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HarteHanks Inc. Reports Operating Results (10-Q)

July 30, 2010 | About:
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10qk

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HarteHanks Inc. (HHS) filed Quarterly Report for the period ended 2010-06-30.

Hartehanks Inc. has a market cap of $708.7 million; its shares were traded at around $11.14 with a P/E ratio of 12.8 and P/S ratio of 0.8. The dividend yield of Hartehanks Inc. stocks is 2.7%. Hartehanks Inc. had an annual average earning growth of 2.6% over the past 10 years.HHS is in the portfolios of Richard Pzena of Pzena Investment Management LLC.

Highlight of Business Operations:

Consolidated revenues decreased 3.7%, to $207.6 million, while operating income decreased 9.5% to $22.6 million in the second quarter of 2010 compared to the second quarter of 2009. Our overall results reflect decreased revenues of $4.4 million, or 3.0%, from our Direct Marketing segment and decreased revenues of $3.6 million, or 5.2%, from our Shoppers segment. Direct Marketing experienced revenue declines from our high-tech and pharma/healthcare vertical markets, which were partially offset by increased revenues from our select, financial and retail vertical markets. While these results are mixed, the overall second quarter 2010 Direct Marketing results reflect the continued effects of the difficult economic environment, including reduced volumes and price reductions, on our Direct Marketing business. Shoppers revenue performance reflects the continued impact that the difficult economic environments in California and Florida are having on our Shoppers business. The decrease in revenues was the result of decreased sales in established markets, including declines in most revenue categories.

Consolidated revenues decreased 5.9%, to $407.8 million, while operating income increased 5.7% to $40.9 million in the first half of 2010 compared to the first half of 2009. Our overall results reflect decreased revenues of $16.7 million, or 5.7%, from our Direct Marketing segment and decreased revenues of $8.8 million, or 6.2%, from our Shoppers segment. Direct Marketing experienced revenue declines from our pharma/healthcare, high-tech and retail vertical markets, which were partially offset by increased revenues from our select and financial vertical markets. While these results are mixed, the overall first half 2010 Direct Marketing results reflect the continued effects of the difficult economic environment, including reduced volumes and price reductions, on our Direct Marketing business. Shoppers revenue performance reflects the continued impact that the difficult economic environments in California and Florida are having on our Shoppers business. The decrease in Shoppers revenues was the result of decreased sales in established markets, including declines in most revenue categories, and curtailment of circulation of approximately 700,000 addresses in February of 2009. On a comparable circulation basis, Shoppers revenues decreased approximately 5.9%.

Operating expenses increased $0.3 million, or 0.2%, in the second quarter of 2010 compared to the second quarter of 2009. Labor costs decreased $2.1 million, or 3.3%, due to decreased severance costs, lower headcounts, decreased healthcare expense and decreased stock-based compensation. Production and distribution costs increased $4.1 million, or 10.3%, due to higher mail supply chain costs and increased outsourced costs resulting from increased outsourced volumes. This increase was partially offset by decreased lease expense due to prior year facility consolidations. General and administrative expense decreased $0.5 million, or 4.2%, due primarily to a decrease in bad debt expense and outside sales commissions. Depreciation and software amortization expense decreased $1.0 million, or 19.6%, due to decreased capital expenditures over the last few years. Intangible asset amortization decreased $0.1 million, or 71.3%, as certain intangible assets became fully amortized.

Operating expenses decreased $9.7 million, or 3.9%, in the first half of 2010 compared to the first half of 2009. Labor costs decreased $10.1 million, or 7.5%, due to lower headcount, decreased severance and decreased healthcare expense. Production and distribution costs increased $1.9 million, or 2.3%, due to higher mail supply chain costs and increased outsourced costs resulting from increased outsourced volumes. This increase was partially offset by decreased lease expense due to prior year facility consolidations. General and administrative expense increased $1.3 million, or 6.4%, due primarily to an increase in bad debt expense, travel and nonincome-based taxes. Depreciation and software amortization expense decreased $2.4 million, or 22.4%, due to decreased capital expenditures over the last few years. Intangible asset amortization decreased $0.3 million, or 71.3%, as certain intangible assets became fully amortized.

Operating expenses decreased $5.7 million, or 8.5%, in the second quarter of 2010 compared to the second quarter of 2009. Total labor costs decreased $2.5 million, or 10.9%, as a result of reductions in our Shoppers workforce due to plant consolidations, administrative staff reductions, lower variable payroll costs from lower ad sales and volumes, and lower severance costs. Total production costs decreased $2.3 million, or 6.1%, due primarily to decreased paper costs resulting from lower paper rates and declines in volumes, decreased facility lease costs due to facility consolidations, and decreased postage expense due to a decline in distribution volumes. Total general and administrative costs decreased $0.5 million, or 11.2%, due primarily to decreased legal fees, decreased workers compensation insurance expense, and decreased promotion-related expense. Depreciation and software amortization expense decreased $0.3 million, or 18.2%, due to decreased capital expenditures in the last few years.

Operating expenses decreased $17.6 million, or 12.5%, in the first half of 2010 compared to the first half of 2009. At the end of the first quarter of 2009, we completed the consolidation of our two Florida production facilities into one facility. We incurred approximately $2.0 million in costs in the first quarter of 2009 related to this action. The 2009 savings from this consolidation was offset by the 2009 first quarter charges. Excluding these costs, operating expenses decreased $15.6 million, or 11.2%. Total labor costs decreased $7.7 million, or 15.8%, as a result of reductions in our Shoppers workforce due to plant consolidations, administrative staff reductions, lower variable payroll costs from lower ad sales and volumes, and lower healthcare costs and lower severance costs. Total production costs decreased $7.5 million, or 9.8%, due primarily to decreased paper costs resulting from lower paper rates and declines in volumes, decreased facility lease costs as a result of a $1.6 million lease write-off in the first quarter of 2009 related to consolidations and circulation curtailments, lower outsourced printing costs due to lower volumes, and decreased postage expense due to a decline in distribution volumes. Total general and administrative costs decreased $0.6 million, or 6.2%, due primarily to decreased promotion-related expense, decreased facilities costs, decreased legal fees and decreased bad debt expense. Depreciation and software amortization expense decreased $1.6 million, or 36.1%, due to an accelerated depreciation charge in the first quarter of 2009 related to the Florida facility consolidation, and decreased capital expenditures in the last few years.

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