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Growth Slight At American Greetings
Greeting card company American Greetings (NYSE:AM) reported slight increases in net income and revenue for its fiscal first quarter of 2011. The market, however, expected better, as it drove shares down 8% on the news. The company continues its transition from a pure paper products business to a more integrated paper and digital one.
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The Quarter's Results
American Greetings reported net income of $32.6 million or 78 cents per diluted share, compared to $30.8 million or 75 cents in the same quarter last year. Revenue reached $402.3 million for the quarter, compared to $396.3 million a year ago. Analysts were looking for 79 cents.
Revenue was reduced by $1.9 million on conversion to its scan-based trading system, which had a pre-tax impact on income of $2.3 million and an after-tax impact of $1.4 million, reducing EPS by 3 cents. Scan-based trading is where retailers are not charged for items until they are sold, so suppliers technically continue to be the owner of the item. While scan-based trading is a good deal for the retailer, it generally has resulted in sales increases, so the supplier or manufacturer should ultimately benefit. American Greetings has been implementing this system with its retailers.
One note that concerned the market was that North American sales fell by 1.9%, while international revenue grew by 22%. North American sales are roughly three-quarters of American Greetings' revenue.This along with the earnings miss no doubt were the decisive factors in the market's sell-off of the stock. (Find out how to tell whether your stock is a bargain or a bank breaker. For more, see Sympathy Sell-Off: An Investor's Guide.)
From Traditional to Digital
While retailers of diverse stripes from traditional drugstores such as Walgreen (NYSE:WAG), CVS (NYSE:CVS) and Rite Aid (NYSE:RAD) along with discount and dollar stores such as Dollar General (NYSE:DG) sell greeting cards, card retailers are also incorporating more digital retailing. American Greetings, in addition to starting up new paper card lines such as Yakety Yaks and justWinks, has also fused these lines with the new technology. An app for smartphones enables customers to scan a code from paper cards which will extend the content with digital material. These are in addition to the American Greetings' kiosk uses of e-card technology, particularly through its online outlet, AG interactive. (For related reading, see The 4 R's Of Investing In Retail.)
Outlook, Financials And The Stock
The company expects revenue for fiscal 2011 to increase by 5% and full year free cash flow to be between $80 million and $100 million. Cash flow from operating activities is expected to be between $125 million and $145 million, while capital expenditures should run between $45 million and $50 million.
American Greetings currently has cash and cash equivalents of $211 million, with long-term debt of $233 million.The company is in an industry that is certainly in transition, and is hardly a gigantic company - with a market cap currently just under $1 billion. It isn't putting up huge numbers, but it has intriguing potential. It competes with private Hallmark as well as the many fragmented online electronic greeting websites and companies. While its growth is modest, so too is its multiple. The company trades at around 11 times earnings. That's the key right there: growth. American Greetings needs to figure out how to ramp up its growth in a changing industry so investors will become more interested in its stock. (For related reading, see Analyze Cash Flow The Easy Way.)
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TUTORIAL: Investing 101
The Quarter's Results
American Greetings reported net income of $32.6 million or 78 cents per diluted share, compared to $30.8 million or 75 cents in the same quarter last year. Revenue reached $402.3 million for the quarter, compared to $396.3 million a year ago. Analysts were looking for 79 cents.
Revenue was reduced by $1.9 million on conversion to its scan-based trading system, which had a pre-tax impact on income of $2.3 million and an after-tax impact of $1.4 million, reducing EPS by 3 cents. Scan-based trading is where retailers are not charged for items until they are sold, so suppliers technically continue to be the owner of the item. While scan-based trading is a good deal for the retailer, it generally has resulted in sales increases, so the supplier or manufacturer should ultimately benefit. American Greetings has been implementing this system with its retailers.
From Traditional to Digital
While retailers of diverse stripes from traditional drugstores such as Walgreen (NYSE:WAG), CVS (NYSE:CVS) and Rite Aid (NYSE:RAD) along with discount and dollar stores such as Dollar General (NYSE:DG) sell greeting cards, card retailers are also incorporating more digital retailing. American Greetings, in addition to starting up new paper card lines such as Yakety Yaks and justWinks, has also fused these lines with the new technology. An app for smartphones enables customers to scan a code from paper cards which will extend the content with digital material. These are in addition to the American Greetings' kiosk uses of e-card technology, particularly through its online outlet, AG interactive. (For related reading, see The 4 R's Of Investing In Retail.)
Outlook, Financials And The Stock
The company expects revenue for fiscal 2011 to increase by 5% and full year free cash flow to be between $80 million and $100 million. Cash flow from operating activities is expected to be between $125 million and $145 million, while capital expenditures should run between $45 million and $50 million.
American Greetings currently has cash and cash equivalents of $211 million, with long-term debt of $233 million.The company is in an industry that is certainly in transition, and is hardly a gigantic company - with a market cap currently just under $1 billion. It isn't putting up huge numbers, but it has intriguing potential. It competes with private Hallmark as well as the many fragmented online electronic greeting websites and companies. While its growth is modest, so too is its multiple. The company trades at around 11 times earnings. That's the key right there: growth. American Greetings needs to figure out how to ramp up its growth in a changing industry so investors will become more interested in its stock. (For related reading, see Analyze Cash Flow The Easy Way.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Greg Sushinsky
Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
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