Deluxe (DLX) Q4 2014 earnings summary

Executive summary

• Revenue rose 5.6% to $1.674B in 2014, the fifth consecutive year of growth; marketing solutions and other services reached 25.5% of revenue, up from 21.6% in 2013.

• Q4 revenue was $448.5M, net income $58.0M and diluted EPS $1.16, versus $417.8M, $45.7M and $0.90 in Q4 2013.

• Strategic shift toward higher-growth services and financial technology continued, alongside cost savings, acquisitions and ongoing declines in check usage.

Financial highlights

• 2014 net income was $199.8M; diluted EPS increased over 8% to $3.96 from $3.65.

• Operating income rose to $332.6M from $317.9M; total cost of revenue increased 8%, faster than revenue, and gross profit margin fell to 63.8% from 64.6%.

• Operating cash flow from continuing operations increased 7.2% to $280.4M, the sixth consecutive annual increase.

• Marketing solutions and other services revenue increased $84M, including $57M from 2014 and 2013 acquisitions; price increases and distributor-channel growth also contributed.

• Net cost savings were $60M in 2014; $42M of SG&A savings partly offset acquisition costs and investments in growth.

Outlook and guidance

• 2015 consolidated revenue guidance: $1.74B–$1.78B; diluted EPS guidance: $4.23–$4.43, including a $0.12/share early debt-extinguishment charge.

• 2015 operating cash flow guidance: $290M–$305M; capital spending estimated at $40M and contract acquisition payments at $15M.

• Expected 2015 net cost reductions: $50M; benefits from savings and lower interest expense expected to be partly offset by sluggish economic conditions, higher medical, material and delivery costs, and growth investment.

• Segment revenue outlook: Small Business Services +4%–6%; Financial Services +12%–15%; Direct Checks down 9%–10% versus 2014.

• 2015 effective tax rate estimated at 33.5%, versus 32.8% in 2014; 2014 rate included discrete credits that lowered it by 0.9 points.