Multi-Color Corp (LABL:BUY) Q1:17 Adjusted EPS of $0.95 beats our estimate of $0.88 on a higher than expected gross margin

10-AUG-16 – Multi-Color Corp (LABL:BUY) Q1:17 Adjusted EPS of $0.95 beats our estimate of $0.88 on a higher than expected gross margin, partly offset by a higher than expected SG&A. We maintain our FY:17 EPS estimate, our price target of $67.00, and rating at BUY-Long Term pending review of the 10-Q.

Q1:17 HIGHLIGHTS

Total revenues grew 8.5% driven by $18.6 million of revenue from acquisitions not yet annualized. Internal growth was +4% totally offset by foregone low margin beer label sales (2%) and F(x) of (2%).
Gross margin was up to 22.0% vs. 21.5% due to contribution from acquisitions as gross margin on revenue from acquisitions was 24.2%.
Adjusted operating margin was down, 12.5% vs. 13.0% in the prior year, due to increased compliance costs.
Q1:17 GAAP EPS was up to $0.93 vs. $0.79. Adjusted EPS was up 4% to $0.95 vs. $0.91, well ahead of our estimate of $0.88.
Simply adding the earnings beat to our prior FY:17 estimate of $3.47 would produce a new estimate of $3.55; however we will wait to update our estimate and price target of $67.00 and rating of Buy-LT until after reviewing the 10-Q.

RISKS

The company has completed a series of acquisitions funded by debt in the last few years. A significant shortfall in sales and earnings could endanger its ability to stay within debt covenants.
High customer concentration in top customer (Proctor and Gamble – 17% of sales) and top 25 customers (49% of sales).