Deluxe (DLX) Q4 2010 earnings summary

Executive summary

• FY10 revenue rose 4.3% to $1.402B, while diluted EPS from continuing operations reached $2.97 versus $1.94 in FY09.

• Results reflected Custom Direct revenue, a $24.6M financial-institution contract settlement, pricing gains and cost reductions, partly offset by lower order volumes and ongoing economic weakness.

• Strategic focus: grow small-business services and digital channels, diversify financial-institution offerings beyond checks, and improve cash generation and operating efficiency.

Financial highlights

• Revenue $1.402B, up 4.3% YoY; orders declined 4.1% to 56.7M, while revenue per order rose 8.8% to $24.72.

• Gross profit was $913.8M and gross margin 65.2%, up 2.8 pts YoY; operating income rose to $281.5M from $190.6M.

• Net income was $152.6M versus $99.4M; diluted EPS from continuing operations was $2.97 versus $1.94.

• Operating cash flow was $212.6M, up from $206.4M; investing cash use increased to $136.2M, primarily reflecting the Custom Direct acquisition.

• FY10 included $24.6M of contract-settlement revenue; FY09 included $24.9M of non-cash impairment charges and a $9.8M pre-tax gain on early debt extinguishment.

Outlook and guidance

• FY11 revenue forecast at $1.375B–$1.415B, with only modest economic improvement assumed at the high end.

• FY11 diluted EPS from continuing operations forecast at $2.85–$3.10; FY10 EPS included $0.21/share of restructuring-related costs and a health-care-law tax charge.

• FY11 operating cash flow forecast at $205M–$225M; capital spending estimated at $35M, focused on growth initiatives, fulfillment and IT infrastructure.

• Expected FY11 segment revenue trends: Small Business Services low-to-mid-single-digit growth; Financial Services low-to-mid-single-digit decline; Direct Checks mid-single-digit growth.

• Additional cost reductions of ~$65M planned for FY11 versus FY10; annual effective tax rate estimated at ~34%.