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Commentary & Analysis

FREE: Valassis Reports Steady Upward Revenue Trend: Summary of Q1 Earnings Call

Valassis (

By WhatTheyThink Staff
Published: April 28, 2004

Valassis (NYSE: VCI), today announced first quarter revenues of $237.4 million, a 15.8% increase over the same period last year. Earnings for the first quarter were $24.6 million or $0.47 per share. Earnings for the same period last year were $26 million or $0.50 per diluted share.

Topics of this summary:

  • Segment Performance
  • New America Market List
  • Guidance
  • Q & A

Segment Performance
Mass Products – Co-op free-standing insert revenues for the first quarter were flat at $127.4 million with a 1% gain in market share. ROP revenues were reported at $21.7 Million over 7.6 million year over year, far exceeding company expectations.

Cluster Targeted Products – Revenues in this segment increased 15.8% for the first quarter to $52.9 million. Growth in the segment is attributed to polybag advertising, customer product sampling and newspaper preprints. Every product in the cluster segment grew in both revenue and gross profit margin percentage. Strong growth was in the specialty retail and telecommunication categories.

1:1 Products -1:1 products was the only segment that did not meet or exceed Valassis’ revenue targets. Valassis reported revenue growth of 16.2% or $12.2 million for the first quarter.

International Services – Revenue in this segment was $23.2 million for the first quarter and the segment is on plan to reach it targeted goals. International Services also benefited from foreign exchange during the quarter. NCH is now consolidated into operations, has obtained new clients in the U.S. and has instituted new product research and testing.

News America
Valassis reported no change in News America’s pricing strategy. Valassis officials restated their belief that News America will experience significant earnings declines in the second half of 2004. News America is attempting a back door price increase by forcing clients to buy poor quality circulation that became effective February 2004. Valassis officials reported News America’s market list change has created significant client dissatisfaction that will benefit Valassis over time.

Valassis expects full year EPS in the range of $1.65- $1.85 with second quarter EPS between $0.44- $0.50.

Q & A

  1. Valassis is down one FSI date during the first quarter, but up one more custom co-op date for the same period.
  2. Even though the Easter was early this year, Valassis did not see business moving from the second quarter to the first quarter. The company does not think the second quarter will be as strong.
  3. Remnant pricing was down as much as two-thirds of normal price levels during the quarter.
  4. The company’s large accounts receivable position on its balance sheet is being driven by its ROP business. The ROP business is substantially larger than usual. The change in fee structure also impacted the A/R position. Days outstanding has been relatively stable, the mix has changed.
  5. Valassis’ approach to share buy-back will continue to be modest while at the same time buy back will accelerate as each quarter transpires. The large cash position allows the company increased flexibility with regard to share buy-back.
  6. Valassis is locked in on paper prices through 2004 and 2005 as 90% of its tonnage is committed. Current paper contracts in place include quarterly and yearly caps. Even if prices move up significantly, Valassis anticipates the worst-case scenario would be price increases in the range of 8-9%.
  7. The most common bundles with Valassis’ integrated solutions include FSI with cluster targeted products and often a household direct mail product.
  8. Capital expenditures were lower than expected in the quarter, however, Valassis is on target to spend $20 million in cap ex this year. Projects underway include, IT, data storage, additional servers, upgrading of sales organization tools for the field, and, a deposit on a Man Roland press.
  9. ROP margins are down for the first quarter, but not nearly as much as expected. Some first quarter revenue is from switching from fee-based contracts to margin based contracts as well as growing the ROP customer base. Officials stated a confidence in growing the ROP business and gaining new customers.
  10. NCH generated some product revenue with new product testing but overall it is operating at a loss. The loss in NCH is included in Valassis’ overall guidance.
  11. FSI market share is targeted at 46-48% for 2004 with most of the gain occurring in the second half of the year.
  12. From a grocery channel standpoint, the company has experienced an increase in spending with the conclusion of grocery store strike in California. The industry is interested in recovering customers and market share quickly and willing to spend marketing dollars to do so. From an in-store product perspective, there does not appear to be as much interest from customers as there once was.
  13. Valassis defended the economic trade-off of printing in-house vs. utilizing the excess capacity in the print industry. Two-thirds of the time, the company considers it advantageous to print in-house. In-house printing provides flexibility and the ability to save money. Specifically cited were less paper waste (5.5%-7% in-house vs. 9-11% off-site), overall use of less paper, more consistent print quality and a quicker cycle time.
  14. Excluding remnant pages, 60-65% of all pages that will run in 2005 are covered under a corporate contract. The spot market in 2005 is anticipated at 10%.



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