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Valassis Announces Q2 Adjusted Net Earnings Increases by 30.6%

Friday, July 29, 2011

Press release from the issuing company

LIVONIA, Mich., Valassis today announced the following financial results for the second quarter ended June 30, 2011:

  • Adjusted diluted earnings per share (EPS)* was $0.67, an increase of 36.7% from $0.49 for the prior year quarter. Diluted EPS was $0.60, including loss on debt extinguishment and related charges, net of tax, of $0.07. Diluted EPS for second-quarter 2010 was $0.21, including the loss on debt extinguishment, net of tax, of $0.28.
  • Revenues were $565.2 million, a decrease of 2.5% compared to $580.0 million for the prior year quarter due to the previously announced anticipated shortfall in Run-of-Press (ROP) revenue within the Neighborhood Targeted segment.
  • Adjusted net earnings* were $33.7 million, an increase of 30.6% from $25.8 million for the prior year quarter. Net earnings were $30.3 million, including loss on debt extinguishment and related charges, net of tax, of $3.4 million. Net earnings for second-quarter 2010 were $11.1 million, including loss on debt extinguishment, net of tax, of $14.7 million.
  • Adjusted EBITDA* was $81.1 million, a decrease of 2.8% compared to $83.4 million for the prior year quarter driven primarily by the decline in revenue.
  • Diluted cash EPS* was $0.90, an increase of 7.1% compared to $0.84 for the prior year quarter.

"Our team delivered a strong net earnings and cash flow performance this quarter. The Shared Mail business continues to be a strong contributor," said Alan F. Schultz, Valassis Chairman, President and Chief Executive Officer. "Combined with our low-cost and flexible capital structure, we believe we are well positioned to continue to use our cash flow to create value for shareholders and invest in innovation."

Some additional highlights include:

  • Selling, General and Administrative (SG&A) Costs: Second-quarter 2011 SG&A costs were $80.8 million, which included $2.5 million in non-cash stock-based compensation expense, compared to second quarter 2010 SG&A costs of $92.7 million, which included $7.9 million in non-cash stock-based compensation expense.
  • Capital Expenditures: Capital expenditures for the second quarter and first half of 2011 were $6.6 million and $11.6 million respectively.
  • Liquidity: Total cash was $119.0 million at June 30, 2011, a decrease of $111.2 million from March 31, 2011, due primarily to a net debt repayment of $112.2 million and share repurchases of $60.3 million; offset, in part, by cash generated from operations of $73.1 million in the quarter.
  • Debt Refinancing and Interest Rate Hedging:
    • In June 2011, we refinanced our existing senior secured credit facility with a new senior secured credit facility. The new facility includes a $300 million Term Loan A and a $100 million revolving line of credit, of which $50 million was drawn at closing (exclusive of any outstanding letters of credit). The refinancing of our senior secured credit facility is expected to save us $2.4 million in cash interest expense in the second half of 2011 and provides increased flexibility in how we can deploy cash flow.
    • We have also entered into a new swap agreement (effective June 30, 2012, upon the expiration of our existing interest rate swap agreement) to fix the underlying interest rate for a portion of our variable rate debt under our new senior secured credit facility at 1.8695%. After giving effect to the swap agreement, our effective interest rate for the notional amount of the swap, based on the current spread of 1.75%, will be 3.62% per annum through June 30, 2015. The initial notional amount is $186,250,000 and amortizes quarterly through the expiration date.
  • Stock Repurchases: During the quarter, we repurchased $60.3 million, or 2.1 million shares, of our common stock at an average price of $28.14 per share, including commissions, under the stock repurchase program. Year to date, we have repurchased $105.9 million, or 3.8 million shares, of our common stock.


Outlook

Based on our overall outlook, which includes increased Shared Mail revenue growth in the second half of 2011, the aforementioned debt refinancing and cost containment efforts across the organization, our full-year 2011 guidance is as follows:

  • Diluted earnings per share (EPS) of $2.76;
  • Diluted cash EPS* of $3.71;
  • Adjusted EBITDA* of approximately $355.0 million; and
  • Capital expenditures of approximately $30 million.

Business Segment Discussion

Shared Mail: Revenues for the second quarter of 2011 were $337.2 million, an increase of 3.3% compared to the prior year quarter. Segment profit for the quarter was $47.7 million, an increase of 17.5% compared to the prior year quarter. The improvement in segment results was driven by the continuing trend of quarterly year-over-year growth in pieces per package. The increase in pieces per package was 2.0% to 9.8 pieces in second-quarter 2011 compared to the prior year quarter. Additionally, unused postage was a record-low of 13.8% for the quarter.

Neighborhood Targeted: Revenues for the second quarter of 2011 were $88.8 million, a decrease of 23.6% compared to the prior year quarter. Revenue results for this segment were primarily due to a $20.8 million decrease in ROP revenue. Segment profit for the quarter was $0.8 million, a decrease of 84.9% compared to the prior year quarter. Segment profit was negatively impacted by margin pressure associated with a changing client mix and the aforementioned ROP shortfall.

Free-standing Inserts (FSI): Revenues for the second quarter of 2011 were $89.2 million, a decrease of 5.7% compared to the prior year quarter due to volume declines associated with reduced market share. Segment profit for the quarter was $8.3 million, a decrease of 27.2% compared to the prior year quarter due to increased costs and the aforementioned revenue decline.

International, Digital Media & Services (IDMS): Revenues for the second quarter of 2011 were $50.0 million, an increase of 16.8% compared to the prior year quarter due to strong results in our coupon clearing business and triple-digit growth in our In-Store and Digital businesses. Segment profit for the quarter was $6.4 million, an increase of 106.5% compared to the prior year quarter despite increased investment in our digital business. Segment profit results were primarily driven by an increase in coupon redemption and its positive impact on NCH Marketing Services, Inc, our coupon clearing and analytics business.

 

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