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Valassis Reports Record Revenues of $916.5 Million For The Year, Up 7.5%

Press release from the issuing company

LIVONIA, Mich., Feb. 19 -- Valassis, the leading company in marketing services and Connective Media(TM), today announced financial results for the fourth quarter and year ended Dec. 31, 2003. Fourth-quarter revenues were up 2.8% from the fourth quarter of 2002 to $238.3 million with net earnings of $23.5 million, or earnings per share (EPS) of $0.45. Year-end revenues were up 7.5% to $916.5 million with annual net earnings of $103.7 million, or $1.98 in EPS, including a refinance charge incurred in May of $2.5 million, net of tax, related to the partial buyback of the convertible debt issued in 2001. Without this charge, earnings for the year was $106.2 million and EPS for the year was $2.03. "We ended the year with the strongest balance sheet in our 33-year history," said Alan F. Schultz, Valassis Chairman, President and CEO. "Our record revenues are a direct result of the continued implementation of our long-term growth strategy. In addition to broadening our customer base and providing successful integrated solutions, we significantly grew our Cluster Targeted, ROP, 1 to 1 and International & Services business segments." "In our co-op free-standing insert (FSI) business, we ended 2003 as projected with a 44% market share," said Schultz. "Although we have yet to see a change in the intense competitive pricing environment of the traditional co-op FSI industry, we remain committed to our plan of returning market share back to historical levels, while maintaining the integrity of our products and services." Valassis will hold an investor call today to discuss its fourth-quarter results at 11 a.m. (EST). The call-in number is (800) 366-7417. The call will simulcast on the company's Web site, at http://www.valassis.com , and replay through March 3, 2004 at (800) 405-2236, pass code 566824. This press release and the Webcast will be archived on the company's Web site under "Investor." A $2.5 million refinance charge, net of tax, was incurred in May of 2003 related to the partial buyback of the convertible debt issued in 2001. A $35.3 million impairment charge, net of tax, was taken in fourth quarter of 2002 to record impairment of goodwill related to PreVision and VRMS and the writedown of a cost-basis Internet investment. Mass Products - Products that reach large markets at a low cost: Co-op free-standing insert (FSI) revenues for the fourth quarter were $110.1 million, down 20.7%. FSI revenues for the year were $490.6 million, down 14.0% due primarily to the reduction in market share and, to a lesser extent, lower pricing. Management noted that unit growth in the co-op FSI industry continued to be strong in the fourth quarter in the mid-single digits. Run of press (ROP) revenues, generated from the brokering of advertising space on behalf of newspapers, were up 19.8% for the quarter to $13.3 million and up 34.3% for the year to $55.2 million. This increase is a direct result of the company's sales efforts to expand the customer base, with much of the growth coming from the telecommunications sector. Cluster Targeted Products - Products that reach neighborhoods based on geographic and demographic characteristics: Cluster Targeted product revenues increased 10.7% for the quarter to $79.6 million, and ended the year up 26.3% at $250.7 million, significantly exceeding the company's guidance of 10% to 15% growth for the year. The increase in revenues was attributed to continued growth in polybag advertising and solo inserts, and a rebound in customer product sampling. 1 to 1 Products - Products and services that pinpoint individuals or households to build loyalty to a brand: The 1 to 1 revenues are comprised of PreVision Marketing, Valassis Relationship Marketing Systems (VRMS) and direct mail. 1 to 1 revenues increased 40.0% for the quarter to $11.2 million due to strong growth in the direct mail category and improved results at PreVision. Year-end revenues were $38.8 million, up 15.8% from the prior year. Management has integrated the operations of these businesses and has signed exclusive direct mail contracts with two of the nation's largest grocery retailers, Kroger and Safeway. The company expects momentum to build throughout 2004 as a result of these efforts. International & Services - Marketing products and services available in the United States, Canada, France, Germany, Italy, Mexico, Spain and the United Kingdom: International & Services is comprised of NCH Marketing Services, Inc. (NCH), Valassis Canada and Promotion Watch. International & Services revenues were $24.1 million for the fourth quarter, up from $1.8 million for the fourth quarter of 2002, due to the acquisition of NCH. International & Services revenues for the year totaled $81.2 million, compared to $8.5 million in 2002. "NCH had a great year," said Schultz. "NCH not only met or exceeded all of the objectives set at the time of acquisition, but also perfectly complemented the Valassis culture and growth strategy. We are excited about the prospects for expansion as we begin testing new media products in Europe in 2004." Costs and Expenses FSI cost of goods sold was relatively flat for the fourth quarter on a CPM basis. FSI cost of goods sold was down slightly for the year, due primarily to the decrease in paper costs. Interest expense was down slightly to $3.2 million for the quarter, and relatively flat at $13.1 million for the year. SG&A expense was up 29.3% to $33.0 million for the fourth quarter and up 26.9% to $120.5 million for the year, due primarily to the acquisition of NCH in February of 2003 and the consolidation of VRMS in July of 2002. Debt Position/Share Repurchase The company's debt position, net of cash, was $104.3 million at year-end, ending the year with $207.4 million in cash. The company, after a review of its cash position, balance sheet and outlook at year-end, has resumed repurchasing shares in the first quarter of 2004. Outlook In its third-quarter earnings release, the company provided full-year revenue and EPS guidance for 2004. The company expects revenue to be up by a percentage in the mid-single digits in 2004, with EPS between $1.65 and $1.85. This decrease in EPS is due to the co-op FSI industry pricing pressure. Management is providing the following quarterly projections for 2004: Quarter Projected EPS Range 1 $0.44 - 0.50 2 $0.44 - 0.50 3 $0.37 - 0.43 4 $0.38 - 0.44