Deluxe reports increased Q4 revenue
Friday, January 28, 2011
Press release from the issuing company
St. Paul, Minn. - Deluxe Corporation reported fourth quarter revenue of $351.5 million, up 3% compared to the prior year, and adjusted diluted earnings per share (EPS) of $0.78 compared to $0.70 in the prior year. Adjusted diluted EPS for both periods excludes restructuring costs related to our cost reduction initiatives. Adjusted diluted EPS for 2009 also excludes the impact of transaction-related costs associated with acquisitions. Earnings were better than the previous outlook for the current period due primarily to favorable product mix, cost reduction and spending controls and a lower effective tax rate.
Reported diluted EPS was $0.68 on net income of $34.8 million in the fourth quarter of 2010 and was $0.59 on net income of $30.5 million in the comparable quarter of 2009. Results for 2010 include restructuring-related costs of $7.8 million, or $0.10 per diluted share, associated with infrastructure consolidations, operational improvements in sales, marketing and fulfillment, and other cost reduction initiatives. Results for 2009 included restructuring and transaction-related costs of $8.7 million, or $0.11 per diluted share.
"We are pleased to finish the year by delivering another solid quarter," said Lee Schram, CEO of Deluxe. "With strong performance in all three segments, we reported revenue near the high end of our expectations. Business services revenue grew 17 percent over last year, while checks and forms performed well against our expectations. All this, combined with continued strong execution against our cost reduction program and spending controls drove higher than expected earnings per share."
Fourth Quarter Performance
Revenue for the quarter was $351.5 million compared to $340.3 million during the fourth quarter of 2009. Small Business Services segment revenue of $204.2 million was $1.8 million lower than the comparable 2009 quarter as growth in business services, the Safeguard distributor channel and the Canadian businesses nearly off-set the decline in check and form usage. Financial Services revenue was $6.9 million lower than the fourth quarter of 2009 driven by lower order volume. Direct Checks revenue increased $19.9 million due to $21.5 million of revenue from the April 2010 acquisition of Custom Direct, Inc. Excluding the effect of Custom Direct products, Direct Checks would have been down only 4 percent due to strong customer re-order performance.
Gross margin was 64.0 percent of revenue compared to 62.8 percent in 2009. The favorable impact of the Company's cost reduction initiatives was partially offset by increased material costs and delivery rates.
Selling, general and administrative (SG&A) expense increased $5.5 million in the quarter compared to 2009. Increased SG&A expense associated with the Custom Direct acquisition and our brand awareness and direct response advertising campaigns were partially offset by benefits from the continued execution of our cost reduction initiatives.
Operating income in 2010 was $60.9 million compared to $55.8 million in the fourth quarter of 2009. Operating income was 17.3 percent of revenue compared to 16.4 percent in the prior year driven primarily by benefits from our cost reduction initiatives.
Reported diluted EPS increased $0.09 from the prior year driven by the higher operating income and a lower effective tax rate.
Fourth Quarter Performance by Business Segment
Small Business Services revenue was $204.2 million versus $206.0 million in 2009. Revenue was lower in the quarter as growth in business services, the Safeguard distribution channel and the Canadian businesses did not fully offset volume declines in checks and forms. Operating income in 2010 increased to $32.7 million from $23.6 million in 2009. Restructuring and transaction-related costs were $4.2 million lower than in 2009.
Financial Services revenue was $88.0 million compared to $94.9 million in 2009. The decrease was primarily due to lower order volumes caused by check usage declines, partly offset by growth from non-check services. Operating income in 2010 decreased to $13.0 million from $17.8 million in 2009. Restructuring-related costs were $2.7 million higher than in 2009.
Direct Checks revenue was $59.3 million compared to $39.4 million in 2009. The Custom Direct acquisition in April contributed $21.5 million in the quarter which was partly offset by lower order volume resulting from the continued decline in check usage. Operating income in 2010 was $15.2 million, compared to $14.4 million in 2009. Restructuring-related costs were $0.6 million higher than in 2009.
Cash Flow Performance
Cash provided by operating activities for 2010 totaled $212.6 million, an increase of $6.2 million compared to 2009. The increase was due primarily to improved earnings and a contract settlement received during the third quarter, partially offset by higher performance-based compensation payments in the first quarter and higher income tax payments.
The Company stated that for the first quarter of 2011, revenue is expected to be between $342 and $350 million. Diluted EPS is expected to be between $0.68 and $0.73. For the full year, revenue is expected to be between $1.375 and $1.415 billion, and diluted EPS is expected to be between $2.85 and $3.10, which includes benefits from an incremental $65 million in cost reductions, net of investment. The Company also stated that it expects operating cash flow to be between $205 million and $225 million in 2011. Capital expenditures are expected to be approximately $35 million.
"We have made tremendous progress in transforming Deluxe and still have many opportunities ahead of us in 2011," Schram stated. "We believe we are entering the new year well positioned to grow revenue through clear alignment on our strategic direction, focus on our customers, diversity in our channels, and the extensive depth and breadth of our product and services offerings. If the economy improves, we should have further upward opportunity in our Small Business Services revenue."
The Board of Directors of Deluxe Corporation declared a regular quarterly dividend of $0.25 per share on all outstanding shares of the Company. The dividend will be payable on March 7, 2011 to shareholders of record at the close of business on February 21, 2011. The Company had 51,360,017 shares outstanding as of January 24, 2011.
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