Valassis today announced financial results for the first quarter ended March 31, 2012. First-quarter 2012 revenues were $518.6 million, a decrease of 5.2% from $547.0 million in the prior year quarter. This decrease in revenues was due primarily to reduced spending by consumer packaged goods (CPG) clients across our various business segments and the absence of custom co-op programs within our Free-standing Inserts (FSI) segment.
First-quarter 2012 net earnings were $26.4 million, an increase of 23.4% from $21.4 million in the prior year quarter, which included a loss on extinguishment of debt, net of tax, of $8.2 million. Excluding this charge, first-quarter 2011 adjusted net earnings* were $29.6 million. First-quarter 2012 diluted earnings per share (EPS) was $0.60, an increase of 46.3% from $0.41 in the prior year quarter, which included the negative impact of the aforementioned loss on extinguishment of debt of $0.16. Excluding this charge, first-quarter 2011 adjusted diluted EPS* was $0.57.
First-quarter 2012 diluted cash EPS* was $0.78, a decrease of 3.7% from $0.81 in the prior year quarter. First-quarter 2012 diluted cash EPS* was negatively impacted by the increased level of capital expenditures in first-quarter 2012 compared to the prior-year quarter. First-quarter 2012 adjusted EBITDA* was $67.0 million, a decrease of 10.1% from $74.5 million in the prior year quarter.
“We continue to face headwinds associated with the pullback in CPG spending,” said Rob Mason, Valassis President and Chief Executive Officer. “While I certainly would have preferred a stronger start to the year, I remain very confident in our ability to execute and ultimately deliver our 2012 guidance.”
Some additional highlights include:
* Selling, General and Administrative (SG&A) Costs: First-quarter 2012 SG&A costs were $77.6 million (which included $2.3 million in non-cash stock-based compensation expense), down slightly compared to the prior year quarter SG&A costs of $78.4 million (which included $1.9 million in non-cash stock-based compensation expense).
* Capital Expenditures: Capital expenditures for first-quarter 2012 were $9.3 million.
* Stock Repurchases: During first-quarter 2012, we repurchased $1.4 million, or 59,122 shares, of our common stock at an average price of $23.10 per share under our stock repurchase program.
- We reduced total debt by $3.8 million during first-quarter 2012, and we ended the quarter with net debt (total debt less cash) of $491.6 million.
- At March 31, 2012, we had $107.2 million in cash.
Based on our plan, current outlook and the assumptions specified in our Dec. 13, 2011 earnings guidance press release, we reiterate full-year 2012 guidance as follows:
- Diluted earnings per share (EPS) of $3.07;
- Diluted cash EPS* of $3.97; and
- Capital expenditures of approximately $32 million.
Business Segment Discussion
* Shared Mail: Revenues for the first quarter of 2012 were $328.1 million, an increase of 1.7% compared to the prior year quarter. Segment profit for the quarter was $42.4 million, an increase of 0.7% compared to the prior year quarter. The improvement in segment results was driven by an increase in revenue per package and lower SG&A costs; however, segment profit was negatively impacted by reduced wrap revenue and a decrease in insert volume.
* Neighborhood Targeted: Revenues for the first quarter of 2012 were $72.2 million, a decrease of 19.9% compared to the prior year quarter. Segment loss for the quarter was $1.6 million compared to segment profit in the prior year quarter of $1.9 million, due to the aforementioned revenue decline. Segment results were negatively impacted primarily by the reduction in CPG spend across newspaper inserts and sampling.
* Free-standing Inserts (FSI): Revenues for the first quarter of 2012 were $76.3 million, a decrease of 14.5% compared to the prior year quarter. Segment profit for the quarter was $5.4 million, a decrease of 27.0% compared to the prior year quarter. Segment results for the quarter were impacted by the reduced CPG spend and the absence of custom co-op business.
* International, Digital Media & Services (IDMS): Revenues for the first quarter of 2012 were $42.0 million, a decrease of 6.9% compared to the prior year quarter. Growth in NCH Marketing Services, Inc., our coupon clearing and analytics business, and our digital business was offset by declines in solo direct mail and in-store products. Segment profit for the quarter was $2.7 million, a decrease of 50.0% compared to the prior year quarter. The segment profit decline was primarily due to the negative pressure on the in-store business resulting from the reduction in CPG spend.
Conference Call Information
We will hold an investor call today to discuss our first-quarter 2012 results at 11 a.m. (ET). The call-in number is 877-941-0844 (please reference conference #4520865). The call will be simulcast on our website at http://www.valassis.com. This earnings release, webcast and a transcript of the conference call will be archived on our website under “Investors.”
Non-GAAP Financial Measures
*We define adjusted EBITDA as net earnings before interest expense, net, other non-cash expenses (income), net, income taxes, gain or loss on extinguishment of debt, impairment charges and other non-recurring costs, depreciation, amortization, and stock-based compensation expense. We define diluted cash EPS as net earnings per common share, diluted, plus the per-share effect of depreciation, amortization, stock-based compensation expense, impairment charges and other non-recurring costs, net of tax, and loss on extinguishment of debt and related charges, net of tax, less the per- share effect of capital expenditures. We define adjusted net earnings and adjusted diluted EPS as net earnings and diluted EPS excluding the effect, net of tax, of loss on extinguishment of debt and related charges, and impairment charges and other non-recurring costs. Adjusted EBITDA, adjusted net earnings, adjusted diluted EPS and diluted cash EPS are non-GAAP financial measures commonly used by financial analysts, investors, rating agencies and other interested parties in evaluating companies, including marketing services companies. Accordingly, management believes that these non-GAAP measures may be useful in assessing our operating performance and our ability to meet our debt service requirements. In addition, these non-GAAP measures are used by management to measure and analyze our operating performance and, along with other data, as our internal measure for setting annual operating budgets, assessing financial performance of business segments and as performance criteria for incentive compensation. Management also believes that diluted cash EPS is useful to investors because it provides a measure of our profitability on a more comparable basis to historical periods and provides a more meaningful basis for forecasting future performance, by replacing non-cash amortization and depreciation expenses, which are currently running significantly higher than our annual capital needs, with actual and forecasted capital expenditures. Additionally, because of management’s focus on generating shareholder value, of which profitability is a primary driver, management believes these non-GAAP measures, as defined above, provide an important measure of our results of operations.
However, these non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation from, or as alternatives to, operating income, cash flow, EPS or other income or cash flow data prepared in accordance with GAAP. Some of these limitations are:
* adjusted EBITDA does not reflect our cash expenditures for capital equipment or other contractual commitments;
* although depreciation and amortization are non-cash charges, the assets being depreciated or amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements;
* adjusted EBITDA and diluted cash EPS do not reflect changes in, or cash requirements for, our working capital needs;
* adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness;
* adjusted EBITDA does not reflect income tax expense or the cash necessary to pay income taxes;
* adjusted EBITDA, adjusted net earnings, adjusted diluted EPS, and diluted cash EPS do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations; and
* other companies, including companies in our industry, may calculate these measures differently and as the number of differences in the way two different companies calculate these measures increases, the degree of their usefulness as comparative measures correspondingly decreases.
Because of these limitations, adjusted EBITDA, adjusted net earnings, adjusted diluted EPS, and diluted cash EPS should not be considered as measures of discretionary cash available to us to invest in the growth of our business or reduce indebtedness. We compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP financial measures only supplementally. Further important information regarding reconciliations of these non-GAAP financial measures to their respective most comparable GAAP measures can be found below.