American Greetings Announces Third Quarter Earnings
CLEVELAND, December 22, 2011 /PRNewswire/ --
American Greetings Corporation (NYSE: AM) today announced its results for the third fiscal quarter ended November 25, 2011.
Third Quarter Results
For the third quarter of fiscal 2012, the Company reported total revenue of $463.6 million, pre-tax income of $29.7 million, and net income of $20.2 million or 50 cents per share (all per-share amounts assume dilution). Compared to the prior year, revenue increased approximately $33.5 million, or about eight percent.
Last year, for the third quarter of fiscal 2011, the Company reported total revenue of $430.1 million, pre-tax income of $51.5 million, and net income of $32.2 million or 78 cents per share.
Management Comments
Chief Executive Officer Zev Weiss said, "I am delighted with our revenue growth this quarter in both our domestic and international businesses. We believe that our commitment to our product leadership strategy continues to be successful, our investments are helping to drive revenue, and we feel good about our overall momentum in the marketplace. With our strong revenue growth this quarter, we feel more confident regarding our ability to hit or surpass the full year revenue growth target of three percent."
Outlook
Previously, for fiscal year 2012, the Company projected revenue to grow approximately 3 percent compared to fiscal year 2011. The Company projected cash flow from operating activities to fall within the range of $125 million to $145 million and capital expenditures between $45 million and $50 million, resulting in cash flow from operating activities minus capital expenditures of $80 million to $100 million.
As a result of the additional expenses and investments to support the Company's product leadership strategy and its expanded customer relationships, as well as the information systems refresh project, the Company now expects fiscal year 2012 cash flow from operating activities, less capital expenditures, to be lower than previously estimated. The Company estimates cash flow from operating activities to be around $90 million to $110 million and capital expenditures to be around $55 million to $70 million, resulting in cash flow from operating activities minus capital expenditures of roughly $35 million to $50 million. As part of that estimate, and in order to support revenue growth, the Company expects a meaningful use of cash for balance sheet items such as working capital.
Financing Activities
Under the Company's $75 million share repurchase program, during the third fiscal quarter the Company purchased approximately 2.0 million shares of its common stock for about $34.5 million. These repurchases complete the sixth share repurchase program announced in January, 2009. The share repurchases this third fiscal quarter are a continuation of a multi-year effort under which the Company has reduced its diluted share count by about 50 percent over the past seven years.
Conference Call on the Web
American Greetings will broadcast its conference call live on the Internet at 9:00 a.m. Eastern time today. The conference call will be accessible through the Investors section of the American Greetings Web site at http://investors.americangreetings.com. A replay of the call will also be available on the site.
About American Greetings Corporation
For more than 100 years, American Greetings Corporation (NYSE: AM) has been a creator and manufacturer of innovative social expression products that assist consumers in enhancing their relationships to create happiness, laughter and love. The Company's major greeting card lines are American Greetings, Carlton Cards, Gibson, Recycled Paper Greetings and Papyrus, and other paper product offerings include DesignWare party goods and American Greetings and Plus Mark gift-wrap and boxed cards. American Greetings also has one of the largest collections of greetings on the Web, including greeting cards available at Cardstore.com and electronic greeting cards available at AmericanGreetings.com. In addition to its product lines, American Greetings also creates and licenses popular character brands through the American Greetings Properties group. Headquartered in Cleveland, Ohio, American Greetings generates annual revenue of approximately $1.6 billion, and its products can be found in retail outlets worldwide. For more information on the Company, visit http://corporate.americangreetings.com.
Non-GAAP Measures
Certain liquidity amounts included in the earnings release may be considered non-GAAP measures under the Securities and Exchange Commission's Regulation G. Management believes that cash flow from operating activities minus capital expenditures provides a liquidity measure that is useful to investors in analyzing the cash generation of the Company.
Factors That May Affect Future Results
Certain statements in this release, including those under Management Comments and Outlook, may constitute forward-looking statements within the meaning of the Federal securities laws. These statements can be identified by the fact that they do not relate strictly to historic or current facts. They use such words as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. These forward-looking statements are based on currently available information, but are subject to a variety of uncertainties, unknown risks and other factors concerning the Company's operations and business environment, which are difficult to predict and may be beyond the control of the Company. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements, and that could adversely affect the Company's future performance, include, but are not limited to, the following:
- a weak retail environment and general economic conditions;
- competitive terms of sale offered to customers, including costs and other terms associated with new and expanded customer relationships;
- the loss of one or more retail customers and/or retail consolidations, acquisitions and bankruptcies, including the possibility of resulting adverse changes to retail contract terms;
- the timing and impact of expenses incurred and investments made to support new retail or product strategies as well as new product introductions and achieving the desired benefits from those investments;
- the timing of investments in, together with the ability to successfully implement or achieve the desired benefits associated with, any information systems refresh the Company may implement;
- the timing and impact of converting customers to a scan-based trading model;
- the ability to achieve the desired benefits associated with the Company's cost reduction efforts;
- Schurman Fine Papers' ability to successfully operate its retail operations and satisfy its obligations to the Company;
- consumer acceptance of products as priced and marketed including the success of new and expanded advertising and marketing efforts, such as the Company's on-line efforts through Cardstore.com;
- the impact and availability of technology, including social media, on product sales;
- escalation in the cost of providing employee health care;
- the Company's ability to achieve the desired accretive effect from any share repurchase programs;
- the Company's ability to comply with its debt covenants;
- fluctuations in the value of currencies in major areas where the Company operates, including the U.S. Dollar, Euro, U.K. Pound Sterling, and Canadian Dollar; and
- the outcome of any legal claims known or unknown.
Risks pertaining specifically to AG Interactive include the viability of online advertising, subscriptions as revenue generators, and the ability to adapt to rapidly changing social media and the digital photo sharing space.
In addition, this release contains time-sensitive information that reflects management's best analysis as of the date of this release; however the risks and uncertainties identified above are not the only risks the Company faces. Additional risks and uncertainties not presently known to the Company or that the Company believes to be immaterial also may adversely affect American Greetings. Should any known or unknown risks or uncertainties develop into actual events, or underlying assumptions prove inaccurate, these developments could have a material adverse effect on our business, financial condition and results of operations. American Greetings does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this release. Further information concerning issues that could materially affect performance related to forward-looking statements can be found in the Company's periodic filings with the Securities and Exchange Commission, including the "Risk Factors" section of the Company's Fiscal 2011 Annual Report on Form 10-K.
AMERICAN GREETINGS CORPORATION
THIRD QUARTER CONSOLIDATED STATEMENT OF INCOME
FISCAL YEAR ENDING FEBRUARY 29, 2012
(In thousands of dollars except share and per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
November 25, November 26, November 25, November 26,
2011 2010 2011 2010
Net sales $ 457,143 $ 421,990 $ 1,213,660 $ 1,147,434
Other revenue 6,472 8,148 21,097 21,831
Total revenue 463,615 430,138 1,234,757 1,169,265
Material, labor and
other production costs 230,572 199,177 546,699 502,903
Selling, distribution
and marketing expenses 140,110 117,314 388,491 347,183
Administrative and
general expenses 60,510 58,725 186,734 186,950
Other operating
income - net (813) (1,048) (6,858) (2,578)
Operating income 33,236 55,970 119,691 134,807
Interest expense 5,821 6,221 17,708 19,141
Interest income (207) (176) (838) (586)
Other non-operating
income - net (2,078) (1,618) (2,622) (3,321)
Income before income
tax expense 29,700 51,543 105,443 119,573
Income tax expense 9,454 19,380 38,128 48,039
Net income $ 20,246 $ 32,163 $ 67,315 $ 71,534
Earnings per
share - basic $ 0.51 $ 0.80 $ 1.67 $ 1.79
Earnings per share
- assuming dilution $ 0.50 $ 0.78 $ 1.63 $ 1.75
Average number of
common shares
outstanding 39,480,798 40,071,916 40,226,039 39,912,378
Average number of
common shares
outstanding -
assuming dilution 40,436,865 40,985,909 41,381,157 40,911,964
Dividends declared
per share $ 0.15 $ 0.14 $ 0.45 $ 0.42
AMERICAN GREETINGS CORPORATION
THIRD QUARTER CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FISCAL YEAR ENDING FEBRUARY 29, 2012
(In thousands of dollars)
(Unaudited)
Restated
November 25, November 26,
2011 2010
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 85,661 $ 93,899
Trade accounts receivable, net 235,318 206,286
Inventories 214,412 181,511
Deferred and refundable
income taxes 57,400 85,694
Assets held for sale - 14,148
Prepaid expenses and other 127,376 127,597
Total current assets 720,167 709,135
GOODWILL 27,713 31,686
OTHER ASSETS 422,765 403,815
DEFERRED AND REFUNDABLE INCOME TAXES 128,595 146,767
Property, plant and equipment - at cost 882,709 847,085
Less accumulated depreciation 624,669 612,166
PROPERTY, PLANT AND EQUIPMENT - NET 258,040 234,919
$ 1,557,280 $ 1,526,322
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 108,254 $ 97,899
Accrued liabilities 67,596 66,797
Accrued compensation and benefits 58,411 59,128
Income taxes payable 26,626 39,593
Other current liabilities 90,440 85,156
Total current liabilities 351,327 348,573
LONG-TERM DEBT 234,642 232,078
OTHER LIABILITIES 182,565 188,226
DEFERRED INCOME TAXES AND
NONCURRENT INCOME TAXES PAYABLE 21,769 32,824
SHAREHOLDERS' EQUITY
Common shares - Class A 35,562 37,199
Common shares - Class B 2,778 2,905
Capital in excess of par value 509,999 486,399
Treasury stock (995,338) (952,183)
Accumulated other
comprehensive loss (14,293) (27,114)
Retained earnings 1,228,269 1,177,415
Total shareholders'
equity 766,977 724,621
$ 1,557,280 $ 1,526,322
AMERICAN GREETINGS CORPORATION
THIRD QUARTER CONSOLIDATED STATEMENT OF CASH FLOWS
FISCAL YEAR ENDING FEBRUARY 29, 2012
(In thousands of dollars)
(Unaudited)
Nine Months Ended
November 25, November 26,
2011 2010
OPERATING ACTIVITIES:
Net income $ 67,315 $ 71,534
Adjustments to reconcile net
income to cash flows from
operating activities:
Stock-based compensation 8,038 9,735
Net gain on dispositions (4,500) (254)
Net gain on disposal of fixed assets (807) (1,599)
Depreciation and intangible
assets amortization 29,719 30,336
Deferred income taxes 6,412 3,957
Other non-cash charges 2,747 2,616
Changes in operating assets
and liabilities, net of acquisitions:
Trade accounts receivable (117,419) (71,336)
Inventories (30,939) (16,461)
Other current assets 5,993 (694)
Income taxes 3,362 36,187
Deferred costs - net (3,838) 19,365
Accounts payable and
other liabilities 3,528 (31,541)
Other - net (1,576) 5,896
Total Cash Flows From
Operating Activities (31,965) 57,741
INVESTING ACTIVITIES:
Property, plant and equipment additions (43,531) (19,660)
Cash payments for business
acquisitions, net of cash acquired (5,899) -
Proceeds from sale of fixed assets 9,046 3,835
Proceeds from escrow related to party
goods transaction - 25,151
Proceeds from sale of intellectual
properties 4,500 -
Total Cash Flows From Investing
Activities (35,884) 9,326
FINANCING ACTIVITIES:
Net decrease in long-term debt - (98,250)
Net decrease in short-term debt - (1,000)
Sale of stock under benefit plans 12,293 17,173
Excess tax benefits from share-based
payment awards 2,380 2,658
Purchase of treasury shares (55,304) (13,439)
Dividends to shareholders (18,146) (16,737)
Debt issuance costs - (3,178)
Total Cash Flows From
Financing Activities (58,777) (112,773)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3,551) 1,656
DECREASE IN CASH AND CASH EQUIVALENTS (130,177) (44,050)
Cash and Cash Equivalents at
Beginning of Year 215,838 137,949
Cash and Cash Equivalents at
End of Period $ 85,661 $ 93,899
AMERICAN GREETINGS CORPORATION
THIRD QUARTER CONSOLIDATED SEGMENT DISCLOSURES
FISCAL YEAR ENDING FEBRUARY 29, 2012
(In thousands of dollars)
(Unaudited)
Three Months Ended Nine Months Ended
November 25, November 26, November 25, November 26,
2011 2010 2011 2010
Total Revenue:
North American Social
Expression Products $ 331,913 $ 317,521 $ 898,193 $ 877,988
International Social
Expression Products 103,352 80,103 249,448 192,412
AG Interactive 16,878 19,233 49,664 55,954
Non-reportable segments 11,472 13,281 37,452 42,911
$ 463,615 $ 430,138 $ 1,234,757 $ 1,169,265
Segment Earnings (Loss):
North American Social
Expression Products $ 28,016 $ 51,098 $ 113,009 $ 143,788
International Social
Expression Products 9,537 9,982 15,308 14,141
AG Interactive 3,737 5,135 10,970 10,393
Non-reportable segments 2,368 1,438 17,467 6,907
Unallocated (13,958) (16,110) (51,311) (55,656)
$ 29,700 $ 51,543 $ 105,443 $ 119,573
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