Valassis cuts 2008 profit outlook after 3Q loss
Friday, November 07, 2008
Press release from the issuing companyLIVONIA, Mich., Nov. 6 -- Valassis today announced financial results for the third quarter ended Sept. 30, 2008. We reported quarterly revenue of $563.7 million, down 7.2% from $607.2 million for the prior year quarter due primarily to the challenging global macroeconomic environment and its impact on revenue across all of our business segments. We also reported a net loss of $5.2 million or $0.11 per share for the third quarter compared to net earnings of $16.4 million or $0.34 per share in the prior year quarter. For the third quarter of 2008, adjusted EBITDA* was $35.1 million, down from adjusted EBITDA* of $71.5 million for the prior year quarter.
"The unprecedented economic downturn had a significant effect on our third-quarter results," said Alan F. Schultz, Valassis Chairman, President and Chief Executive Officer. "In response, we have implemented a plan to best position ourselves in this uncertain environment which we anticipate will continue to adversely affect our clients' marketing budgets. We expect that our 2009 Profit Maximization Plan will significantly reduce costs, increase production efficiencies and focus on the greatest growth and profit opportunities for the future. In the face of these external challenges, we will continue to provide our clients with innovative, value-oriented media that consumers increasingly desire."
Some additional financial highlights include:
-- Increase in 2009 Cost Synergies: Total cost synergies resulting from the acquisition of ADVO, Inc., are on track to meet our 2008 target of $38 million. In addition, the Company increased its estimated 2009 cost synergies resulting from the acquisition of ADVO, Inc. to $49 million.
-- Reduction of SG&A: Third-quarter 2008 SG&A costs were $93.9 million including $1.8 million in legal costs related to the News America lawsuit, compared to the prior year quarter SG&A costs of $96.3 million. This 2.5% reduction was due to decreases in incentive-based compensation and discretionary spending.
-- Reduction of Capital Expenditures: Capital expenditures for the third quarter of 2008 were $3.7 million. We expect 2008 annual capital expenditures to be approximately $26 million, well below our annual 2008 guidance of $35 million.
-- Liquidity: In July 2008, we applied the net proceeds of $28.8 million from the sale and leaseback of the Company's Windsor facilities to the delayed draw and term loan portions of our Senior Secured Credit Facility as previously announced. In addition, the Company plans to use existing cash to repay the Secured Notes due in January 2009 and has no significant debt repayments scheduled until 2014.
The slowdown in the global economy has resulted in a combination of factors that have negatively affected our business including a significant decline in both retail sales and client marketing budgets. Based on current forecasts, we expect fourth quarter 2008 adjusted EBITDA* to be approximately $65.0 million before restructuring costs. Accordingly, we have revised our full-year 2008 adjusted EBITDA* estimate to be $219.3 million compared to our previously announced adjusted EBITDA* guidance of between $260 and $280 million. Second-half 2008 revenue is expected to be down approximately 6-7% versus the previously announced guidance of low- to mid-single digit revenue growth. Adjusted Cash EPS* for full-year 2008 is expected to be approximately $1.71 versus the previously announced guidance of between $2.14 and $2.39.
We cannot predict with certainty the extent or duration of the current economic conditions or its negative effect on our 2009 results. A continuation of these conditions makes definitive forecasting difficult. Nevertheless, we assume the current reduced level of activity that we have seen in the second half of 2008 will continue throughout 2009, resulting in a mid-single digit decline in revenue in the first half of 2009 and flat to slightly down revenue in the second half of 2009. Management noted that the Company's Profit Maximization Plan should result in a total cost savings of $50 to $60 million for 2009. These assumptions should yield a 2009 adjusted EBITDA* of approximately $215.0 million which would provide a comfortable covenant cushion throughout 2009.
"We are confident in our ability to successfully meet these cost-reduction goals and minimize capital spending," said Robert L. Recchia, Valassis Executive Vice President and Chief Financial Officer. "While we cannot control the uncertain state of the economy and its impact on our clients and consumer spending, our focus is on what is within our control."
Business Segment Discussion
-- Shared Mail: Revenue for the third quarter of 2008 was $327.0 million, down 5.7% compared to the prior year. Segment profit for the quarter was $13.2 million versus $23.7 million from the prior year quarter. The revenue decline was driven by cancellations, order reductions and a shift in wrap volume toward lower paying client verticals.
-- Neighborhood Targeted Products: Revenue for the third quarter of 2008 was $107.0 million, down 8.9% compared to the prior year quarter. Segment profit for the quarter was $5.0 million compared to $19.8 million for the prior year quarter. Segment profit declines for the quarter were due primarily to a reduction in newspaper preprints and its effect on plant cost absorption, increased SG&A expenses in the segment allocations and a shift in customer mix to lower margin Run of Press customers.
-- Market Delivered Free-standing Inserts (FSI): FSI revenue for the third quarter of 2008 was $91.4 million, down 10.9% compared to the prior year quarter, due to the anticipated reduction in FSI pricing and lower page volumes. The co-op FSI industry experienced a unit decline of 5.2% for the quarter. Management noted Valassis expects a low single-digit page growth in the fourth quarter. FSI cost of goods sold was up for the quarter on a cost per thousand (CPM) basis as a result of higher paper prices. Segment profit for the quarter was $0.2 million compared to $3.7 million for the prior year quarter.
-- International, Digital Media & Services: Revenue for the quarter was $38.3 million, down 5.7% compared to the prior year quarter due primarily to the sale of the French business. This segment experienced a loss of $4.0 million, $3.5 million of which came from new business initiatives.
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