Multi-Color Corp. president Francis D. Gerace says he has finally let go of a dream.

Francis D. Gerace has seen his company's net earnings rise 94% through the first half of the year. (Tony Jones photo) | ZOOM |

        For the last couple of years, the small Cincinnati supplier of product labels for consumer giants such as Procter & Gamble Co. and Unilever has tried to interest Wall Street investment analysts in writing about the company with the goal of increasing its stock price and liquidity. But it's been in vain.

        “It used to be frustrating, but I've accepted the realities of the marketplace,” said Mr. Gerace, referring to the tendency of large investment firms to focus on big corporations and technology stocks at the expense of smaller manufacturers such as Multi-Color.

        “We just continue to focus on doing the right things for the business in terms of aggressively growing the top line (revenues), and focusing on reducing costs to generate above-average earnings,” said Mr. Gerace, CEO since 1999.

        So far, having no analyst coverage hasn't been a great loss to Mr. Gerace and his company.

        Despite the worldwide recession, which has sent the shares of larger companies reeling, Multi-Color's label business is flourishing.

        • Through the first half of this year, net earnings rose 94 percent to $2.6 million, or 95 cents a share, on a 26 percent gain in revenues to $39.1 million.

        Although the gain in third-quarter earnings won't be as high because of changes in seasonal selling trends and inventory adjustments by customers, Multi-Color — which operates five plants, including two in Greater Cincinnati — still expects earnings and revenues to grow by double-digit rates this year.

        • Over the last year Multi-Color's shares have tripled in value, closing on Friday at $16.55 a share. The stock had traded for years at around $5 a share.

        • Last month, the company split its stock for the first time, a 3-for-2 division that was designed to increase shareholder liquidity and signal the company's confidence in its future growth.

AT A GLANCE

• Business: Supplier of labels for makers of liquid detergents, household cleaners, drinks and health and beauty products. Customers include: Procter & Gamble Co., Unilever, Quaker Oats, Coca-Cola, Colgate-Palmolive and Dial.   • History: Started in Cincinnati as a printing press maker, the company began printing for other companies in 1918. In the early 1980s it introduced In-Mold Labels to the plastic bottle market and is today the leading supplier of that technology.   • Financials: Net income increased 94 percent to $2.6 million, or 95 cents a share, for the six months ended Sept. 30. Revenues increased 26 percent to $39.1 million.   • Employees: Nearly 400 in five plants including a Batavia pressure-sensitive label plant and Laser Graphic Systems, an Erlanger plant that produces gravure cylinders for Multi-Color and other printers.   • CEO: Francis Gerace.

        “What we're seeing is people are becoming aware of our track record,” said Mr. Gerace. “That's generating more interest in the investment community. We've seen lot of new investors take positions in Multi-Color.”

        One is LAR Management, a New York City firm that has about $50 million invested in smaller companies.

        George Nooney, an LAR portfolio manager, said, “They've kind of positioned themselves as a one-stop shop in a very fragmented market. That made a lot of sense to us."

        Lee Skierkiewicz, general partner of Prima Investment Group, a Kenwood hedge fund that has invested in Multi-Color since it went public in 1987, said the company's new management led by Mr. Gerace, “has the company running on all eight cylinders. They're enjoying terrific growth: 15 percent on the top line and 20 percent on the bottom line.”

        He expects the company to earn about $1.20 a share this fiscal year and between $1.40 and $1.45 a share next year.

        Despite a reputation as a leader in the in-mold label market — Multi-Color struggled for years to turn a profit until it closed its antiquated, cash-draining printing plant on Eastern Avenue and expanded its newer printing plant in Scottsburg, Ind., a few years ago.

        Under Mr. Gerace, a former operations vice president at Fort James Corp., Multi-Color has broadened its approach acquiring two plants specializing in pressure-sensitive labels, the most recent last month's purchase of Premiere Labels Inc., in Troy, Ohio, and the acquisition last year of a Las Vegas company specializing in the fast-growing heat-shrink label market.

        “We're virtually the only company in the United States that can offer consumer product companies a broad range of label applications — in-mold, pressure-sensitive and heat-shrink labels,” Mr. Gerace said.

        Pressure-sensitive labels are the largest single segment of the U.S. label market, presenting about $2 billion of the $9 billion sold. (The most common example of pressure-sensitive labels is books of U.S. postage stamps. When removed from a liner paper, the labels adhere to envelopes by pressure.)

        Heat-shrink labels, popular with a variety of drink manufacturers, are actually sleeves that slip over bottles and then shrunk to the bottle's contours by heat. It's roughly a $300 million to $400 million market.

        In-mold labels, which represented nearly all the company's revenues until a year ago, are placed in plastic injection molding machines and attached to bottles as they are formed. That's about a $100 million market, Mr. Gerace said.

Not just a printer

        There are more than 3,000 label printers in the United States. To set itself apart from the pack, Mr. Gerace said Multi-Color is positioning itself as a “decorating solutions provider” to customers, not just a label printer.

        “We don't favor one technology over another. We favor the technology that fits best for the customer,” he said.

        “Our objective is to grow our company at a double-digit rate year after year. We want to grow it with profitable business where ever it comes from.”

        The company is also focusing on reducing label costs for its customers.

        “Our job isn't just to provide quality labels that look good on their containers. It's also to continue to find ways to reduce their cost,” he said.

        To further that goal, the company recently named Phil Courtier, a Multi-Color account executive, to the new post of director of product leadership, reporting to Mr. Gerace.

        Mr. Courtier will be responsible for looking for new products and technologies that can reduce costs for Multi-Color's customers.

        For example, within the next couple of months, the company expects to introduce a substrate for its in-mold labels that will eliminate blistering and puckering of the labels in the molds. The new technology, which Multi-Color has been developing for more than a year, will increase production flows and reduce costs for bottle-makers, Mr. Gerace said.

Seeking specialties

        The company is also exploring other label-printing niches.

        “One that's very interesting is heat-transfer technology whereby the ink or image is transferred to a container by heat and pressure,” he said.

        That advantage is that it gives a container a no-label look and it costs less, Mr. Gerace said.

        Focusing on cost control not only helps customers, it has also fueled growth in Multi-Color's bottom line.

        “Our earnings for the last three years in a row have outpaced revenue growth and that's because of the strong operational focus we've had on reducing costs,” Mr. Gerace said.

        “Every plant and every department is required to come up with cost-reduction projects. We document the project and follow up every week and measure it to make sure we're meeting the objective. We've literally taken millions of dollars out of the cost of our business,” he said.

        Multi-Color is continuing to look for acquisitions to expand its production in pressure-sensitive labels and new technologies such as heat-transfer, and for now is focusing on North and South America.

        Multi-Color's goal is to grow revenues to the $400 million to $500 million range within the next five years.

        “There are tremendous opportunities in the Western Hemisphere. We don't have to go far to grow our business, and the opportunities here are less risky,” he said.

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