Deluxe reports strong Q1
Friday, April 30, 2010
Press release from the issuing company
St. Paul, Minn. - Deluxe Corporation reported first quarter adjusted diluted earnings per share (EPS) from continuing operations of $0.73 compared to $0.56 in the prior year first quarter. Adjusted EPS from continuing operations for 2010 excludes the income tax impact of recent health care legislation and excludes the impact of discontinued operations. Adjusted EPS from continuing operations for 2009 excludes the impact of restructuring-related costs, asset impairment charges and gains on debt repurchases. Operating results were better than expected for the current period due primarily to favorable product mix and cost reduction and containment initiatives.
Reported diluted EPS was $0.65 on net income of $33.4 million in the first quarter 2010 and $0.24 on net income of $12.5 million in the comparable quarter of 2009. Results for 2010 include a charge to income tax expense of $3.4 million, or $0.07 per diluted share, due to the impact of recent health care legislation and a loss from discontinued operations of $0.4 million, or $0.01 per diluted share, associated with a previous business disposition. Results for 2009 included asset impairment charges of $24.9 million, restructuring-related costs of $2.4 million and net pre-tax gains of $9.3 million from debt repurchases.
"We are pleased to have delivered another strong quarter exceeding all our financial commitments," said Lee Schram, CEO of Deluxe. "Consolidated revenue was down only one percent while operating margins in each segment were stronger and we delivered better than expected operating cash flow. We also advanced several strategic areas since our last quarterly update including business services where we grew revenue by 33 percent over the prior year, acquiring Custom Direct, and closing on our new $200 million bank credit facility."
First Quarter Performance
Gross margin was 64.7 percent of revenue compared to 61.9 percent in 2009. Lower restructuring-related costs in 2010 benefited gross margin by 0.6 percentage points compared to the prior year. The impact of increased revenue per order and the Company's cost reduction initiatives were partially offset by increased delivery rates.
Selling, general and administrative (SG&A) expense decreased $10.4 million in the quarter compared to 2009. Benefits from cost reduction and containment initiatives were partially offset by costs resulting from our recent acquisitions. As a percent of revenue, SG&A decreased to 44.2 percent from 46.7 percent in 2009.
Operating income in 2010 was $69.0 million compared to $27.2 million in the first quarter of 2009. Operating income was 20.6 percent of revenue compared to 8.0 percent in the prior year. The asset impairment charges and restructuring-related costs reduced operating margin by 8.0 percentage points in 2009.
Reported diluted EPS increased $0.41 driven by higher operating income, partially offset by $9.3 million of net pre-tax gains on debt repurchases in 2009 and the $3.4 million charge to income tax expense in 2010 due to the impact of recent health care legislation.
First Quarter Performance by Business Segment
Financial Services revenue was $101.4 million compared to $102.0 million in 2009. The decline was primarily due to lower order volumes caused by check usage declines and a weak economy mostly offset by higher revenue per order. Operating income in 2010 increased to $24.0 million from $19.6 million in 2009.
Direct Checks revenue was $41.4 million compared to $44.2 million in 2009. First quarter order volume was down due to the continued decline in check usage and the weak economy. Operating income was $15.9 million, or 38.4 percent of revenue, compared to $14.2 million or 32.1 percent of revenue in 2009.
Cash Flow Performance
Adjusted diluted EPS from continuing operations is expected to be between $2.55 and $2.75 and excludes the first quarter $0.07 per share charge due to the impact of recent health care legislation and an estimated $0.03 per share for transaction-related costs. The Company also stated that it expects operating cash flow to be between $195 million and $215 million in 2010, including approximately $15 million from the operations of Custom Direct, and capital expenditures to be approximately $40 million.
"Our primary focus is on growing revenue and investing in our future with better products and services offers," Schram stated. "We are playing offense, making positive strategic moves to reposition the Company for sustainable longer-term growth. For the remainder of 2010, we remain focused on stabilizing check revenue, growing business services revenue, and continuing our cost reductions and process improvement initiatives."
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