Valassis Communications' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Valassis Communications (VCI)

Q1 2012 Earnings Call

April 26, 2012 11:00 am ET


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

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


William G. Bird - Lazard Capital Markets LLC, Research Division

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

Mark J. Zgutowicz - Piper Jaffray Companies, Research Division

Daniel Salmon - BMO Capital Markets U.S.

Bethany Caster

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

Unknown Analyst

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



Ladies and gentlemen, thank you for standing by, and welcome to the Valassis First Quarter 2012 Earnings Conference Call. [Operator Instructions] I would like to remind you that the discussions during this conference call will include forward-looking statements and that Valassis' actual results could differ materially from those projected in the forward-looking statements. The factors that could cause actual results to be materially different from those expressed or implied by such forward-looking statements are discussed in the risk factors and other sections of the 2011 annual report on Form 10-K and the reports on Form 10-Q and Form 8-K filed or furnished 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 press release furnished with the current report on Form 8-K dated today, which is also available on Valassis' website at in the Investors section.

At this time, I would like to turn the conference over to Rob Mason, President and CEO. Please go ahead, sir

Robert A. Mason

Thanks, Tadeo, and good morning, everyone. I'd like to thank you for joining us for our first quarter 2012 earnings call. Bob Recchia, our Chief Financial Officer, is with me. After I provide some insights into our overall results and segment highlights, Bob will share some additional financial metrics and update on our use of capital and discuss our plans to proactively manage the cost side of our business. After our prepared remarks, both Bob and I look forward to answer any questions.

As I look at our overall Q1 results, while I am disappointed in our revenue and adjusted EBITDA performance, I continue to be very confident in our ability to execute and ultimately deliver on our 2012 guidance. The primary driver behind our Q1 results was an overall reduction in spend from our consumer packaged goods clients, which is one of our largest client verticals. This reduction in spend created an almost $28 million drag on our first quarter revenue. While this decline impacted multiple products in all but our Shared Mail segment, I think it's important to recognize that we believe that the CPG revenue shortfall we are experiencing is not a secular decline.

I'd like to begin our segment discussion with the FSI business, which you know, is our most CPG-dependent segment. Specifically, the shortfall in FSI revenue was driven for the very most part by 3 dynamics. The first component is a continuation of the spending pullback that began in the third quarter of 2011. This reduction is caused by consumer packaged goods companies, responding to the increased liability of coupon redemptions. During 2011, CPG manufacturers paid out an incremental $500 million in coupon reimbursement to retailers. Based on what we are seeing from consumer responsiveness in Q1 of 2012, we believe we will see this trend continue.

Additionally, during that same time period, most CPG budgets were placed under even more pressure due to lack of growth in domestic top line sales and increase in commodity costs.

The second factor is the loss of the custom co-op business that began in Q4 2011 and will continue to negatively impact us through the first 3 quarters of this year.

Lastly, we had one last regular co-op FSI date as compared to Q1 2011. Ultimately, given an environment where consumers remain focused on savings, experience tells us that when CPGs pull back on promotional spending, they risk losing market share to competitive brands, including private label. We believe that as this threat becomes real, CPG marketers will look to a solution, namely our FSI, proven to drive incremental sales volume and retailer support. In the meantime, our sales and marketing organization is continuing to aggressively work with our CPG clients to optimize coupon values and resume an increased frequency of promotional programs.

In our Neighborhood Targeted segment, we are also looking at a story that is strongly influenced by a cutback in CPG spending. As you know, this segment is made up of multiple products, including Newspaper Inserts and sampling. The decline in consumer packaged goods spending on these 2 products accounted for over 2/3 of the $17.9 million in quarterly revenue decline we experienced in this segment.

Moving on to our International Digital Media & Services segment, we continue to see growth in 2 businesses. Our Digital business as well as NCH, our coupon clearing and analytics business. The ongoing strength of the U.S. coupon redemption market has continued to fuel our NCH business, creating growth in both their top and bottom lines.

We're also continuing to see momentum build in our Digital Media portfolio. Revenue within our Digital businesses grew nearly 60% year-over-year during the first quarter and we are tracking toward our annual digital plan of $30 million in revenue.

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