also demonstrated a commitment to shareholder returns, with a history of paying consistent dividends and a share repurchase program in place.

Mitigating Risks and Challenges

The company faces risks associated with industry consolidation, technological disruption, and fluctuations in raw material prices. Ennis has proactively addressed these challenges by diversifying its product portfolio, strengthening its relationships with key suppliers, and investing in digital solutions to meet the evolving needs of its customers.

Product Portfolio and Brands

Ennis sells its products under various well-recognized brand names, including Ennis, Royal Business Forms, Block Graphics, 360° Custom Labels, ColorWorx, Enfusion, Uncompromised Check Solutions, VersaSeal, Ad Concepts, FormSource Limited, Star Award Ribbon Company, Witt Printing, and many others. These brands cover a wide range of business product categories to serve the diverse needs of the company's customer base.

The company's product offerings include snap sets, continuous forms, laser cut sheets, tags, labels, envelopes, integrated products, jumbo rolls, and pressure-sensitive products. Customers can specify the size, color, number of parts, and quantities for these custom orders, allowing Ennis to cater to specific requirements across various industries.

Distribution Channels

Ennis primarily sells its products through independent distributors, including business forms distributors, resellers, direct mail companies, commercial printers, software companies, and advertising agencies. The company also sells directly to a small number of customers, such as large banking organizations, where a distributor is not available or preferred by the end-user. This diverse distribution network allows Ennis to reach a wide range of customers and maintain its position as a leading provider of business products in the United States.

Outlook and Growth Opportunities

Despite the ongoing industry transformation, Ennis remains optimistic about its future growth prospects. The company's strategic initiatives, such as targeting new market segments, expanding its service offerings, and leveraging its manufacturing capabilities, are expected to drive continued success. Furthermore, Ennis' strong balance sheet and efficient capital allocation provide a solid foundation for pursuing organic growth and strategic acquisitions that complement its core business.

Conclusion

Ennis Inc. (EBF) has demonstrated its resilience and adaptability in the face of dynamic market conditions. The company's rich history, strategic acquisitions, operational efficiency, and commitment to shareholder returns have positioned it as a leading player in the commercial printing industry. As Ennis navigates the transformation of the sector, its focus on diversifying its product portfolio, embracing technological advancements, and maintaining a strong financial position bodes well for its long-term growth and success. With its extensive manufacturing network, diverse product offerings, and strong brand portfolio, Ennis is well-equipped to address the evolving needs of its customers and maintain its competitive edge in the business products market.