Deluxe (DLX) Q4 2012 earnings summary

Executive summary

• Revenue rose 6.9% to $1.515B, the third consecutive annual increase; marketing solutions and other services reached 19% of revenue, up from 16% in 2011.

• 2012 diluted EPS was $3.32, up 19%; operating cash flow was $244M, up 4%.

• Growth in Small Business Services and cost savings offset declines in check-dependent businesses; the 2013 priority remained profitable growth and a higher mix of marketing services.

Financial highlights

• Revenue was $1.515B vs. $1.418B in 2011; operating income was $302.0M vs. $271.1M, and net income was $170.5M vs. $144.6M.

• Gross profit was $990.5M and gross margin 65.4%, up 0.2 pt YoY; diluted EPS was $3.32 vs. $2.80.

• Q4 revenue was $387.6M vs. $366.4M YoY; net income was $42.6M vs. $39.8M and diluted EPS was $0.83 vs. $0.78.

• Revenue growth reflected price increases, $36.8M in incremental acquired-business revenue, distributor-channel and marketing-services growth, and a new large financial institution client.

• Adjusted for one-time items, 2012 included $0.21/share in charges for restructuring, debt-retirement losses and acquisition costs; debt-retirement losses were $5.3M pre-tax.

Outlook and guidance

• 2013 revenue guidance was $1.535B–$1.575B; diluted EPS guidance was $3.60–$3.80, with a ~34% effective tax rate assumption.

• 2013 operating cash flow guidance was $240M–$255M; expected capital spending was ~$35M and contract acquisition payments ~$15M.

• Small Business Services revenue was expected to rise at a high-single-digit rate; Financial Services was expected to decline mid-single digits and Direct Checks middle-to-high single digits.

• Additional net cost reductions of ~$50M were targeted for 2013; benefits were expected to be partly offset by higher material and delivery rates and continued growth investment.

• Guidance assumed a sluggish economy; dividend maintenance was anticipated, with excess cash to be accumulated ahead of the October 2014 senior-note maturity.