By Trevor Shackelford April 29, 2005 -- Valassis Communications Inc. (NYSE: VCI) announced first quarter results today. The company reported revenues of $279.3 million, up 17.7% from last year. Net earnings were up 14.7% from the same period last year to $28.2 million in the first quarter. Diluted earnings per share grew 17% to $0.55 from last year, which comes in at the high side of first quarter guidance given 3 months ago. Contents of this Summary First Quarter Highlights Segment Performance Guidance Raine Radar Q & A Quarter Highlights 140 new customers added New direct mail product launches, targeting new homeowners Strong growth in telecom vertical drives growth of cluster products Segment Performance Mass Products This segment is composed of the FSI and Run on Press (ROP) business. Co-op FSI revenues in the first quarter were 131.7 million, up 3.4% year over year. Margins were down as pricing pressures have continued. ROP revenues, generated from brokering advertising space on behalf of newspapers, were up 38.7% from $21.7 million to $30.1 million year over year. Cluster Targeted Products These products reach neighborhoods based on geographic and demographic characteristics. First quarter revenues increased 40.5% to $74.3 million from the same period last year. Preprinted inserts related to telecommunications and retail were responsible for much of the growth. 1 to 1 Products This segment includes PreVision Marketing, Valassis Relationship Marketing Systems, and direct mail. First quarter revenues were up 55.7% from last year to $19.0 million. Much of that growth is from the DMS acquisition last September. International & Services Revenues were up 4.3% to $24.2 million for the first quarter, despite troubles with operations in France. Valassis will continue to test their products and services in Europe this year. Guidance Valassis has made no changes to their 2005 guidance. The company 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. Raine Radar Valassis management seemed pleased with the first quarter, especially with the performance of their cluster and 1-to-1 products. The delays in securing 2006 FSI contracts is worrisome, but there is still plenty of time and they do not seem overly concerned. Growing their European presence will most likely be a major objective moving forward. As the ability to market across languages and cultures has continued to grow in importance, the necessity of globalizing becomes more and more important to companies such as Valassis. Q & A When asked why the NCH acquisition was lagging, Valassis management responded that they were still “working on the formula.” They also noted that it was important to international expansion. Valassis is expecting FSI to grow between 4-8% during 2005. Renegotiating some of the expired contracts in the FSI business for 2006 is being delayed – possibly do to higher prices in the market. Some customers may be waiting to see if prices fall. FSI price increases have driven away some of the existing client base, but new clients have also been gained. Overall market share is approximately the same. Valassis’ operations in France had a tough quarter, due to a tough French economy in general and new legislation. According to the company, the Q2 should be better On the subject of margins, Valassis declined to give long term guidance, although they noted that cluster and 1 to 1 margins had been improving, but FSI still has the largest potential. Despite Easter moving from April to March, April is looking pretty good for FSI. Easter accounted for about 5% of the 17% growth. Distribution costs are up, and are reflected in cost of goods sold, but are being offset by productivity increases. Spot market pricing has gone up from last year. Remnant pricing has stayed pretty flat. There is currently no great pressure to pursue a strategy of active M&A. Cash flow improved greatly in the first quarter, as an effort to clean up the timing of payables and receivables begins to pay off. The company is trying to make Direct Mail a greater percentage of their integrated solutions The strong growth within the telecom vertical had more to do with the climate of competition then recent M&A within that industry.