Cost reductions edges Deluxe Q4 Financials upward
Friday, January 29, 2010
Press release from the issuing company
St. Paul, Minn.- Deluxe Corporation reported fourth quarter adjusted diluted earnings per share (EPS) from continuing operations of $0.70 compared to $0.68 in the prior year fourth quarter. Adjusted EPS for both periods excludes the impact of restructuring-related costs, and for 2009, also excludes the impact of transaction-related costs associated with recent acquisitions. Adjusted EPS for 2008 also excludes an asset impairment charge. Operating results were better than expected for the current period due to favorable shifts in product mix and cost reduction and containment initiatives.
Reported diluted EPS was $0.59 on net income of $30.5 million in the fourth quarter 2009 and $0.54 on net income of $27.9 million in the comparable quarter of 2008. The 2009 period included restructuring and related costs of $7.3 million associated with the planned closure of a call center, further consolidation in the sales and marketing organization and other cost reduction initiatives, and $1.4 million of transaction-related expenses. Results for 2008 included restructuring and related costs and asset impairment charges of $6.5 million and a diluted loss per share from discontinued operations of $0.05.
"We delivered a very strong quarter despite continued challenges in the economic environment," said Lee Schram, CEO of Deluxe. "Although revenue from holiday-related products was below our expectation, revenue from checks and forms was particularly strong later in the quarter helping us deliver the top end of our revenue outlook while driving strong cash flow and EPS growth. On the strategic front, we made solid progress during the quarter integrating our recent acquisitions and we signed a new, exclusive revenue sharing agreement with BancVue which brings new deposit products to our financial institution customers."
Fourth Quarter Performance
Revenue for the quarter was $340.3 million compared to $364.9 million during the fourth quarter of 2008. Small Business Services revenue was $12.7 million lower than the comparable 2008 quarter driven primarily by continued economic softness. Financial Services revenue was down $7.4 million from the 2008 quarter and Direct Checks revenue decreased $4.5 million, both due to lower order volumes.
Gross margin was 62.8 percent of revenue compared to 62.6 percent in 2008. The benefit of our cost reduction initiatives was partially offset by increased performance-based compensation expense and material and delivery rates.
Selling, general and administrative (SG&A) expense decreased $12.2 million in the quarter compared to 2008. Increased performance-based compensation expense was more than offset by benefits from cost reduction and containment initiatives. As a percent of revenue, SG&A decreased to 44.8 percent from 45.1 percent in 2008.
Operating income was $55.8 million compared to $60.4 million in the fourth quarter of 2008 as a result of the factors previously discussed, as well as increased restructuring and transaction-related costs in 2009. Operating income was 16.4 percent of revenue compared to 16.6 percent in the prior year.
Reported diluted EPS from continuing operations decreased $0.01 as lower operating income was partially offset by reduced interest expense and a lower effective tax rate than in 2008 due to non-recurring benefits.
Fourth Quarter Performance by Business Segment
Small Business Services revenue was $206.0 million versus $218.7 million in 2008. The decline was due to soft economic conditions, primarily in the sales of holiday products, checks and forms. These reductions were partially offset by revenue contributions from acquisitions and a $2.2 million benefit from the effect of Canadian exchange rate changes. Operating income in 2009 decreased to $23.6 million from $27.1 million in 2008. Restructuring and transaction-related costs and asset impairment charges were $4.1 million higher in 2009.
Financial Services revenue was $94.9 million compared to $102.3 million in 2008. The decline was primarily due to lower order volumes caused by check usage declines and a weak economy. The benefit of price increases implemented in the third quarter of 2009 more than offset the impact of continued pricing pressure. Operating income in 2009 decreased to $17.8 million from $20.6 million in 2008.
Direct Checks revenue was $39.4 million compared to $43.9 million in 2008. Fourth quarter order volume was down due to the continued decline in check usage and a weak economy which is negatively impacting consumer check writing and our ability to sell additional products and services. Operating income was $14.4 million, or 36.5 percent of revenue, compared to $12.7 million or 28.9 percent of revenue in 2008. Restructuring-related costs were $1.3 million lower in 2009 than in 2008.
Total Year Cash Flow Performance
Cash provided by operating activities for 2009 totaled $206.4 million, an increase of $7.9 million compared to 2008. Higher contract acquisition and severance payments were more than offset by significantly lower performance-based compensation and interest payments.
The Company stated that for the first quarter of 2010, revenue is expected to be between $320 and $335 million, and adjusted and diluted EPS are both expected to be between $0.57 and $0.64. For the full year, revenue is expected to be between $1.275 and $1.335 billion with the upper end reflecting only a cautious small improvement in the economy, and adjusted and diluted EPS is expected to be between $2.35 and $2.65. The Company also stated that it expects operating cash flow to be between $180 million and $200 million in 2010 and capital expenditures to be approximately $40 million.
"As we enter 2010, our portfolio is becoming better positioned to deliver sustainable future revenue growth as hopefully the broader economy recovers," Schram stated. "This is driven by a new national financial institution check win and other opportunities, exciting new deposit product offerings, enhanced internet capabilities, and our new business services offers. We will not take our eyes off of cost reductions and process improvements, but our primary focus is shifting to revenue growth."
The Board of Directors of Deluxe Corporation declared a regular quarterly dividend of 25 cents per share on all outstanding shares of the Company. The dividend will be payable on March 1, 2010 to shareholders of record at the close of business on February 15, 2010. The Company had 51,189,452 shares outstanding as of January 25, 2010.
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