Message #3 From:
NewsBot Date: August 2, 2006 01:34:00 PM
AD News ADVO Reports Third Quarter Results
WINDSOR, Conn.--(BUSINESS WIRE)--Aug. 2, 2006--ADVO, Inc. (NYSE: AD) today reported that revenue for its third fiscal quarter ended July 1, 2006 was $386.8 million versus $353.6 million in the prior year quarter, and operating income was $12.7 million versus $22.4 million in the prior year quarter. Diluted E.P.S. was $0.22 versus $0.41 in the prior year quarter. The third fiscal quarter of 2006 contained a planned extra week versus the prior year period due to the Company's 52/53 week fiscal year.
Both this year's third quarter and the prior year's third quarter contained certain non-recurring costs. Included in the third fiscal quarter of 2006 was a charge of $0.03 in E.P.S. related to the previously announced closure of its Memphis production facility, the new newspaper agreement in Southern California, and the outsourcing of its graphics print services. The Company also incurred expenses of approximately $0.05 in E.P.S. related to its anticipated merger with Valassis. In addition to these non-recurring costs, the Company incurred additional expenses of $0.03 in E.P.S. year-over-year related to the adoption of FAS123(R). The prior year period E.P.S. included a charge of $0.07 per share related to an organizational realignment. The chart below details third quarter E.P.S. impacts for both years.
Third quarter fiscal 2006 distribution expense and print and paper expense as a percent of revenue increased 3.2 percentage points and 0.3 percentage points, respectively. All other costs of sales netted no change as a percent of revenue, resulting in a gross margin decrease of 3.5 percentage points of revenue. SG&A for the third quarter increased $4.4 million, or 6.8%, which was a 0.4 percentage point improvement as a percent of revenue. Third quarter fiscal 2006 operating income as a percent of revenue declined 3.1 percentage points versus the prior year period. The Company's margins were negatively impacted by costs associated with the transition to the new order entry system during the quarter, which the Company estimates to be in the range of $0.06-$0.09 in E.P.S.
The Company's shared advertising packages grew 8.9% to 1.1 billion (up 2.7% after adjusting the fiscal calendar to the comparable prior year period). Pieces per package were 8.4, down 0.2%. Total shared advertising piece volumes grew 8.6% to 9.5 billion (up 3.1% after adjusting the fiscal calendar to the comparable prior year period). Revenue per piece declined 1.9% driven by declines in ShopWise(R) Wrap revenue and lighter grocery circulars. Total zone products (ShopWise(R) Wrap and Missing Child Card) revenue declined $5 million year-over-year after adjusting the fiscal calendar to the comparable prior year period, an improvement versus the $7 million year-over-year decline in the second fiscal quarter.
Scott Harding, ADVO's Chief Executive Officer stated, "We have successfully converted to our new order entry system during the quarter. This is an accomplishment that has been four years in the making. I am proud of the tremendous efforts given by ADVO associates across the organization to overcome the normal challenges associated with the implementation of an enterprise wide system and successfully go live. As we put this system transition behind us, we are confident in our ability to gain focus and momentum in our core business operations as we close fiscal 2006 and move into fiscal 2007."
Mr. Harding went on to state, "We are working closely with Valassis to develop and, after closing, execute a successful integration of the two companies. This merger will create a diversified company, combining complementary capabilities, product and service offerings and clients. The combined Company will be well positioned for future growth with an expanded product portfolio which can serve the diverse media needs in today's marketplace. We are excited about the opportunities this will bring for employees, shareholders and clients as we create the nation's largest integrated media solutions provider."
The Company will hold an analyst conference call to discuss its third quarter earnings today at 5:15-6:00 p.m. ET. The call in number is 1-800-818-5264, and the replay number is 1-888-203-1112 (access code #4270918). The replay will be available until midnight August 25, 2006. The call will also be available via webcast through the Investor Relations section of ADVO's website at www.advo.com.
Diluted Earnings per Share: Reconciliation of The Pro Forma Impact of
the Adoption of FAS123(R) and Other One-time Charges*
Three Months Ended
-----------------------
July 1, June 25,
2006 2005
----------- -----------
Diluted Earnings per share - As Reported $ 0.22 $ 0.41
Realignment charge (3Q05) -- 0.07
Severance expense (3Q06 Strategic Initiatives) 0.03 --
Merger related expenses 0.05 --
Incremental expense related to adoption of
FAS123(R) 0.03 --
---------- ----------
Diluted Earnings per share - Pro Forma ** $ 0.33 $ 0.48
========== ==========
* This non-GAAP financial measure reconciliation is provided because
3Q06 as reported E.P.S. includes incremental expenses the Company
incurred as a result of various strategic initiatives and the adoption
of new accounting rules related to FAS123(R). 3Q05 as reported E.P.S.
includes a charge related to an organizational realignment. Management
believes that reconciling E.P.S. in this manner facilitates
comparisons to prior period results and assists securities analysts
and others when comparing actual results to their expectations. The
above non-GAAP E.P.S. calculation should not be considered a
substitute for GAAP E.P.S.
** This non-GAAP financial measure does not adjust for estimated
margin impact of $0.06-$0.09 in E.P.S. related to the transition to
the Company's new order entry system in 3Q06.
This press release may contain certain statements regarding ADVO's business outlook, prospects, future economic performance, anticipated profitability, revenues, expenses or other financial items, future contracts, market opportunities and other statements that are not historical facts, such statements are "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, each as amended. Such forward looking statements are based on current information and expectations and are subject to risks and uncertainties which could cause ADVO's actual results to differ materially from those in the forward looking statements. ADVO's business is promotional in nature, and ADVO serves its clients on a "just in time" basis. As a result, fluctuations in the amount, timing, pages, weight, and kinds of advertising pieces can vary significantly from period to period, depending on its customers' promotional needs, inventories, and other factors. In any particular period these transactional fluctuations are difficult to predict, and can materially affect ADVO's revenue and profit results. ADVO's business contains additional risks and uncertainties which include, but are not limited to: general changes in customer demand and pricing; the possibility of consolidation in the retail sector; the impact of economic or political conditions on advertising spending and ADVO's distribution system; postal and paper prices; possible governmental regulation or legislation affecting aspects of ADVO's business; the efficiencies achieved with technology upgrades; fluctuations in interest rates; the ability and timing for the closing conditions to be satisfied in connection with ADVO's merger agreement with Valassis and other general economic factors.
ADVO is the nation's leading direct mail media company, with annual revenues of nearly $1.4 billion. Serving 17,000 national, regional and local retailers, the company reaches 114 million households, more than 90% of the nation's homes, with its ShopWise(R) shared mail advertising.
The company's industry-leading targeting technology, coupled with its unparalleled logistics capabilities, enable retailers seeking superior return on investment to target, version and deliver their print advertising directly to consumers most likely to respond.
Demonstrating ADVO's effectiveness as a print medium, the company's "Have You Seen Me? (R)" missing child card, distributed with each ShopWise(R) package, is the most recognized mail in America. This signature public service program has been responsible for safely recovering 142 children. The program was created in partnership with the National Center for Missing & Exploited Children and the U.S. Postal Service in 1985.
ADVO employs 3,700 people at its 24 mail processing facilities, 33 sales offices and headquarters in Windsor, CT. The company can be visited online at www.ADVO.com.
ADVO, Inc.
Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
Three months ended Nine months ended
------------------ -----------------------
July 1, June 25, July 1, June 25,
2006 2005 2006 2005
--------- -------- ----------- -----------
Revenues $386,753 $353,642 $1,099,759 $1,042,459
Cost of sales 304,101 265,723 860,282 795,122
Selling, general and
administrative 69,928 65,497 195,842 192,307
--------- -------- ----------- -----------
Operating income 12,724 22,422 43,635 55,030
Interest expense (2,619) (1,798) (6,685) (5,038)
Equity earnings in joint
ventures 787 405 2,352 1,478
Other income (expense), net 102 (58) 190 (338)
--------- -------- ----------- -----------
Income before income taxes 10,994 20,971 39,492 51,132
Provision for income taxes 4,038 7,952 15,066 19,574
--------- -------- ----------- -----------
Net income $ 6,956 $13,019 $ 24,426 $ 31,558
========= ======== =========== ===========
Basic earnings per share $ 0.22 $ 0.42 $ 0.78 $ 1.02
========= ======== =========== ===========
Diluted earnings per share $ 0.22 $ 0.41 $ 0.78 $ 1.01
========= ======== =========== ===========
Dividends declared per
share $ 0.11 $ 0.11 $ 0.33 $ 0.33
========= ======== =========== ===========
Weighted average basic
shares 31,421 31,083 31,344 30,932
Weighted average diluted
shares 31,531 31,407 31,513 31,330
ADVO, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
July 1, September 24,
2006 2005
------------ -------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 21,551 $ 46,238
Accounts receivable, net 239,576 162,542
Inventories 4,317 2,500
Prepaid postage 889 10,747
Prepaid expenses and other current
assets 7,834 6,360
Federal income taxes receivable -- 2,884
Deferred income taxes 13,599 10,996
------------ -------------
Total current assets 287,766 242,267
Property, plant and equipment 445,277 420,738
Less accumulated depreciation and
amortization (249,117) (226,735)
------------ -------------
Net property, plant and equipment 196,160 194,003
Investment in deferred compensation plan 15,920 15,134
Goodwill 22,880 22,824
Other assets 3,655 4,502
------------ -------------
TOTAL ASSETS $ 526,381 $ 478,730
============ =============
LIABILITIES
Current liabilities:
Current portion of long-term debt 21,000 --
Accounts payable 49,642 55,276
Accrued compensation and benefits 26,103 27,919
Customer advances 13,828 7,302
Federal and state income taxes payable 2,356 325
Other current liabilities 25,985 25,468
------------ -------------
Total current liabilities 138,914 116,290
Long-term debt 123,199 124,867
Deferred income taxes 26,774 29,641
Deferred compensation plan 16,806 16,172
Other liabilities 12,430 6,475
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value
(Authorized 5,000,000 shares, none
issued) --- ---
Common stock, $.01 par value (Authorized
80,000,000 shares, issued 32,039,693
and 31,719,419 shares, respectively) 320 317
Additional paid-in capital 185,596 180,510
Unamortized deferred compensation -- (3,846)
Accumulated earnings 31,189 17,182
Less shares of common stock held in
treasury at cost (8,887) (8,124)
Less shares of common stock held in
deferred compensation trust (885) (1,038)
Accumulated other comprehensive income 925 284
------------ -------------
Total stockholders' equity 208,258 185,285
------------ -------------
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $ 526,381 $ 478,730
============ =============
ADVO, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Nine Months Ended
-------------------
July 1, June 25,
2006 2005
--------- ---------
Cash flows from operating activities:
Net income $ 24,426 $ 31,558
Adjustments to reconcile net income to net cash
flows (used) provided by operating activities:
Depreciation 31,541 28,644
Stock-based compensation 5,867 1,947
Amortization of debt issue costs 415 416
Deferred income taxes (5,795) 4,930
Provision for bad debts 4,609 6,327
Equity earnings from joint ventures (2,352) (1,478)
Other (40) 34
Change in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable (81,772) (25,874)
Inventories (1,816) (303)
Prepaid postage 9,857 (10)
Prepaid expenses and other current assets (1,471) (2,195)
Investment in deferred compensation plan 50 (296)
Other assets 500 1,581
Accounts payable (5,486) (8,895)
Accrued compensation and benefits (1,825) 1,575
Deferred compensation plan (50) 296
Customer advances 6,523 (3,560)
Federal and state income taxes payable 4,786 1,985
Other liabilities 5,614 (1,390)
Distributions from equity joint ventures 2,284 1,583
--------- ---------
Net cash (used) provided by operating activities (4,135) 36,875
Cash flows from investing activities:
Expenditures for property, plant and equipment (34,156) (30,992)
Proceeds from disposals of property, plant and
equipment 504 1,722
--------- ---------
Net cash used by investing activities (33,652) (29,270)
Cash flows from financing activities:
Revolver line credit - net 21,000 ---
Proceeds from exercise of stock options 2,713 10,281
Tax benefit from stock transactions 486 ---
Treasury stock transactions related to stock
awards (762) (1,400)
Cash dividends paid (10,408) (10,220)
--------- ---------
Net cash provided (used) by financing activities 13,029 (1,339)
Effect of exchange rate changes on cash and cash
equivalents 71 41
Change in cash and cash equivalents (24,687) 6,307
Cash and cash equivalents at beginning of period 46,238 30,284
--------- ---------
Cash and cash equivalents at end of period $ 21,551 $ 36,591
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