Deluxe Reports 2Q Results; Remains On Track to Achieve 2001 Earnings Target
Friday, July 20, 2001
ST. PAUL, Minn., July 19 - Deluxe Corporation reported diluted second quarter net income today of $.63 per share, a 6.8 percent increase over the $.59 diluted per share from continuing operations in second quarter 2000. Second Quarter Performance Deluxe's second quarter 2001 net income was $44.3 million, or $.63 diluted per share, compared with income from continuing operations of $42.6 million, or $.59 diluted per share in 2000. Revenue was $317.8 million in the second quarter, compared to $322.3 million during the same quarter a year ago. The 1.4 percent decline in revenue was due to a decline in units of 2.7 percent, partially offset by an increase in revenue per unit of 1.3 percent. While revenue in the Financial Institution Checks (FI Checks) segment declined 5.8 percent, the Direct Checks and Business Forms segments recorded revenue growth of 4.6 percent and 9.3 percent, respectively. Gross margin was 64.6 percent of revenue for the quarter, compared to 65.0 percent in 2000. The decline was primarily the result of a decrease in FI Checks' revenue per unit due to continued pricing pressures. Selling, general and administrative expense (SG&A) decreased to 41.6 percent of revenue from 42.6 percent in 2000. The improvement in 2001 primarily reflects reduced corporate expenses. As a result, operating margin in the second quarter improved to 23.0 percent of revenue, compared to 22.4 percent of revenue in the year-earlier period. Six-month Performance Through six months, diluted earnings per share were up 4.3 percent. Deluxe's net income was $86.8 million, or $1.22 diluted per share in 2001, compared with net income from continuing operations of $84.7 million, or $1.17 diluted per share in 2000. Revenue was $633.6 million for the first half of the year, compared to $643.8 million for the same period a year ago. The 1.6 percent decline in revenue was due to a decline in units of 3.3 percent, partially offset by an increase in revenue per unit of 1.8 percent. For the first half of the year, FI Checks' revenue declined 7.6 percent and was partially offset by revenue growth of 9.7 percent in Direct Checks and 7.7 percent in Business Forms. Gross margin was 63.9 percent of revenue for the first six months of 2001, compared to 64.6 percent in 2000. The decline was the result of higher costs per unit in FI Checks due to higher delivery costs as well as the volume declines experienced by this business unit. Selling, general and administrative expense (SG&A) for the first half of 2001 decreased to 41.7 percent of revenue from 42.6 percent in 2000. The improvement primarily reflects reduced corporate expenses. As a result, operating margin improved to 22.2 percent of revenue in the first half of 2001, compared to 22.0 percent a year ago. 2001 Operating Plan On Track "We are very pleased with our second quarter results,'' said Lawrence J. Mosner, chairman and CEO of Deluxe Corporation. "All three of our business units performed well, and Direct Checks and Business Forms delivered both revenue and earnings growth.'' Mosner added, "We are executing our business plan and have delivered the results we expected through the first half of the year. "The softness in the economy has had no significant impact on our business thus far,'' said Mosner. "Assuming the economy doesn't worsen in the second half of the year, we expect to meet our third- and fourth-quarter targets.'' The Company indicated that both its third and fourth quarter diluted earnings per share are expected to be between $.65 and $.68 per share, and that full-year earnings per share are expected to range from $2.53 to $2.56, including the effect of year-to-date share repurchases. Share Repurchase Program On January 29, 2001, Deluxe announced that its board of directors had authorized a 14 million share repurchase program. Through July 18, 2001, approximately 5.4 million shares had been repurchased. Repurchase activity resulted in a $.03 increase in diluted earnings per share for both the second quarter and the first six months of 2001. Segment Reporting Deluxe has three operating segments: FI Checks, which sells checks and related products and services through financial institutions; Direct Checks, which sells checks and related products directly to consumers through direct mail and the Internet; and Business Forms, which sells checks, forms and related products to small businesses through financial institutions and directly to customers via direct mail and the Internet. FI Checks' revenue was down 5.8 percent to $193.2 million in the second quarter of 2001, compared to $205.2 million in 2000. Operating income declined 9.3 percent to $41.2 million from $45.4 million in 2000. The FI Checks business unit continues to realize the effects of pricing pressures. Direct Checks' revenue was up 4.6 percent to $75.0 million in the second quarter of 2001, compared to $71.7 million in 2000. Operating income was up 14.7 percent to $16.4 million, from $14.3 million in the second quarter of 2000. Contributing to these results were a price increase and a gain in units sold per order. Internet orders increased almost 80 percent. Business Forms' revenue was up 9.3 percent to $49.6 million in the second quarter of 2001, from $45.4 million in 2000. Operating income increased 22.2 percent to $15.4 million from $12.6 million in 2000. Increased revenue from the Business Referral Program, an initiative in which financial institutions refer their business check customers to Deluxe, contributed to Business Forms' strong performance.