American Greetings Announces Third Quarter Earnings

CLEVELAND, Dec. 22, 2010 /PRNewswire-FirstCall/ -- American Greetings Corporation (NYSE: AM) today announced its results for the third fiscal quarter ended November 26, 2010.

Third Quarter Results

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 (all per-share amounts assume dilution).  Compared to the prior year, revenue was down approximately $10.0 million.  Approximately $8.6 million of the revenue decline was a result of the party goods transaction that occurred in December 2009.  Holding aside the effect of the party goods transaction, revenue declined about $1.4 million.  

For the third quarter of fiscal 2010, the Company reported total revenue of $440.2 million, pre-tax income of $38.1 million, and net income of $29.7 million or 75 cents per share.  Included within these results were pre-tax costs related to the wind down of the Mexican operations of $5.9 million (after-tax of approximately $5.7 million) or approximately 14 cents per share as well as incremental variable compensation expense of approximately $12.1 million (after-tax of approximately $7.4 million) or approximately 19 cents during the quarter.

Management Comments and Outlook

Chief Executive Officer Zev Weiss said, "I am pleased with our overall performance in the third fiscal quarter.  We have managed to continuously develop new and innovative products while tightly managing expenses, which has resulted in solid earnings for the quarter.  During the fourth fiscal quarter, we will face the traditional risk of Christmas and Valentines Day holidays, and this year we face the additional uncertainty of the pace of the economic recovery, which makes consumer buying patterns more difficult to predict.  However, we believe our refined business portfolio, along with the changes we have made to our capital structure over the last several years, position the Company well for the opportunities and challenges ahead.  We expect to at least meet our projected cash flow from operations minus capital expenditures goal of $125 million with upside to this estimate based on further improvements to the balance sheet and lower than anticipated capital expenditures."

Previously, for fiscal year 2011, the Company projected cash flow from operating activities of about $165 million and capital expenditures of approximately $40 million resulting in cash flow from operating activities minus capital expenditures of approximately $125 million.

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 Investor Relations 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.  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).  AG Interactive also offers digital photo sharing and personal publishing at PhotoWorks.com and Webshots.com and provides a one-stop source for online graphics and animations at Kiwee.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 revenue, after-tax, earnings per share, and liquidity amounts included in this 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% for U.S. based items and the appropriate statutory rates for international jurisdictions.  Management believes that providing adjusted revenue information is useful to investors as it explains the impact of the party goods transaction on the Company's total revenue.  In addition, Management believes that providing after-tax and earnings per share information is useful to investors in analyzing the Company's results and that cash flow from operating activities minus capital expenditures provides a liquidity measure 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 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;
• the Company's successful transition of the Retail Operations segment to its buyer, Schurman Fine Papers, and Schurman Fine Papers' ability to successfully operate its retail operations and satisfy its obligations to the Company;
• retail consolidations, acquisitions and bankruptcies, including the possibility of resulting adverse changes to retail contract terms;
• the ability to achieve the desired benefits associated with the Company's cost reduction efforts;
• the timing and impact of converting customers to a scan-based trading model;
• the Company's ability to successfully integrate both Recycled Paper Greetings and Papyrus;
• the ability to achieve both the desired benefits from the transaction with Amscan as well as ensuring a seamless transition for affected retail customers and consumers;
• 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 investments in new retail or product strategies as well as new product introductions and achieving the desired benefits from those investments;
• consumer acceptance of products as priced and marketed;
• the impact of technology 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 Annual Report on Form 10-K.

SOURCE American Greetings Corporation