Valassis Communications' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Valassis Communications (VCI)

Q4 2011 Earnings Call

February 16, 2012 11:00 am ET

Executives

Robert A. Mason - Chief Executive Officer, President and Director

Compare to:
Previous Statements by VCI
» Valassis Management Discusses 2012 Guidance - Conference Call Transcript
» Valassis Communications' CEO Discusses Q3 2011 Results - Earnings Call Transcript
» Valassis Communications' CEO Discusses Q2 2011 Results - Earnings Call Transcript

Robert L. Recchia - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Treasurer, Director and Member of Executive Committee

Analysts

Mark J. Zgutowicz - Piper Jaffray Companies, Research Division

Charles Edward Cerankosky - Northcoast Research

Townsend Buckles - JP Morgan Chase & Co, Research Division

Daniel Salmon - BMO Capital Markets U.S.

Mark Nicholas Argento - Craig-Hallum Capital Group LLC, Research Division

William A. Warmington - Raymond James & Associates, Inc., Research Division

Edward J. Atorino - The Benchmark Company, LLC, Research Division

Thomas B. Jackson - Robert W. Baird & Co. Incorporated, Research Division

Unknown Analyst

Presentation

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Valassis Fourth Quarter and Year-End 2011 Earnings Conference Call. [Operator Instructions] I'd like to remind you that the discussions during the conference call will include forward-looking statements and the actual results could differ materially from those projected in the forward-looking statements. The factors that could cause the results to be materially different from those expressed or implied by such forward-looking statements and are discussed in the risk factors and other sections of the 2010 Annual Report on Form 10-K and in the reports on Forms 10-Q and 8-K filed with the SEC.

Also, the discussions during this conference call will include certain financial measures that were not prepared in accordance with Generally Accepted Accounting Principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the earnings release, furnished with the current report on form 8-K dated today, which is also available on the Valassis website at www.valassis.com on the homepage of the Investors section.

I would now like to turn the conference over to President and CEO of Valassis Communications, Rob Mason. Please go ahead.

Robert A. Mason

Christine, thank you. Good morning, everyone, I'd like to thank you for joining us for our 2011 Q4 full-year earnings call. As usual, Bob Recchia, our Chief Financial Officer, is with me. And after some prepared remarks from Bob and myself, we look forward to answering your questions.

I'd like to begin with some highlights. As you know, back in October, during our Q3 earnings call, we revised financial guidance for the full-year 2011 based on our Q3 results and our outlook for Q4.

While we will never be satisfied with a year where we needed to lower expectations, we're very pleased to report we've exceeded our revised full-year 2011 diluted cash EPS and adjusted EBITDA in guidance due to the strong performance of Shared Mail and the MCA's coupon clearing and analytics business. In fact, our fourth-quarter adjusted EBITDA of $91.3 million is a single quarter record for our company.

In Q4, Shared Mail revenue grew 5.4% with corresponding segment profit growth of 23.4% compared to the prior-year quarter. A combination of increased volume and heavier piece weight contributed to this growth. The total number of packages distributed was flat, while average pieces per package were up 1.7%.

Increased revenue within the grocery retail vertical, which was up 6% from previous year, was a major contributor to Shared Mail's growth during the quarter.

Weekly content like grocery circulars are especially effective at growing and creating enhanced consumer engagement with the Shared Mail package. This high-quality content also helps our sales organization draw new clients into the Shared Mail package. It's what I call the velcro effect.

As I look back and reflect on our 2011 performance, there are some key takeaways that are important in understanding our results and are relevant to our business going forward.

We are very pleased with the overall revenue and segment profit growth in the Shared Mail business. Revenue grew 3.3% year-over-year, with segment profit up 22.4% due to the strong operating leverage of this business.

In 2012, Shared Mail growth rates will likely vary from quarter-to-quarter. But overall, we expect the year-over-year Shared Mail revenue to grow in the 3% range.

Our Neighborhood Targeted segment continue to be negatively impacted by previously discussed cycling issues, associated with 2 large ROP clients, which should end in Q2 of 2012.

We also experienced year-over-year decline in our newspaper insert product line, driven by the loss of 2 large retailers we've liquidated in Q1 of 2011, as well as overall softness in our telecommunications vertical.

Going forward, our sales organization will place greater emphasis on expanding our share of the newspaper insert market, while we also work to aggressively manage cost in this segment.

In 2011, we saw decreased revenue on our FSI segment due primarily to the loss of custom co-op business and the continued pullback in consumer packaged goods budgets in the second half of the year.

According to NCH, in 2011, consumers redeemed and saved an incremental $500 million by using more coupons than they did in 2010. Although this is great news for consumers, this spike in coupon redemptions has become a significant drag on budgets in the CPG industry. That is the primary client base in the FSI business. We expect these factors will continue to impact the FSI business into 2012.

The upside of this $500 million increase in coupon redemptions and a highlight of our 2011 results was the exceptional performance of our NCH coupon clearing and analytics subsidiary with inner IBMS segment. We do expect and have planned for a leveling-off of the growth rate in coupon redemption volume in 2012, as the pullback in CPG offers flows through the redemption life cycle.

Read the rest of this transcript for free on seekingalpha.com