ADVO Reports Second Quarter Results.WINDSOR Windsor, British royal family Windsor (wĭn`zər), family name of the royal house of Great Britain. The name Wettin, family name of Albert of Saxe-Coburg-Gotha, consort of Queen Victoria, was changed to Windsor by George V in 1917. , Conn. -- ADVO, Inc. (NYSE NYSE See: New York Stock Exchange : AD) today reported that revenue for its second fiscal quarter ended March 25, 2006 was $354.8 million versus $338.8 million in the prior year quarter and diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. E.P.S. was $0.17 versus $0.33 in the prior year quarter. These results are consistent with the estimates provided by the Company on April 17. The Company's second quarter fiscal 2005 E.P.S. did not include incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. expenses of $0.02 for the expensing of stock options as the result of the adoption of FAS123(R) in fiscal 2006. The Company's shared advertising packages grew 3.3% to 1.07 billion. Pieces per package increased 2.7% to 8.4. Total shared advertising piece volumes grew 6.0% to 8.96 billion. Revenue per piece declined 3.7% due to declines in ShopWise(R) wrap revenue and continued circular Circular may refer to:
Distribution expense as a percent of revenue increased 2.1 percentage points, print and paper expense and other operations expense each improved 0.1 percentage points, resulting in a decrease in gross margin as a percentage of revenue of 1.9 percentage points. SG&A for the second quarter increased $5.1 million, or 8.5%, driven by planned expenses related to the Company's new order entry system, incentive compensation expense, and the change in accounting rules related to stock option expense. Separately, the Company today announced two corporate actions aligned with driving profitable growth: 1) the consolidation and closure of its Memphis production facility and 2) the outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. of its graphics print production services. Specifically, as a result of continued improvements in its production capabilities, the Company will absorb absorb To offset sell orders or a new security offering with buy orders. work currently handled in Memphis into four other facilities. In addition, the Company will be sourcing its graphics print production work to an outside supplier who specializes in providing these services. This change will result in significant annual cost savings for ADVO, and will improve the turnaround time (1) In batch processing, the time it takes to receive finished reports after submission of documents or files for processing. In an online environment, turnaround time is the same as response time. to fulfill ful·fill also ful·fil tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils 1. To bring into actuality; effect: fulfilled their promises. 2. client orders. In total, these actions will result in savings of $7 million annually, with savings from the Memphis facility beginning in September-October, 2006 and the majority of the savings from graphics print beginning in the October October: see month. , 2006-January, 2007 time-frame. The Company expects to incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. charges primarily related to severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when totaling approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $4 million over the next three fiscal quarters beginning in the third quarter of fiscal 2006. The combination of these two initiatives, and the new Southern California Southern California, also colloquially known as SoCal, is the southern portion of the U.S. state of California. Centered on the cities of Los Angeles and San Diego, Southern California is home to nearly 24 million people and is the nation's second most populated region, joint distribution agreement the Company announced on April 17, will yield savings of approximately $18-$20 million on an annual basis. Scott Harding Harding Starred in the 2006 NAB cup. , ADVO's Chief Executive Officer, stated, "Our advertising piece volumes this quarter reflect the continuing gains in market share we are generating in a highly competitive media market. Even so, as we discussed last week, we are disappointed with our zone product performance and our earnings results, and are committed to driving more consistent, profitable growth in the future." Mr. Harding went on to say, "Consistent with this goal, we continue to take aggressive actions to strengthen our business. We have a strategic effort under way to market our ShopWise(R) wrap to more clients and categories. Our new joint distribution agreement in Southern California will accelerate our financial progress in this key growth market and benefit our clients with a shared advertising package richer in content and consumer relevance. Over the last several months we have examined our processes and identified that the consolidation of our Memphis production facility will enable us to better leverage our current investments in technology, equipment and real estate. And, the outsourcing of our graphics print production activities will net significant savings at the same time it dramatically improves cycle times for our clients." The Company will hold an analyst conference call to discuss its second 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 #3314486). The replay will be available until midnight May 16, 2006. The call will also be available via webcast through the Investor Relations Investor relations The process by which the corporation communicates with its investors. section of ADVO's website at www.advo.com.
Key Statistics - Year-to-date Fiscal 2006 Results and
Growth vs. Year-to-date Fiscal 2005
------------------------------------------------------
1Q06 2Q06 YTD06
----------- ----------- ----------
Advertising Packages (millions) 1,041.0 1,072.6 2,113.6
Advertising Package Growth -0.5% 3.3% 1.4%
Pieces per Package 8.35 8.36 8.35
Pieces per Package Growth 5.6% 2.7% 4.1%
Advertising Pieces (millions) 8,689.8 8,962.7 17,652.5
Advertising Piece Growth 5.1% 6.0% 5.6%
Revenue per Thousand Pieces $38.12 $35.62 $36.85
Revenue per Thousand Piece Growth -2.4% -3.7% -3.1%
% Underweight 20.7% 23.5% 22.2%
Percentage Point Improvement 2.1pp -0.1pp 0.9pp
Diluted Earnings per Share: Reconciliation of
The Pro Forma Impact of the Adoption of FAS123(R)*
Three Months Ended
----------------------
March 25, March 26,
2006 2005
---------- ----------
Diluted Earnings per share - As Reported $0.17 $0.33
Pro Forma FAS123(R) expense -- 0.02
---------- ----------
Diluted Earnings per share - Pro Forma $0.17 $0.31
========== ==========
* This pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma financial measure reconciliation is provided because the 2Q06 as reported E.P.S. includes incremental expenses the Company incurred as a result of the adoption of new accounting rules related to FAS123(R), and management believes that reconciling E.P.S. in this manner facilitates comparisons to prior period results. This report contains certain forward looking statements regarding the Company's results of operations and financial position within the meaning of Sections 21E of the Securities Exchange Act of 1934, as amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. . Such forward looking statements are based on current information and expectations and are subject to risks and uncertainties which could cause the Company's actual results to differ materially from those in the forward looking statements. The Company'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 the Company's revenue and profit results. The Company'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 the Company's distribution system; postal Postal can refer to:
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 logistics In military science, all the activities of armed-force units in support of combat units, including transport, supply, communications, and medical aid. The term, first used by Henri Jomini, Alfred Thayer Mahan, and others, was adopted by the U.S. 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 America [for Amerigo Vespucci], the lands of the Western Hemisphere—North America, Central (or Middle) America, and South America. The world map published in 1507 by Martin Waldseemüller is the first known cartographic use of the name. . This signature public service program has been responsible for safely recovering 141 children. The program was created in partnership with the National Center for Missing & Exploited Children and the U.S. Postal Service The U.S. Postal Service (USPS) processes and delivers mail to individuals and businesses within the United States. The service seeks to improve its performance through the development of efficient mail-handling systems and operates its own planning and engineering programs. 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.
Results of Operations
Three and Six Months Ended March 25, 2006 (Unaudited)
(In thousands, except per share data)
Three months ended Six months ended
--------------------- ---------------------
March 25, March 26, March 25, March 26,
2006 2005 2006 2005
---------- ---------- ---------- ----------
Revenues $ 354,781 $ 338,763 $ 713,006 $ 688,816
Cost of sales 279,833 260,673 556,181 529,398
Selling, general and
administrative 64,685 59,628 125,914 126,810
---------- ---------- ---------- ----------
Operating income 10,263 18,462 30,911 32,608
Interest expense (2,080) (1,694) (4,066) (3,240)
Equity earnings in joint
ventures 738 417 1,565 1,073
Other income (expense),
net 49 (125) 88 (280)
---------- ---------- ---------- ----------
Income before income
taxes 8,970 17,060 28,498 30,161
Provision for income
taxes 3,472 6,610 11,029 11,621
---------- ---------- ---------- ----------
Net income $ 5,498 $ 10,450 $ 17,469 $ 18,540
========== ========== ========== ==========
Basic earnings per share $ 0.18 $ 0.34 $ 0.56 $ 0.60
========== ========== ========== ==========
Diluted earnings per
share $ 0.17 $ 0.33 $ 0.55 $ 0.59
========== ========== ========== ==========
Dividends declared per
share $ 0.11 $ 0.11 $ 0.22 $ 0.22
========== ========== ========== ==========
Weighted average basic
shares 31,361 30,985 31,305 30,857
Weighted average diluted
shares 31,587 31,448 31,505 31,291
ADVO, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
March 25, September 24,
2006 2005
------------- -------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 37,864 $ 46,238
Accounts receivable, net 185,010 162,542
Inventories 2,447 2,500
Prepaid postage 211 10,747
Prepaid expenses and other current
assets 5,513 6,360
Federal income taxes receivable -- 2,884
Deferred income taxes 12,873 10,996
------------- -------------
Total current assets 243,918 242,267
Property, plant and equipment 440,295 420,738
Less accumulated depreciation and
amortization (244,499) (226,735)
------------- -------------
Net property, plant and equipment 195,796 194,003
Investment in deferred compensation plan 16,248 15,134
Goodwill 22,829 22,824
Other assets 3,935 4,502
------------- -------------
TOTAL ASSETS $ 482,726 $ 478,730
============= =============
LIABILITIES
Current liabilities:
Accounts payable 31,869 55,276
Accrued compensation and benefits 25,964 27,919
Customer advances 15,505 7,302
Federal and state income taxes payable 1,823 325
Other current liabilities 23,829 25,468
------------- -------------
Total current liabilities 98,990 116,290
Long-term debt 123,905 124,867
Deferred income taxes 28,775 29,641
Deferred compensation plan 17,350 16,172
Other liabilities 11,758 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 32,025,736
and 31,719,419 shares, respectively) 320 317
Additional paid-in capital 183,273 180,510
Unamortized deferred compensation -- (3,846)
Accumulated earnings 27,724 17,182
Less shares of common stock held in
treasury at cost (8,847) (8,124)
Less shares of common stock held in
deferred compensation trust (1,101) (1,038)
Accumulated other comprehensive income 579 284
------------- -------------
Total stockholders' equity 201,948 185,285
------------- -------------
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $ 482,726 $ 478,730
============= =============
ADVO, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Six Months Ended
-----------------------
March 25, March 26,
2006 2005
----------- -----------
Cash flows from operating activities:
Net income $ 17,469 $ 18,540
Adjustments to reconcile net income to net
cash flows provided by operating activities:
Depreciation 20,382 19,039
Stock-based compensation 3,837 1,313
Amortization of debt issue costs 277 277
Deferred income taxes (2,928) 1,225
Provision for bad debts 3,278 3,633
Equity earnings from joint ventures (1,565) (1,073)
Other 18 149
Change in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable (25,739) (12,811)
Inventories 54 (371)
Prepaid postage 10,536 (830)
Prepaid expenses and other current assets 847 518
Investment in deferred compensation plan 181 (306)
Other assets 345 2,641
Accounts payable (23,410) (6,015)
Accrued compensation and benefits (1,957) (2,399)
Deferred compensation plan (181) 306
Customer advances 8,203 187
Federal and state income taxes payable 4,252 (136)
Other liabilities 3,172 (446)
Distributions from equity joint ventures 1,510 1,157
----------- -----------
Net cash provided by operating activities 18,581 24,598
Cash flows from investing activities:
Expenditures for property, plant and
equipment (22,567) (20,293)
Proceeds from disposals of property, plant
and equipment 375 81
----------- -----------
Net cash used by investing activities (22,192) (20,212)
Cash flows from financing activities:
Proceeds from exercise of stock options 2,426 9,272
Tax benefit from stock transactions 479 ---
Treasury stock transactions related to
stock awards (722) (1,382)
Cash dividends paid (6,950) (6,802)
----------- -----------
Net cash (used) provided by financing
activities (4,767) 1,088
Effect of exchange rate changes on cash and
cash equivalents 4 55
Change in cash and cash equivalents (8,374) 5,529
Cash and cash equivalents at beginning of
period 46,238 30,284
----------- -----------
Cash and cash equivalents at end of period $ 37,864 $ 35,813
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