Harte-Hanks' Q3 net income down 12.2% year-over-year to US$12.1M, net sales down 1.8% to US$212.8M; results influenced by restructuring costs, poor economic improvement
October 27, 2011
– Harte-Hanks, Inc. (NYSE: HHS) today reported third quarter 2011 diluted earnings per share of $0.19 on revenues of $212.8 million. These results compare to diluted earnings per share of $0.22 on $216.7 million in revenues for the third quarter of 2010.
The following table presents financial highlights of the company's operations for the third quarter of 2011 and 2010, respectively. Full financial results are below.
(In thousands, except per share amounts)
Three Months Ended September 30,
Diluted earnings per share
Diluted shares (weighted average common and common equivalent shares outstanding)
For the three months ended September 30, 2011, the company generated free cash flow (defined below) of $12.8 million, down from $15.9 million in the prior year's third quarter.
Commenting on the third quarter performance, Chairman, President and Chief Executive Officer Larry Franklin said, "Our Shoppers revenue rate of decline of 7.4% was less than the rate of decline in the previous two quarters and the Direct Marketing 4.9% revenue increase excluding the nonrecurring revenue from 2010 was in line with our expectations. Our profit performance is not where it should be and is being influenced by a number of factors.
"In Shoppers, we continue to execute against several initiatives announced in the second quarter: the senior management restructuring, the consolidation of some production processes, the implementation of internally developed production systems, the restructuring of the sales leadership in California and consolidation of some sales groups. While the costs associated with these and other changes will continue into at least the next two quarters, we do expect to realize the $7-8 million of annualized savings in 2012 we disclosed in the second quarter earnings release. Unfortunately, we see no economic improvement in California and Florida.
"Turning to Direct Marketing, as indicated in the second quarter, costs associated with new and expanding contact center clients and additional resources for database products and services continue to negatively influence profits. However, this is our fifth consecutive quarter with strong revenue growth, reflecting our successful multichannel strategy."
Discussing the performance of individual business segments, Doug Shepard, Executive Vice President and Chief Financial Officer, said, "Direct Marketing revenues increased 0.6% and operating income decreased 10.8%. Excluding revenues from the large pharmaceutical recall project in the third quarter of last year, Direct Marketing revenues increased in the mid single digit range (as a percentage) and operating income decreased in the mid single digit range. Revenues increased in the high teens from our select vertical compared to the third quarter of 2010. Our financial vertical experienced revenue growth in the low teens, while the retail vertical was up slightly. Our high-tech vertical declined in the mid single digits and the healthcare vertical declined approximately 25%. The healthcare vertical was influenced by the non-recurring 2010 pharmaceutical recall project.
"Shoppers revenue decreased 7.4% in the third quarter compared to 2010 and operating income declined $2.2 million. During the quarter, revenues were relatively flat in the automotive and consumer spending sectors and decreased in real estate, service and the restaurant sectors compared to the third quarter of last year."
Franklin said, "The rate of revenue decline in our Shoppers business improved this quarter, but we do not see any signs in the California or Florida economies to lead us to expect a significant improvement in the short-term. We continue to invest in our digital strategy and the value it creates. In Direct Marketing we are developing new products and services supporting our multichannel and digital strategies such as the recently announced Demand Curve™ for the domestic and global technology markets and new solutions for Trillium Software. While our revenue growth continues, we are not satisfied with our operating income performance. We expect our margins for 2011 to be slightly below the margins in 2010. We believe that the steps being taken will lead to margin improvement for 2012. There is no indication of our clients reducing their marketing activity, therefore we expect our recent revenue trends to continue. However, we are cautious in this view based on the economic news over the last several months."
Harte-Hanks® is a worldwide direct and targeted marketing company that provides multichannel direct and digital marketing services and shopper advertising opportunities to a wide range of local, regional, national and international consumer and business-to-business marketers. Harte-Hanks Direct Marketing helps its clients obtain insight about their customers through database and marketing analytics. Based on that insight Harte-Hanks Direct Marketing designs, implements and executes multichannel marketing programs on behalf of its clients using direct and digital communications. Harte-Hanks Shoppers is North America's largest owner, operator, and distributor of shopper products which bring buyers and sellers together at a local level though its proven multichannel offerings, including targeted print, digital advertising, and classifieds. Its print publications are zoned into more than 950 separate editions and reach 11.2 million addresses each week in California and Florida. Shoppers also provide advertisers with PowerSites™ to help small- and medium-size businesses establish a web presence and improve lead generation, PowerClick™ SEM services, and mobile distribution of their ads and coupons. For consumers, PennySaverUSA.com™ and TheFlyer.com™ offer local online and mobile classifieds for garage sales, pets, used and new cars, real estate, as well as thousands of coupons and business listings. Visit us at http://www.PennySaverUSA.com, http://www.TheFlyer.com, http://www.PowerSites.net, and http://www.Savertime.com.