10-Q: Ennis Q3 Earnings Rise on Acquisitions, Margins Improve

Ennis, Inc. reported increased net earnings for Q3 2025, driven by strategic acquisitions and improved gross profit margins, despite a decline in organic sales volume.

Summary

• Net earnings for the three months ended November 30, 2025, increased to $10.8 million ($0.42 diluted EPS) from $10.2 million ($0.39 diluted EPS) in the prior year.
• Net earnings for the nine months ended November 30, 2025, rose to $33.8 million ($1.31 diluted EPS) from $31.2 million ($1.19 diluted EPS) in the prior year.
• Net sales for the three months increased slightly by 0.4% to $100.2 million, with a $5.4 million organic sales volume decrease offset by $5.8 million from acquisitions.
• Net sales for the nine months decreased by 2.0% to $296.0 million, with a $22.3 million organic sales volume decrease partially offset by $16.4 million from acquisitions.
• Gross profit margin improved to 31.9% for the three months (from 29.3%) and 31.2% for the nine months (from 29.8%), reflecting operational efficiencies and acquisition contributions.
• Operating income increased to $15.0 million (15.0% of net sales) for the three months and $40.6 million (13.7% of net sales) for the nine months.
• Other income for the nine months included $5.3 million from a legal settlement.
• Cash and cash equivalents decreased to $31.3 million at November 30, 2025, from $67.0 million at February 28, 2025, primarily due to acquisitions and stock repurchases.
• Working capital decreased by $21.9 million to $97.6 million.
• Acquired CFC Print & Mail for $3.9 million and Northeastern Envelope Company and Envelope Superstore for $35.0 million during the nine-month period.
• Repurchased 793,556 shares of common stock for $14.5 million during the nine months.
• Declared a quarterly cash dividend of $0.25 per share payable February 5, 2026.

Sentiment

Score: 7

Explanation: Despite a challenging industry environment and a decline in organic sales, the company demonstrated strong financial performance with increased net earnings and improved gross profit margins, largely driven by successful strategic acquisitions and operational efficiencies. The significant cash outflow for acquisitions and stock repurchases, while reducing cash on hand, reflects active capital deployment. The legal settlement also provided a notable boost.

Positives

• Net earnings increased for both the three-month ($10.8 million vs $10.2 million) and nine-month ($33.8 million vs $31.2 million) periods year-over-year.
• Diluted EPS increased to $0.42 for the quarter (from $0.39) and $1.31 for the nine months (from $1.19).
• Gross profit margin improved significantly to 31.9% for the quarter (from 29.3%) and 31.2% for the nine months (from 29.8%), driven by operational efficiencies and acquisition contributions.
• Strategic acquisitions (CFC Print & Mail for $3.9 million, Northeastern Envelope Company and Envelope Superstore for $35.0 million) contributed over $5.8 million in incremental revenue for the quarter and $16.4 million for the nine months.
• A successful legal settlement resulted in $5.3 million in proceeds during the nine-month period.
• Maintained a strong current ratio of 3.8 to 1.0 at November 30, 2025.
• No required contribution to the pension plan for fiscal year 2026.
• Management believes current cash and anticipated operating cash flows are sufficient to meet operating and capital requirements for the next twelve months.

Negatives

• Organic sales volume decreased by $5.4 million for the three months and $22.3 million for the nine months due to weaker customer demand and ongoing industry-wide pressure in the U.S. printing market.
• Overall net sales for the nine months decreased by 2.0% year-over-year.
• Cash and cash equivalents significantly decreased by $35.7 million during the nine months, from $67.0 million to $31.3 million.
• Working capital decreased by $21.9 million (18.3%) from February 28, 2025, to November 30, 2025.
• Interest income decreased significantly for both periods due to lower average cash, cash equivalent, and investment balances.
• Increased Selling, General, and Administrative (SG&A) expenses for both periods, primarily due to higher incentive compensation and other operating costs.
• Cash used in investing activities increased substantially to $36.7 million for the nine months (from cash provided of $7.9 million in prior year) due to business acquisitions.
• Increased inventory levels due to strategic stockpiling of carbonless paper in anticipation of supply disruptions and price volatility.

Risks

• General economic, business, and labor conditions, including potential recessionary concerns, inflationary issues, U.S. import tariffs, and supply chain disruptions.
• Ability to implement strategic initiatives and control operational costs.
• Dependence on a limited number of key suppliers, particularly for paper products.
• Ability to recover rising costs of raw materials and other costs (energy, freight, labor, benefits) in a highly price-competitive and volatile market.
• Uninsured losses from natural disasters, catastrophes, pandemics, theft, or sabotage.
• Impact of future pandemics on business operations, workforce, supply chain, and customer base.
• Ability to timely or adequately respond to technological changes in the industry.
• Cybersecurity risks and the impact of the internet and other electronic media on the demand for forms and printed materials.
• Impact of foreign competition, tariffs, trade regulations, and import restrictions.
• Customer credit risk and competitors' pricing strategies.
• A decline in business volume and profitability could result in an impairment in reported goodwill.
• Ability to retain key management personnel.
• Ability to identify, manage, or integrate acquisitions.
• Industry consolidation of traditional supply channels, ongoing product obsolescence, and paper supplier capacity adjustments.
• Increased pricing and potential supply allocations resulting from demand and supply imbalance in the paper industry.
• Transformation of the product portfolio due to digital technologies replacing traditional documents, requiring ongoing investments and strategic relationships.
• Production capacity and price competition within the industry, with fluctuating paper supply and pressure on margins.
• Continued consolidation of customers (distributors) could ultimately affect sales volumes and margins.
• Fluctuations in market values of pension plan assets could impact funding status and future required contributions.
• Cash balances included $30.8 million not federally insured at November 30, 2025, posing a concentration of credit risk.

Future Outlook

Management expects operating cash flows to be consistent with prior periods and anticipates reduced purchasing needs over the next several quarters due to recent strategic stockpiling of carbonless paper inventory. Cash on hand, combined with anticipated cash flows from operations, is expected to be sufficient to meet operating and capital requirements for the next twelve months. Capital expenditures for operational maintenance are projected to range between $4.0 million and $7.0 million over the next twelve months, consistent with historical levels. The company is not required to make a contribution to its pension plan for fiscal year 2026.

Management Comments

• "We continue to implement cost management and pricing initiatives to help offset the impact of ongoing market softness and competitive pricing pressures."
• "We continue to evaluate opportunities to reduce and better leverage our fixed cost structure while focusing on maintaining our margins."
• "We believe our strategic locations and buying power permit us to compete on a favorable basis within the distributor market on factors such as service, quality and price."
• "We believe our inventory levels are sufficient to satisfy customer demand, and we expect to maintain adequate access to raw materials to support future business requirements."
• "In anticipation of this disruption [carbonless paper supply], we made a strategic decision to increase inventory levels to mitigate the risk of shortages and ensure continuity of supply."

Industry Context

The printing industry is experiencing significant challenges, including consolidation of traditional supply channels, ongoing product obsolescence due to digital technologies, and paper supplier capacity adjustments leading to increased pricing and potential supply allocations. Ennis, Inc. operates in a highly competitive and over-supplied market, facing pressure from both traditional and new competitors leveraging improved equipment and digital solutions. The company is actively responding by transforming its product portfolio, investing in new technology, pursuing strategic acquisitions to expand offerings (e.g., envelopes, tags, folders, direct mail), and managing costs to maintain margins amidst market softness. The closure of the sole U.S. mill producing carbonless paper highlights the supply chain volatility impacting the industry.

Comparison to Industry Standards

• Management believes Ennis 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, distinguishing itself from end-user focused competitors like R.R. Donnelley and Taylor Corporation.
• The company's strategic locations and buying power are cited as competitive advantages within the distributor market, allowing it to compete favorably on service, quality, and price.

Legal Proceedings

• The company was awarded actual damages, exemplary damages, and attorney's fees in a case against Wright Printing Company, its owner Mark Wright, and CEO Mardra Sikora, resulting in $5.7 million in cash proceeds from the settlement during the nine months ended November 30, 2025.
• Ennis and a subsidiary are defendants in a lawsuit in Arizona concerning the lease of the former B&D Litho facility, which was closed in 2019. The court made a preliminary ruling that defendants failed to maintain certain facility components. A liability reserve of approximately $0.4 million has been accrued, and the case is expected to be tried in the first calendar quarter of 2026.

Related Party Transactions

• The company leases a facility and sells products to entities controlled by a member of the Board.
• As of November 30, 2025, the total right-of-use asset and related lease liability for this transaction was $1.4 million.
• During the three months ended November 30, 2025, total lease payments and product sales to these entities were approximately $0.1 million and $0.7 million, respectively.
• During the nine months ended November 30, 2025, total lease payments and product sales to these entities were approximately $0.4 million and $2.8 million, respectively.
• Accounts receivable balances from these entities were $0.1 million as of November 30, 2025, and February 28, 2025.

Stakeholder Impact

• Shareholders: Benefited from increased net earnings and diluted EPS, continued quarterly cash dividends ($0.25 per share), and ongoing share repurchase program (793,556 shares repurchased for $14.5 million during the nine months). However, cash balances decreased significantly.
• Employees: Pension plan covers approximately 12% of aggregate employees, with no required contribution for fiscal year 2026. Stock-based compensation is granted to key executives and managerial employees.
• Customers: Acquisitions aim to strengthen production capabilities and diversify product offerings to better serve customers in various regions (e.g., Northeast, Southeast U.S.). The company continues to provide custom and semi-custom printed products through independent distributors.
• Suppliers: Strategic decision to increase inventory levels of carbonless paper to mitigate supply risk and ensure continuity, impacting purchasing needs. Dependence on a limited number of key paper suppliers.
• Creditors: Strong current ratio of 3.8 to 1.0 indicates good short-term liquidity. No outstanding debt at November 30, 2025, under its credit facility, only $0.2 million under a standby letter of credit.

Next Steps

• Continue evaluating new market opportunities and niches through acquisitions.
• Make capital expenditures for operational maintenance and additional equipment (expected $4.0 million to $7.0 million over the next twelve months).
• Trial for the B&D Litho facility lease lawsuit expected during the first calendar quarter of 2026.
• Payment of quarterly cash dividend of $0.25 per share on February 5, 2026.
• Evaluate the impacts of ASU 2025-05 on Consolidated Financial Statements (effective fiscal year ending February 28, 2027).
• Adopt ASU 2023-09 for annual periods beginning after December 15, 2024 (fiscal 2026), resulting in additional income tax disclosures.
• Adopt ASU 2024-03 for annual reporting periods beginning after December 15, 2026 (fiscal year 2028), resulting in disaggregation of income statement expenses in notes.

Key Dates

Recommendation

While Ennis, Inc. demonstrated improved net earnings and gross profit margins, largely due to strategic acquisitions and a one-time legal settlement, the underlying organic sales volume continues to decline, reflecting ongoing industry pressures. The significant reduction in cash and working capital due to acquisitions and share repurchases warrants careful monitoring of liquidity and future growth drivers. The company's ability to integrate acquisitions and navigate a transforming industry will be key. Given the mixed signals of strong acquisition-driven growth and margin improvement against persistent organic sales weakness and cash burn, a "hold" recommendation is appropriate for investors to observe the sustainability of these trends and the effectiveness of strategic initiatives.

Keywords

Printing services, Business forms, Envelopes, Labels, Tags, Acquisitions, Financial results, SEC filing, 10-Q, Quarterly report, Manufacturing, Distributor network, Paper products, Corporate governance, Share repurchase, Dividends, Supply chain, Digital printing, Risk management