By Trevor Shackelford February 28, 2005 -- Valassis Communications Inc. (NYSE: VCI) reported fourth quarter revenues of $302.3 million, up 26.9% from the same period last year and a quarterly record for the company. Fourth quarter net earnings were $26.8 million, or $0.52 per share. Full-year revenues were a record $1.044 billion, up 13.9% from 2003, with net earnings down $3 million from last year to $100.7 million, or $1.93 per share. The stock rose to $36.40 on the news, its highest point in over 2 years. Contents of this Summary Quarter and 2004 Highlights Segment Performance Guidance Raine Radar Q & A Quarter and 2004 Highlights Net Earnings were down 2.9% year-over-year despite a 13.9% increase in the top line. The company cited pricing pressure, increased paper costs, and a focus on meeting the $1 billion revenue target as the primary reasons for the decrease in profits. Every major product segment experienced double-digit revenue growth in the fourth quarter except the Co-op Free Standing Insert (FSI) which saw a 6% increase. FSI represents 47% of the company’s total revenue. The company targeted specific customer verticals in 2004. Financial services grew 300%, Telecom doubled, specialty retailers were up 37%, and drug retailers increased 30%. Segment Performance Mass Products This segment is composed of the FSI and Run on Press (ROP) business. Co-op FSI revenues in the fourth quarter were 117.1 million, up 6.4%. FSI revenues were up .7% to $493.8 million for the year. ROP revenues, generated from brokering advertising space on behalf of newspapers, were up in the fourth quarter from $13.3 million to $44 million year over year. Full-year revenues were up 106.9% to $114.2 million, with 22% of the growth coming from incremental business and the balance resulting from a change in fee structure for certain contracts. According to Valassis, co-op FSI pricing pressure peaked in 2004, and the company sees margins beginning to improve in 2005. Cluster Targeted Products These products reach neighborhoods based on geographic and demographic characteristics. Revenues increased 17.1% for the quarter to $93.2 million, and ended the year up 9.8% at $275.2 million. 1 to 1 Products This segment includes PreVision Marketing, Valassis Relationship Marketing Systems, and direct mail. The direct mail product includes the acquisition of Catalina Marketing’s Direct Marketing Services (DMS). Revenues in this segment increased 68.8% for the quarter to $18.9 million, due primarily to strong growth in direct mail and the September 2004 acquisition of DMS. Revenues for the year were $61.8 million, up 59.3% from the prior year. $6 million of this revenue was attributed to the DMS acquisition. Growth in this segment was driven in part by demand for frequent shopper direct-mail programs. International & Services Revenues were up 21.3% to $29.1 million for the fourth quarter. Revenues for the year totaled $99.1 million, compared to $81.2 million in 2003. The company noted that there was solid growth from Canada, Germany, Italy, Spain, and the UK. Guidance Valassis anticipates revenues to increase in the mid-single digits in 2005. EPS for 2005 are expected to be in the $1.80 to $2.00 range. Management expects the first and second quarters of 2005 to be stronger than the third and fourth as far as earnings are concerned. Raine Radar This company is following a solid plan of diversifying their revenues with high value cluster and 1-1 marketing products, without losing sight of their primary revenue source: FSI. They are intelligently expanding into foreign markets, targeting customer verticals, and offering integrated solution packages to customers. Despite compelling financial ratios and earnings, the company’s P/E is only in the area of 18.5. Valassis is poised to do well in 2005 in terms of both revenue growth and increasing shareholder value. Q & A Expansion of services in Europe, especially Germany, is likely. The company is interested in expanding into China, but has not made any significant moves in that region. The company’s average contract length with customers is between 26 and 28 months. Valassis ended 2004 with approximately 46% of the FSI market share. The company, based on some of the contracts they have lined up, expects market share to edge up in 2005. The company received a bump of approximately $4.5 million in 2004 from foreign exchange rates. Valassis repurchased 1,870,000 shares in 2004. 1,129,000 of those shares were bought back in the fourth quarter