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

SAN ANTONIO , October 27, 2011 (press release) – 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.

RESULTS FROM OPERATIONS (Unaudited)
(In thousands, except per share amounts) Three Months Ended September 30,
  2011 2010 % Change
Operating revenues $ 212,788 $ 216,745 -1.8
Operating income 20,715 25,055 -17.3
Net income 12,128 13,815 -12.2
Diluted earnings per share $0.19 $0.22 -13.6
Diluted shares (weighted average common and common equivalent shares outstanding) 63,059 64,076 -1.6

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."

Selected Highlights:

  • Trillium Software® announced that independent industry analyst firm Gartner, Inc. has positioned Trillium Software in the leaders' quadrant of Gartner's influential Magic Quadrant for Data Quality Tools 2011 research report. The Magic Quadrant research states that leaders in the market demonstrate strength across a complete range of data quality functionality. Leaders exhibit a clear understanding and vision for where the market is headed, including recognition of non-customer data quality issues and the delivery of enterprise-level data quality implementations.
  • Harte-Hanks announced a new insight-led marketing solution for domestic and global technology markets, The Demand Curve™. The Demand Curve builds on four core areas of Harte-Hanks' expertise within technology markets: professional and business marketing data management, content development, digital and social conversations, and sales and marketing funnel management – as well as the strategy and execution that flow from these areas of demand generation and sales closure.
  • Harte-Hanks digital agency provided an innovative, simultaneous, worldwide brand launch for a leading consumer electronics company. Harte-Hanks used a range of digital media, social, video and in-country experiential marketing to drive global demand for tablet and handset devices, including an integrated YouTube mobile app.
  • Trillium Software won new deployments with:
    • AIR Worldwide, a scientific leader and respected provider of catastrophe risk modeling software, to provide more precise geocoding through the integration of Trillium Software's geospatial capabilities with AIR's catastrophe modeling application. The integrated software solution is expected to help AIR Worldwide's clients improve risk geocoding and catastrophe risk analyses for perils such as wind, flood, and earthquake outside the United States.
    • Absa Capital, the investment banking division of Absa Bank Ltd and affiliated with Barclays Capital, to assess the quality of data and ensure it is compliant with key business process requirements. The implementation forms part of a wider agreement with Trillium Software reseller Master Data Management CC (MDM CC) to assist with the practical implementation of a data governance framework.
    • The brokerage unit of a major international financial institution, to provide data quality software and services and to profile and cleanse business and financial data to improve business processes.
    • A leading security technology and service provider, to expand the use of the Trillium Software System for customer and non-customer data to improve data quality and automated reporting.
  • Harte-Hanks Market Intelligence announced a major expansion of its flagship product, the Ci Technology Database™ (CiTDB), more than doubling the number of contacts with email addresses. The CiTDB, one of the largest and most comprehensive databases of its kind, now contains nearly two million key business contacts with emails that complement its detailed business technology profiles helping marketers increase the efficiency and effectiveness of lead generation programs.
  • Harte-Hanks Market Intelligence renewed licenses with two prominent technology clients:
    • A leading national computer hardware, software and services provider, to license the CiTDB for market segmentation and demand generation campaigns.
    • Avaya, a leading telecommunications hardware and software provider, to license the CiTDB to allow it to identify and target prospects in coordination with their channel partners.
  • A leading regional healthcare service provider selected Harte-Hanks to provide direct mail, fulfillment and contact center services in support of its multistate Medicare enrollment programs during the Medicare Annual Enrollment Period.
  • The Aberdeen Group® was selected to expand its sales enablement and high-quality lead-generation services for an enterprise software and service vendor. Aberdeen is developing a set of customized interactive demand generation and lead assessment capabilities for its client that will leverage Aberdeen's proprietary research for digital and content marketing programs (such as e-books and webinars), as well as other sales enablement solutions.
  • Harte-Hanks announced that Brian Dames has been elected corporate vice president and group managing director at Harte-Hanks. Brian serves as the senior business leader for the company's database marketing and analytics businesses. His team is responsible for applying successful database strategies for sophisticated multichannel marketing programs. His organization has led several new solutions to market including Momentium™, Quickstart, and Data Capture – all designed to assist marketers in building client-centric marketing strategies.
  • Harte-Hanks also promoted Jeff Simpson to lead the company's retail and consumer brands markets efforts. Jeff will be responsible for driving Harte-Hanks' results in these critical markets, as well as building and executing on our go-to-market and solution strategy. Jeff will also continue to lead our Marketing Strategy and Insight team that delivers insight-driven, multichannel marketing support to Harte-Hanks clients across all verticals.
  • Harte-Hanks Shoppers named Rick Cluff as vice president of national accounts, where he is charged with leading his team back to strong sales growth. Rick rejoins Shoppers from the advertising publication he started in Arizona, after having spent eight years in sales leadership roles in Shoppers, and additional sales leadership time with other leading advertising publications.
  • Harte-Hanks entered into a new five-year $122.5 million unsecured term loan credit facility. Harte-Hanks will use the facility for general corporate purposes after having paid off its 2006 term debt facility.
  • Harte-Hanks paid a dividend of 8.0 cents per share, marking 66 consecutive quarterly dividend payments since the first quarter of 1995.

About Harte-Hanks®:

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.


* All content is copyrighted by Industry Intelligence, or the original respective author or source. You may not recirculate, redistrubte or publish the analysis and presentation included in the service without Industry Intelligence's prior written consent. Please review our terms of use.