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American Greetings (AM)

Q2 2012 Earnings Call

September 27, 2011 9:00 am ET


Zev Weiss - Chief Executive Officer, Director and Member of Executive Committee

Stephen J. Smith - Chief Financial Officer and Senior Vice President

Gregory M. Steinberg - Director of Investor Relations and Treasurer


Michael Schecter - Mentor

Jeffrey S. Stein - Ticonderoga Securities LLC, Research Division



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Good day, and welcome to the American Greetings Corporation Second Quarter fiscal 2012 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Gregory Steinberg. Please go ahead, sir.

Gregory M. Steinberg

Thank you, Mindy. Good morning, everyone, and welcome to our second quarter conference call. I'm Greg Steinberg, the company's Treasurer and Director of Investor Relations. Joining me today on the call are Zev Weiss, our CEO; Jeff Weiss, our COO; and Steve Smith, our CFO. We released our earnings for the second quarter fiscal 2012 this morning. If you not yet have our first quarter press release, you can find a copy within the Investors section of the American Greetings' website at

As you may expect, some of our comments today include statements about projections for the future. Those projections involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. We cannot guarantee the accuracy of any forecasts or estimates, and we do not plan to update any forward-looking statements. If you like more information on our risks involving forward-looking statements, please see our annual report or our SEC filings. Previous earnings releases as well as our 10-Qs, 10-Ks and annual report are available on the Investors section of the American Greetings' website.

We will now proceed with comments from both our CEO and CFO, followed by a question-and-answer session. Zev?

Zev Weiss

Thank you, Greg, and good morning, everyone. I am very pleased with our innovative new products and revenue growth this quarter, which resulted in market share gains both domestically and internationally. Let me share a few comments on our ongoing product leadership initiative and our outlook for the balance of fiscal year 2012. And then I'll turn it over to Steve to walk you through our financials for the quarter.

Our team continues to develop great new products that help consumers express themselves, as well as connect with each other and celebrate life's special moments. We have developed some exciting new greeting cards for consumers to enjoy this fall season. We have cards for Halloween featuring clever humor, hot design trend and consumer favorite icons designed to appeal to kids and Gen Y. We've also created a collection of cards that include warm casual language with an emphasis on the fun spirit of the holiday so that consumers can make more meaningful connections.

We're also looking for ways to mutually benefit consumers and our retail partners. A recent example of this is a new line of decals and skins that we introduced this summer for cellular phones, laptops, lockers, dorm rooms and anywhere consumers want to add their own personal style. We leveraged our creativity to develop a variety of designs and styles, and particularly at younger consumers. This is a great time to bring these products to market both in advance of the school year and a time when there are no major card-sending holidays.

These are just a few examples of how we continue to execute product innovation and drive interest and excitement in the category. This strategy supports our retail partner strategies, strengthens our industry-leading portfolio of products and helps consumers connect with each other in a meaningful way. As part of the strategy, we have and will continue to study societal and consumer trends and further improve our products' ability to help consumers meet their relationship needs. Based on our findings and market opportunities, at times, we may choose to increase our expenses and investments to support our product leadership.

We also strive to continuously make our organization more efficient. While this is an ongoing focus for many years, as we look forward, we expect this effort to be supported by additional investments in both capital and expenses as part of our multiyear systems refresh project.

These investments in our foundational systems and processes will better enable us to continue to execute our product leadership strategy. As we have discussed in the past, the 3 key elements of our IT strategy are: one, replacing the systems; two, driving efficiencies within the business; and three, adding new capabilities. We are currently in the early phase of this effort. There are still uncertainty about the ultimate timing and size of the spend. While we still have many decisions to make, we may make more investments in the second half of this fiscal year to support the project. This will mean an addition to the capital we had anticipated at the beginning of the year.

During our first quarter conference call, we had shared our expectations on revenue and cash flow for the fiscal year. At that time, we expected our revenues for fiscal year 2012 to increase about 5% compared to the prior year, and our full year cash flow from operating activities less capital expenditures to be between $80 million and $100 million. And we had expected our capital expenditures to be between $45 million and $50 million.

As we look at the balance of this year, in addition to the seasonality of our business typically encounters, we are more cautious than we were at the beginning of the year about the global economy and the effect that it's having on the consumer. We now estimate that our revenue will increase around 3% compared to the prior year. Also, as we shared, there are many decisions regarding incremental capital expenditures that we will still need to make during the remainder of the year as part of our multiyear systems refresh project. As a result of potentially higher than originally forecasted capital expenditures, we are more likely to be around the low end of our previous cash flow guidance.

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