Valassis increases net earnings in Q3
Friday, October 30, 2009
Press release from the issuing company
LIVONIA, Mich. -- Valassis today announced financial results for the third quarter ended Sept. 30, 2009. We reported quarterly revenue of $544.1 million, a decrease of 3.5% from $563.7 million for the prior year quarter. The quarterly revenue decline would have been 2.8% excluding revenue of $3.8 million from divested and discontinued businesses in the prior year quarter. Third-quarter net earnings was $13.8 million compared to a loss of $5.2 million for the prior year quarter. Earnings per share (EPS) for the quarter was $0.28 compared to a loss of $0.11 for the prior year quarter. Net earnings for the quarter includes non-cash interest expense of $2.8 million ($1.7 million net of taxes), or $0.04 per share, related to the fair value of the interest rate swap contracts. For the third quarter of 2009, adjusted EBITDA* was $63.9 million, an increase of 82.0% compared to $35.1 million for the prior year quarter.
"We continue to outperform most media companies and are beginning to see signs of revenue stability," said Alan F. Schultz, Valassis Chairman, President and Chief Executive Officer. "Evidenced by a growing body of research, there is a permanent change in the mindset of today's shopper. We believe this deal-seeking lifestyle is a long-term phenomenon which favors our value-oriented media."
Some additional highlights include:
-- Cost Management: Our cost management plan continues to be on track for 2009. Third-quarter 2009 selling, general and administrative (SG&A) costs were $90.7 million, which includes $2.5 million (an $0.8 million increase) in legal costs related to the News America lawsuits and a $3.9 million increase in incentive-based compensation, including option
expense, compared to prior year quarter SG&A costs of $93.9 million.
-- Capital Expenditures: Capital expenditures for the third quarter of 2009 were $4.9 million, and we expect full-year 2009 expenditures of
approximately $20 million.
-- Liquidity: Third-quarter 2009 cash flows from operating activities was $14.0 million with a decrease in debt of $40.9 million. Year to date,
we have paid down $150.1 million in debt. As of Sept. 30, 2009, our net
debt position was $941.6 million. During the quarter, we completed four
"modified Dutch" auctions in which we repurchased and retired $39.3
million of our outstanding term loan B and delayed draw term loans under
our senior secured credit facility at an average discount of 2.6% to par
resulting in an after-tax net gain of $0.4 million.
-- Interest Expense: Cash interest expense for the quarter was $19.3
million compared to $23.0 million for the prior year quarter, a decrease
of 16.1%. Total interest expense for the third quarter decreased by $0.8
million from the prior year quarter and includes $2.8 million of non-cash interest expense related to the fair value of the interest rate swap contracts.
-- News America Lawsuits: As announced on July 23, 2009, a Wayne County Circuit Court jury awarded Valassis $300 million for compensatory
damages in the first of three lawsuits against News America Incorporated
("News America"). This award accumulates interest on a compounding
basis beginning March 9, 2007. Our Federal trial against News America is
scheduled for Feb. 2, 2010 in the U.S. District Court, Eastern District
-- Settlement of (ADVO) Shareholder Lawsuit: On Oct. 28, 2009, the parties to the securities class action Kelleher v. ADVO, Inc. et al. entered
into an agreement providing for the settlement of the action and filed
papers seeking preliminary approval of the settlement agreement in the
U.S. District Court for the District of Connecticut. The settlement is
subject to approval by the court, and the settlement amount of $12.5
million will be paid from the proceeds of ADVO's directors and officers'
insurance policy, with no adverse impact to our financial statements.
The complaint alleged that certain former ADVO executives, who left the
company at the time of the ADVO merger, made false and misleading
statements concerning ADVO's business and financial results in connection with the proposed merger with Valassis.
Given our current outlook and assuming no increased volatility in marketers' ad spend, we are increasing full-year 2009 adjusted EBITDA* guidance to be between $255 million and $265 million from $245 million. We expect to provide full-year 2010 guidance in December 2009.
"We are once again raising guidance as our employees' continued cost management and optimization efforts have exceeded our expectations," said Robert L. Recchia, Valassis Executive Vice President and Chief Financial Officer. "As we begin to see signs of revenue stabilizing, we believe that our cost structure positions us well for earnings growth as we enter 2010."
Business Segment Discussion
-- Shared Mail: Revenue for the third quarter of 2009 was $319.5 million, down 2.3% compared to the prior year quarter primarily resulting from a reduction in unprofitable packages. Segment profit for the quarter was $29.6 million, up 124.2% compared to the prior year quarter due to
effective cost management, including package optimization efforts,
newspaper alliances and SG&A reductions.
-- Neighborhood Targeted Products: Revenue for the third quarter of 2009 was $92.0 million, down 14.0% compared to the prior year quarter revenue of $107.0 million. Preprints revenue remained strong and was up for the quarter as a result of our cross-selling efforts. Run-of-Press revenue was down related to reduced client ad spend within the wireless and financial verticals. Revenue in Sampling was down due to its cyclical
nature. Segment profit for the quarter was $3.9 million, down 22.0%
compared to $5.0 million for the prior year quarter. The decline in
segment profit for the quarter was due primarily to the decline in revenue.
-- Free-standing Inserts (FSI): Revenue for the third quarter of 2009 was $92.6 million, up 1.3% compared to the prior year quarter. This was due to an industry unit volume increase of approximately 3.4% as the FSI
continues to be an important medium for marketers who need to reach
deal-seeking consumers. Segment profit for the quarter was $2.3
million, compared to $0.2 million in the prior year quarter due to
increased unit volume and reduced costs. Management noted that our
profit improvement in the FSI segment is primarily due to our cost
management efforts. At the same time, the FSI business remains
dramatically depressed from historical levels due to the unfair tying,
bundling and leveraging of in-store products into FSI negotiations by
our competitor, News America, as the jury unanimously found in our
recent lawsuit against News America.
-- International, Digital Media & Services: Revenue for the third quarter was $40.0 million, up 4.4% compared to the prior year quarter.
Excluding revenue from previously announced divested and discontinued
operations of $3.8 million and a $0.9 million impact of currency
fluctuations, revenue was up 18.6% compared to the prior year quarter.
Segment profit for the quarter was $6.9 million compared to a loss of
$4.0 million in the prior year quarter due primarily to the increase in
U.S. coupon clearing volume and the discontinuance of underperforming
businesses. According to NCH Marketing Services, Inc. (our coupon-processing and analytics subsidiary), year-to-date reports show
consumer packaged goods coupon distribution up 11% and coupon redemption up 23% compared to the same period last year.