Deluxe (DLX) Q4 2018 earnings summary

Executive summary

• Revenue reached a record $1.998B in 2018, up 1.7% YoY and the ninth consecutive year of growth; 45% of Q4 revenue grew at double-digit rates.

• Transformation toward technology-enabled solutions continued; marketing solutions and other services (MOS) rose to 42.0% of revenue, while checks fell to 40.6%.

• Reported earnings declined sharply, primarily due to $101.3M of non-cash asset impairments and other costs; operating cash flow rose to $339.3M.

Financial highlights

• Revenue was $1,998.0M vs. $1,965.6M in 2017; acquired businesses contributed ~$86.7M, partly offset by lower check and forms volume and customer losses.

• Net income was $149.6M vs. $230.2M; diluted EPS was $3.16 vs. $4.72, with 2018 EPS including $2.40/share of net charges, partly offset by ~$0.25/share of asset-sale gains.

• Operating cash flow increased to $339.3M from $338.4M; gross profit was $1,206.3M vs. $1,222.8M.

• Cost-reduction initiatives delivered ~$50M in net savings; over $256M was returned to shareholders through dividends and repurchases.

Outlook and guidance

• 2019 consolidated revenue expected to increase at a low-single-digit rate from $1.998B, including 2018 acquisitions but excluding additional acquisitions.

• 2019 EPS expected to increase YoY and slightly exceed 2018 EPS excluding $2.40/share of charges and asset-sale gains; outlook excludes potential incremental growth investments and future asset-sale gains.

• No acquisitions planned for H1 2019 while integrating 2018 purchases and scaling strategy, sales and product efforts; possible acquisitions considered for H2.

• Check and forms declines, modest sales and product investments, higher material and delivery costs, and higher interest expense expected to weigh on 2019 EPS.

• Treasury management revenue expected to increase as strong late-2018 order volume continues; 2019 tax rate expected slightly above 2018 excluding goodwill impairment effects.