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Deluxe Reports Second Quarter 2015 Financial Results

Friday, July 24, 2015

Press release from the issuing company

Revenue increases 7.5% and exceeds high end of outlook
Diluted EPS of $1.11 increases 12.1%; adjusted EPS of $1.13 increases 11.9%; both exceed high end of outlook
Raises full year outlook for diluted EPS and operating cash flow 

ST. PAUL, Minn. - Deluxe Corporation, a leader in providing small businesses and financial institutions with products and services to drive customer revenue, announced its financial results for the second quarter ended June 30, 2015. Key financial highlights include:

      Q2 2015     Q2 2014     % Change
Revenue     $435.9 million     $405.4 million     7.5%
Net Income     $56.1 million     $50.1 million     12.0%
Diluted EPS – GAAP     $1.11     $0.99     12.1%
Adjusted Diluted EPS – Non-GAAP     $1.13     $1.01     11.9%

A reconciliation of earnings per share on a GAAP basis and adjusted earnings per share on a non-GAAP basis is provided after the Forward-Looking Statements.

Both revenue and diluted EPS exceeded the high end of the range in the prior outlook driven by strong operating results in all three segments and earlier than expected cost savings.

“Deluxe delivered an outstanding second quarter, beating both our revenue and earnings outlook,” said Lee Schram, CEO of Deluxe. “We continue to execute our transformation strategy and are pleased with the growth we see in our marketing solutions and other services product categories. We believe we have the right strategy in place to continue to grow our business and as a result of our first half performance, have raised our full year earnings and operating cash flow outlook.”

Second Quarter 2015 Highlights:

  • Revenue increased 7.5% year-over-year, primarily due to the Financial Services segment which grew 19.1% and included the results of Wausau Financial Systems which was acquired in October 2014. Additionally, the Small Business Services segment grew 5.5%.
  • Revenue from marketing solutions and other services increased 31.0% year-over-year and accounted for 29.0% of consolidated revenue in the quarter.
  • Gross margin was 64.2% of revenue, up from 64.0% in the second quarter of 2014. The increase was primarily driven by previous price increases, an increase in service margins and improvements in manufacturing productivity, partially offset by product revenue mix and increased delivery and material costs.
  • Selling, general and administrative (SG&A) expense increased 9.6% from last year primarily due to additional SG&A expense from acquisitions but was partially offset by continued cost reduction initiatives in all segments. SG&A as a percent of revenue was 43.6% in the quarter compared to 42.8% last year.
  • Operating income increased 4.6% year-over-year and includes restructuring and transaction-related costs in both periods. Adjusted operating income, which excludes these items, increased 5.0% year-over-year from higher revenue and continued cost reductions.
  • Diluted EPS increased 12.1% year-over-year. Excluding restructuring and transaction-related costs in both periods, adjusted diluted EPS increased 11.9% year-over-year driven by stronger operating performance and lower interest expense, partly offset by a higher effective income tax rate.

Segment Highlights
Small Business Services

  • Revenue was $282.3 million and increased 5.5% year-over-year due to growth in marketing solutions and other services and in our online, Safeguard® distributor, major account and dealer channels. Previous price increases also benefitted the quarter while unfavorable foreign exchange rates negatively impacted revenue growth by approximately 0.9 percentage points year-over-year.
  • Operating income decreased 1.2% from last year to $48.2 million. Adjusted operating income, which excludes restructuring and transaction-related costs in both periods, decreased 0.2% year-over-year due primarily to planned higher brand awareness marketing and investments in other revenue-generating initiatives, partly offset by cost reductions.

Financial Services

  • Revenue was $112.7 million and increased 19.1% year-over-year. The increase in revenue was primarily due to growth in marketing solutions and other services, which includes Wausau Financial Systems revenue of approximately $19 million, as well as the impact of previous price increases, partially offset by the secular decline in check usage.
  • Operating income increased 14.3% from last year to $25.5 million. Adjusted operating income, which excludes restructuring costs and transaction-related costs, increased 13.7% year-over-year, reflecting previous price increases and the continued benefits of cost reductions, partially offset by the secular decline in check usage.

Direct Checks

  • Revenue of $40.9 million declined 5.1% year-over-year due primarily to the secular decline in check usage and the elimination of marketing expenditures that no longer met the Company’s return criteria, partially offset by higher conversion rates from email marketing offers and an improved call center incentive plan.
  • Operating income increased 9.4% year-over-year to $15.2 million due to a higher mix of reorders and lower costs which more than offset lower order volume.

Other Highlights

  • Cash provided by operating activities for the first half of 2015 was $146.0 million, an increase of $20.2 million compared to 2014, driven primarily by improved operating performance, timing of collections associated with the Wausau business and lower interest payments, partially offset by higher performance-based compensation payments.
  • At the end of the second quarter, the company had $233 million drawn on its credit facility, a short-term bank loan of $75 million and $194.8 million of long-term debt outstanding.


      Current Outlook      
Third Quarter 2015:     (7/23/2015)      
Revenue     $439 to $447 million      
Diluted EPS     $1.10 to $1.15      
      Prior Outlook     Current Outlook
Full Year 2015:     (4/23/2015)     (7/23/2015)
Revenue     $1.75 to $1.78 billion     $1.76 to $1.78 billion
Marketing Solutions & Other Services Revenue     approx. $520 to $535 million     approx. $525 to $535 million
Diluted EPS – GAAP     $4.27 to $4.42     $4.35 to $4.45
Adjusted Diluted EPS – Non-GAAP     $4.40 to $4.55     $4.50 to $4.60
Operating Cash Flow     $295 to $305 million     $300 to $310 million
Capital Expenditures     approx. $40 million     approx. $40 million
Depreciation and Amortization     approx. $75 million     approx. $76 million
Cost and Expense Reductions     approx. $50 million     approx. $50 million
Effective Tax Rate     approx. 34.0%     approx. 34.0%


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