Valassis Q4 Profit Rises on Merger Savings
Friday, February 22, 2008
Press release from the issuing companyLIVONIA, Mich., Feb. 21 - Valassis today announced financial results for the fourth quarter and year ended Dec. 31, 2007. The Company reported quarterly revenues of $661.5 million, up 131.0% from the fourth quarter of 2006, due primarily to the acquisition of ADVO, Inc. (ADVO) that closed on March 2, 2007. Fourth quarter net earnings were $20.6 million, up 197.3% from $6.9 million in the fourth quarter of 2006. Fourth quarter earnings per share (EPS) was $0.43 up from $0.14 in the fourth quarter of 2006. Fourth quarter adjusted EBITDA* was $78.5 million, up 6.4% from pro forma adjusted EBITDA* for the fourth quarter of 2006. Full-year revenues were up 114.9% to $2,242.2 million. Full-year net earnings were $58.0 million, up 13.1% from 2006, resulting in full-year EPS of $1.21. For the full-year ended Dec. 31, 2007, adjusted EBITDA* was $252.8 million.
"Our exceptional performance in the second half of 2007 reflects the significant improvements we have made in the management of the shared mail business and the realization of cost synergies associated with the ADVO acquisition," said Alan F. Schultz, Valassis Chairman, President and CEO. "The value of blended media solutions including shared mail is compelling to our clients, and we are aggressively cross-selling to drive sustainable, profitable revenue growth which we expect to begin realizing in the back half of 2008."
Some additional integration and recent financial highlights include:
-- Cost Synergies: Our primary focus for 2007 was delivering cost synergies associated with the ADVO acquisition. Cost synergies totaled $26 million for the year, exceeding our original expectation of $18 million because they came in higher and faster than anticipated.
-- Business Optimization: We continue to make substantial improvements in the management of the shared mail (formerly ADVO) business. Our optimization initiative, designed to reduce over-supply and deliver more profitable packages, has increased the profitability of the shared mail business and contributed significantly to our third-and fourth-quarter performance for 2007. These efforts resulted in a 3.4% reduction of package distribution in the fourth quarter of 2007.
-- Debt Repayment: In February 2008, we made a fourth voluntary $25.0 million payment on the term loan B portion of our senior secured credit facility. In the 11 months since the closing of the ADVO acquisition, we have made $104.4 million in debt repayments, of which $100 million was voluntary.
-- Reduction of Capital Expenditures: Capital expenditures during 2007 were $38.3 million, consistent with our most recent guidance of $40 million or less.
-- Launch of RedPlum Consumer Brand: We launched our consumer brand, RedPlum, on Jan. 3, 2008 and as part of this consumer branding initiative, we also launched redplum.com. Our RedPlum media products unify our portfolio under a single consumer brand that resonates with our clients' target audience and is unique in our competitive space. In addition, we retired the ADVO name on Dec. 31, 2007 and are now unified under one business-to-business name, Valassis.
Management reiterates the financial guidance for 2008 as outlined in the Dec. 18, 2007 guidance release, expecting increased adjusted EBITDA* of between $260 and $280 million. We expect low-to mid-single digit revenue growth compared to the full-year 2007 pro forma revenue of $2,465.6 million, which includes January and February 2007 revenue from ADVO of $223.4 million. Revenue growth is expected to accelerate in the second half of 2008. In 2008, capital expenditures are expected to be $35 million, and we expect adjusted cash EPS* of between $2.14 and $2.39.
Cost synergies are expected to increase to $38 million in 2008. The calculation of cost synergies is based on the annualization of 2007 synergies to $34 million and $4 million in additional cost synergies expected to be realized in 2008.
Management believes cross-selling Valassis products and services to the acquired 13,000 shared mail clients, as well as selling shared mail to Valassis' existing 2,000 clients, should drive sustainable, profitable revenue growth starting in the second half of 2008. In order to facilitate cross- selling on a scalable basis; we completed the integration of our sales organization as of Dec. 4, 2007; we instituted a new sales compensation plan as of January 2008; we are developing a company-wide targeting system, which is on plan to be completed in the second quarter of 2008; and we are continuing to cross train the sales organization.
Business Segment Discussion
-- Shared Mail (formerly ADVO): Shared Mail revenues for the fourth quarter of 2007 were $382.9 million, flat compared to the fourth quarter of 2006. Consistent with the third quarter of 2007, these results were achieved despite the elimination of the Detached Address Label and a reduction in packages due to business optimization efforts which negatively affected revenue in this quarter by 3.2%. Revenue results in the fourth quarter were driven by improvement in the Wrap sell-through percentage, increased activity by a major national retailer and higher revenue per piece. Segment profit for the quarter was $34.8 million, up 63.4% from the fourth quarter of 2006. "Business optimization efforts, the reduction of fixed and variable costs, and reduced client credits and bad debt write-offs, all contributed to the improved segment profit," said Steve Mitzel, CFO, Shared Mail.
-- Neighborhood Targeted Products: Neighborhood Targeted revenues for the fourth quarter were $142.4 million, up 2.2% from the prior year quarter. Segment profit for the quarter was $16.1 million, up 10.3% from the fourth quarter of 2006. This growth was due to strong results in the telecommunications, financial and retail client verticals, in addition to growth from new clients. Full-year segment revenue was $480.5 million, up 11.2% from 2006. Full-year segment profit was $61.3 million, up 40.9% from 2006.
-- Market Delivered Free-standing Inserts (FSI): FSI revenues for the fourth quarter were $90.3 million, down 12.3% from the fourth quarter of 2006. These results were consistent with our expected reduction in pricing and an anticipated decline in industry pages in the fourth quarter due to a shift in the date schedule that favored the third quarter of 2007. Market share was up slightly during the quarter. Segment profit for the quarter was $1.2 million, down 91.8% from the fourth quarter of 2006. For the year, FSI revenues were $401.2 million, down 9.1% from 2006, due to an expected reduction in FSI pricing, slightly offset by an increase in market share. FSI unit costs were down slightly for the fourth quarter and full-year 2007. Full-year segment profit was $20.2 million, down 69.3% from 2006.
-- International & Services: International & Services revenues for the fourth quarter were $34.3 million, up 14.0% from the fourth quarter of 2006. This was a result of strong coupon clearing volumes in the United States and the United Kingdom and increased media activity in France and Germany. Segment profit for the quarter was $4.5 million, up 25.0% from the fourth quarter of 2006, before one-time charges of $7.6 million related to European restructuring. Full-year revenues for the segment were $119.4 million, up 7.2% from 2006. Segment profit for the year was $12.8 million, up 37.6% from 2006 before one-time charges.
-- Household Targeted: Household Targeted product revenues for the fourth quarter were $11.6 million, down 16.5% from the fourth quarter of 2006. Segment profit for the quarter was $0.3 million, down 50.0% from the fourth quarter of 2006. Full-year revenues for the segment were $45.7 million, down 22.4% from 2006, due to softness in direct mail volume and increased postal costs. The Household Targeted segment loss for 2007 was $1.3 million, after charges of $1.8 million related to our interactive initiative which was launched in January 2008.
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