American Greetings Announces Second Quarter Earnings

Sep 27, 2011, 07:30 ET from American Greetings Corporation

CLEVELAND, Sept. 27, 2011 /PRNewswire/ -- American Greetings Corporation (NYSE: AM) today announced its results for the second fiscal quarter ended August 26, 2011.

Second Quarter Results

For the second quarter of fiscal 2012, the Company reported total revenue of $368.8 million, pre-tax income of $25.0 million, and net income of $14.5 million or 35 cents per share (all per-share amounts assume dilution).  Compared to the prior year, revenue increased approximately $26 million.  Included within these results was a pre-tax benefit from the sale of certain minor characters in our intellectual property portfolio of $4.5 million (after-tax of approximately $2.8 million) or approximately 7 cents per share.

For the second quarter of fiscal 2011, the Company reported total revenue of $342.8 million, pre-tax income of $17.0 million, and net income of $8.5 million or 21 cents per share.  During the quarter, the Company incurred pre-tax costs associated with the integrations of Papyrus and Recycled Paper Greetings of $5.2 million (after-tax of approximately $3.2 million) or approximately 8 cents per share.

Management Comments and Outlook

Chief Executive Officer Zev Weiss said, “I am very pleased with our innovative new products and revenue growth this quarter, which resulted in market share gains both domestically and internationally.  As we look at the balance of this year, we are certainly more cautious than we were at the beginning of the year about the global economy and the effect it is having on the consumer.  However, while this could create earnings volatility during the second half of the year, we remain steadfast in our investments to continue our product leadership and remain focused on our longer term goals.”

Financing Activities

Under the Company’s $75 million share repurchase program, during the second fiscal quarter the Company purchased approximately 0.5 million shares of its common stock for about $11.1 million.  The share repurchases this second fiscal quarter are a continuation of a multi-year effort where the Company has reduced its diluted share count by about 50 percent over the past six-and-a-half 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 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 electronic greetings on the Web, including cards available at AmericanGreetings.com through AG Interactive, Inc. (the Company's online division).  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 after-tax and earnings per share amounts included in this earnings release may be considered non-GAAP measures under the Securities and Exchange Commission’s Regulation G.  The after-tax amounts were calculated based on the Company's statutory tax rate of approximately 38.9%.  The earnings per share amounts were calculated based on the average number of common shares outstanding assuming dilution for the period presented.  Management believes that after-tax and earnings per share information is useful in analyzing the Company's results.

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 financial performance, include, but are not limited to, the following:

  • a weak retail environment and general economic conditions;
  • competitive terms of sale offered to customers;
  • 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;
  • the impact of technology, including social media, on core 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.  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 financial 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

SECOND 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

Six Months Ended

August 26, 2011

August 27, 2010

August 26, 2011

August 27, 2010

Net sales

$          359,741

$          333,339

$          756,517

$          725,444

Other revenue

9,052

9,480

14,625

13,683

Total revenue

368,793

342,819

771,142

739,127

Material, labor and other production costs

158,198

145,713

316,127

303,726

Selling, distribution and marketing expenses

125,089

112,318

248,381

229,869

Administrative and general expenses

60,926

62,193

126,224

128,225

Other operating income - net

(5,122)

(936)

(6,045)

(1,530)

Operating income

29,702

23,531

86,455

78,837

Interest expense

5,763

6,718

11,887

12,920

Interest income

(310)

(197)

(631)

(410)

Other non-operating income - net

(704)

(3)

(544)

(1,703)

Income before income tax expense

24,953

17,013

75,743

68,030

Income tax expense

10,477

8,481

28,674

28,659

Net income

$            14,476

$              8,532

$            47,069

$            39,371

Earnings per share - basic

$                0.36

$                0.21

$                1.16

$                0.99

Earnings per share - assuming dilution

$                0.35

$                0.21

$                1.12

$                0.96

Average number of common shares outstanding

40,696,961

40,026,649

40,598,659

39,832,609

Average number of common shares outstanding -    assuming dilution

41,688,787

40,875,329

41,842,760

40,861,761

Dividends declared per share                        

$                0.15

$                0.14

$                0.30

$                0.28

AMERICAN GREETINGS CORPORATION

SECOND QUARTER CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FISCAL YEAR ENDING FEBRUARY 29, 2012

(In thousands of dollars)

(Unaudited)

August 26, 2011

August 27, 2010

ASSETS

CURRENT ASSETS

Cash and cash equivalents

$          209,326

$          133,834

Trade accounts receivable, net

111,691

89,408

Inventories

248,805

189,366

Deferred and refundable income taxes

45,029

61,742

Assets held for sale

5,282

13,711

Prepaid expenses and other

110,598

113,112

   Total current assets

730,731

601,173

GOODWILL

29,044

29,929

OTHER ASSETS

430,344

413,808

DEFERRED AND REFUNDABLE INCOME TAXES

129,594

153,775

Property, plant and equipment - at cost

872,455

845,497

Less accumulated depreciation

620,875

607,215

PROPERTY, PLANT AND EQUIPMENT - NET

251,580

238,282

$       1,571,293

$       1,436,967

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts payable

$          118,162

$            88,668

Accrued liabilities

56,056

59,283

Accrued compensation and benefits

47,916

48,287

Income taxes payable

15,812

23,052

Other current liabilities

97,602

87,872

   Total current liabilities

335,548

307,162

LONG-TERM DEBT

233,970

231,525

OTHER LIABILITIES

184,259

190,457

DEFERRED INCOME TAXES AND

 NONCURRENT INCOME TAXES PAYABLE

32,740

32,194

SHAREHOLDERS' EQUITY

Common shares - Class A

37,561

37,137

Common shares - Class B

2,781

2,923

Capital in excess of par value

507,256

482,035

Treasury stock

(962,747)

(951,682)

Accumulated other comprehensive income (loss)

764

(30,815)

Retained earnings

1,199,161

1,136,031

   Total shareholders' equity

784,776

675,629

$       1,571,293

$       1,436,967

AMERICAN GREETINGS CORPORATION

SECOND QUARTER CONSOLIDATED STATEMENT OF CASH FLOWS

FISCAL YEAR ENDING FEBRUARY 29, 2012

(In thousands of dollars)

(Unaudited)

Six Months Ended

August 26, 2011

August 27, 2010

OPERATING ACTIVITIES:

Net income

$            47,069

$            39,371

Adjustments to reconcile net income

to cash flows from operating activities:

Stock-based compensation

5,362

6,261

Net gain on dispositions

(4,500)

(254)

Net gain on disposal of fixed assets

(484)

(1,268)

Depreciation and intangible assets amortization

19,986

20,463

Deferred income taxes

4,039

10,618

Other non-cash charges

1,814

1,949

Changes in operating assets and liabilities,

   net of acquisitions:

Trade accounts receivable

12,829

44,279

Inventories

(64,515)

(24,908)

Other current assets

4,258

(2,169)

Income taxes

2,785

15,125

Deferred costs - net

16,400

27,905

Accounts payable and other liabilities

(8,751)

(54,639)

Other - net

(63)

5,814

Total Cash Flows From Operating Activities

36,229

88,547

INVESTING ACTIVITIES:

Property, plant and equipment additions

(26,951)

(14,128)

Cash payments for business acquisitions, net of cash acquired

(5,992)

-

Proceeds from sale of fixed assets

2,567

2,997

Proceeds from escrow related to party goods transaction

-

25,151

Proceeds from sale of intellectual properties

4,500

-

Total Cash Flows From Investing Activities

(25,876)

14,020

FINANCING ACTIVITIES:

Net decrease in long-term debt

-

(98,250)

Net decrease in short-term debt

-

(1,000)

Sale of stock under benefit plans

12,222

16,540

Excess tax benefits from share-based payment awards

2,370

2,485

Purchase of treasury shares

(20,791)

(13,052)

Dividends to shareholders

(12,176)

(11,127)

Debt issuance costs

-

(2,917)

Total Cash Flows From Financing Activities

(18,375)

(107,321)

EFFECT OF EXCHANGE RATE CHANGES ON CASH

1,510

639

DECREASE IN CASH AND CASH EQUIVALENTS

(6,512)

(4,115)

Cash and Cash Equivalents at Beginning of Year

215,838

137,949

Cash and Cash Equivalents at End of Period

$          209,326

$          133,834

AMERICAN GREETINGS CORPORATION

SECOND QUARTER CONSOLIDATED SEGMENT DISCLOSURES

FISCAL YEAR ENDING FEBRUARY 29, 2012

(In thousands of dollars)

(Unaudited)

Three Months Ended

Six Months Ended

August 26, 2011

August 27, 2010

August 26, 2011

August 27, 2010

Total Revenue:

North American Social Expression Products

$          262,944

$          252,158

$          566,280

$          560,467

International Social Expression Products

75,891

54,736

146,096

112,309

AG Interactive

16,177

18,167

32,786

36,721

Non-reportable segments

13,781

17,758

25,980

29,630

$          368,793

$          342,819

$          771,142

$          739,127

Segment Earnings (Loss):

North American Social Expression Products

$            25,699

$            28,627

$            84,993

$            92,690

International Social Expression Products

2,468

1,325

5,771

4,159

AG Interactive

4,597

2,886

7,233

5,258

Non-reportable segments

10,493

3,317

15,099

5,469

Unallocated

(18,304)

(19,142)

(37,353)

(39,546)

$            24,953

$            17,013

$            75,743

$            68,030

SOURCE American Greetings Corporation



RELATED LINKS

http://corporate.americangreetings.com