Deluxe Reports Q3 Results; Net Income and EPS Increase; Margin Improves
Press release from the issuing company
ST. PAUL, Minn., Oct. 17 -- Deluxe Corporation (NYSE: DLX), the nation's leading check printing company, reported an $.08, or 10.7 percent increase in third quarter diluted earnings per share (EPS). Net income for the third quarter increased to $52.7 million, compared to $51.1 million, in 2001. The Company's performance, combined with the impact of share repurchase activities, increased third quarter diluted earnings per share to $.83, compared to $.75 in 2001.
"We're pleased with our third quarter performance," said Lawrence J. Mosner, chairman and CEO of Deluxe, "particularly when you consider we reported improved earnings in the midst of a difficult economic environment."
Revenue decreased to $319.8 million in the third quarter, compared to $324.3 million during the same quarter a year ago. The 1.4 percent decrease in revenue was due to a 7.3 percent decline in unit volume as a result of a soft economy and fewer conversion programs. However, revenue per unit was up 6.4%. Revenue for Financial Services decreased 4.5 percent, Direct Checks increased 1.5 percent and Business Services increased 6.4 percent.
Gross margin increased to 66.3 percent of revenue for the quarter, compared to 65.6 percent in 2001. The improvement was due to the 6.4% increase in revenue per unit and productivity improvements. Selling, general and administrative expense (SG&A) decreased to 39.0 percent of revenue, compared to 39.5 percent in 2001. As a result, operating margin increased in the third quarter to 27.1 percent of revenue, compared to 25.5 percent of revenue in the year-earlier period.
Through nine months, net income increased 17.4 percent to $161.9 million, or $2.53 diluted per share, compared to net income of $137.9 million, or $1.97 diluted per share in 2001.
Revenue increased to $977.1 million for the first nine months of the year, compared to $959.6 million for the same period a year ago. The 1.8 percent increase in revenue was due to an increase in revenue per unit of 4.8 percent. Despite share gains in the first half of the year, unit volume was down
2.8 percent, due primarily to fewer conversion programs and a soft economy. Revenue for Financial Services decreased 0.2 percent, Direct Checks increased 3.0 percent and Business Services increased 7.9 percent.
Gross margin increased to 66.1 percent of revenue for the first nine months of 2002, compared to 64.4 percent in 2001. The improvement was due to the 4.8 percent increase in revenue per unit and our continued focus on cost reduction and productivity improvements.
SG&A for the first nine months of 2002 improved to 39.1 percent of revenue, compared to 40.7 percent in 2001. Factors driving the decrease were: a shift toward electronic and Internet orders, lower depreciation and amortization and continued cost management.
As a result, operating margin improved to 27.0 percent of revenue for the first nine months of 2002, compared to 23.2 percent of revenue a year ago.
"We expect the full year 2002 to be one of our best ever in terms of net income and earnings per share," said Mosner. "Still, the fourth quarter will present some challenges. The weak economy, soft response rates in our direct channel, a slow-down in consolidation activity in our financial institution channel and increased competitive pressure, will have to be managed closely. We will also have increased investments in DeluxeSelect and other revenue and cost-saving initiatives."
The Company indicated that fourth quarter revenue and net income likely will fall short of last year's performance, and that it expects fourth quarter EPS to be in the range of $.70 to $.75, with full-year results reaching between $3.23 and $3.28 per share, excluding the effect of any additional share repurchases. In 2001, Deluxe reported EPS of $0.73 and $2.69 for the fourth quarter and full year, respectively.
Deluxe operates three business segments: Financial Services, which sells checks and related products and services on behalf of financial institutions; Direct Checks, which sells checks and related products directly to consumers through direct mail and the Internet; and Business Services, which sells checks, forms and related products to small businesses on behalf of financial institutions and directly to customers via direct mail and the Internet.
Financial Services' revenue decreased 4.5 percent to $189.2 million in the third quarter, compared to $198.1 million in 2001. Operating income decreased 6.8 percent to $46.5 million from $49.9 million in 2001. These decreases were the result of the weak economy and fewer conversion programs. Partially offsetting these negative factors were efficiencies due to continued migration from mail to electronic order processing, lower depreciation and amortization and productivity improvements.
Direct Checks' revenue increased 1.5 percent to $75.9 million in the third quarter, compared to $74.8 million in 2001. Operating income increased
23.6 percent to $21.5 million, from $17.4 million in 2001. These increases were the result of higher revenue per unit, a change in accounting for goodwill and continued migration to the Internet channel. Partially offsetting these positive factors were higher marketing costs.
Business Services' revenue increased 6.4 percent to $54.7 million in the third quarter, compared to $51.4 million in 2001. Operating income increased 19.4 percent to $18.5 million, from $15.5 million in 2001. Increases in both unit volume and revenue per unit contributed to these results.
Share Repurchase Program
On August 5, 2002, Deluxe announced that its board of directors had authorized a 12 million share repurchase program. During the third quarter of 2002, the Company repurchased approximately 0.6 million shares and program to date, approximately 0.9 million shares.
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