Deluxe Corp. (DLX, Financial) filed Quarterly Report for the period ended 2009-03-31.
Deluxe Corporation through its industry-leading businesses and brands helps financial institutions and small businesses better manage promote and grow their businesses. The Company uses direct marketing distributors and a North American sales force to provide a wide range of customized products and services: personalized printed items checks forms business cards stationery greeting cards labels and retail/packaging supplies promotional products and merchandising materials fraud prevention services and customer retention programs. The Company also sells personalized checks and accessories directly to consumers. Deluxe Corp. has a market cap of $750.8 million; its shares were traded at around $14.69 with a P/E ratio of 6.9 and P/S ratio of 0.6. The dividend yield of Deluxe Corp. stocks is 6.7%. Deluxe Corp. had an annual average earning growth of 3% over the past 5 years.
We anticipate that consolidated revenue will be between $1.3 billion and $1.385 billion for 2009, as compared to $1.47 billion for 2008. In Small Business Services, we expect that weak economic conditions will continue to adversely affect volumes and drive a mid-single to low-double digit decline in revenue despite modest contributions from our e-commerce initiatives and revenue from our 2008 acquisitions. The acquisitions are performing in line with our expectations and we continue to expect them to be accretive to earnings per share later in 2009. In Financial Services, we expect the acceleration of check order declines to reach approximately six to seven percent, compared to 2008, given the turmoil in the financial services industry and increases in electronic payments. We expect the related revenue pressure to be partially offset by a price increase implemented in the fourth quarter of 2008 and another increase scheduled for the third quarter of 2009, as well as a modest contribution from our loyalty, retention, monitoring and protection offers. In Direct Checks, we expect the revenue decline to be in the double digits, driven by the decline in check usage and the weak economy which is negatively impacting our ability to sell additional products. The upper end of our outlook assumes the current economic trends do not improve throughout the year and that we benefit only a modest amount from our revenue growth initiatives. The lower end of our outlook assumes a further deterioration in the economy throughout the year.
We expect that 2009 diluted earnings per share will be between $1.70 and $2.00, which includes an estimated $0.35 per share reduction for impairment charges, restructuring activities and gains on debt repurchases, compared to $1.97 for 2008. We expect that continued progress with our cost reduction initiatives, the gain recognized on the retirement of long-term notes in 2009, as well as the impact of higher restructuring charges in 2008, will be partially offset by the revenue decline and the increased impairment charges in 2009, as well as increases in materials and delivery costs, performance-based employee compensation and employee and retiree medical expenses. Our outlook also reflects a merit wage freeze in 2009 which avoids an $8 million increase in our expense structure. We estimate that our annual effective tax rate for 2009 will be approximately 37%, which includes 3.0 percentage points associated with gains on debt retirements, restructuring activities and the non-deductible portion of the goodwill impairment charge. Our annual effective tax rate was 33.9% in 2008.
We anticipate that net cash provided by operating activities of continuing operations will be between $175 million and $200 million in 2009, compared to $198 million in 2008. We anticipate that lower earnings and increased restructuring-related payments will be offset by lower performance-based compensation payments in 2009, associated with our 2008 performance, as well as working capital improvements. We estimate that capital spending will be approximately $40 million in 2009 as we continue to expand our use of digital printing technology, further advance our flat check packaging process and invest in manufacturing productivity and revenue growth initiatives.
Details concerning business challenges/market risks were provided in the Managements Discussion and Analysis of Financial Condition and Results of Operations section of our 2008 Form 10-K. There were no significant changes in these items, with the exception of the impairment charges recorded during the first quarter of 2009. During the quarter ended March 31, 2009, we recorded impairment charges in our Small Business Services segment of $20.0 million related to goodwill and $4.9 million related to an indefinite-lived trade name. Due to the ongoing uncertainty in market conditions, which may continue to negatively impact our expected operating results, we will continue to monitor whether additional impairment analyses are required with respect to the carrying value of these assets. The fair value of the reporting unit for which goodwill was impaired exceeded its carrying value by $12 million as of March 31, 2009, subsequent to the impairment charge. The calculated fair values of our other reporting units exceeded their carrying values by amounts between $17 million and $209 million as of March 31, 2009.
During the first quarter of 2009, we recorded net restructuring charges of $1.3 million. This amount included expenses related to our restructuring activities, including equipment moves, training and travel, as well as net restructuring accruals of $0.4 million. The net restructuring accruals included charges of $1.0 million related primarily to operating lease obligations on two manufacturing facilities which were closed during the quarter ended March 31, 2009, less the reversal of $0.6 million of previously recorded restructuring accruals as fewer employees received severance benefits than originally estimated. The net restructuring accruals were reflected as restructuring charges within cost of goods sold of $0.7 million and a reduction of restructuring charges within operating expenses of $0.3 million in the consolidated statement of income for the quarter ended March 31, 2009. The other costs related to our restructuring activities were expensed as incurred and were reflected as restructuring charges of $0.8 million within cost of goods sold and restructuring charges within operating expenses of $0.1 million in the consolidated statement of income for the quarter ended March 31, 2009. In addition to the amounts reflected in the restructuring charges captions in the consolidated statement of income, we incurred $1.1 million of other restructuring-related costs, such as redundancies occurring during the closing of facilities, during the quarter ended March 31, 2009.
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Deluxe Corporation through its industry-leading businesses and brands helps financial institutions and small businesses better manage promote and grow their businesses. The Company uses direct marketing distributors and a North American sales force to provide a wide range of customized products and services: personalized printed items checks forms business cards stationery greeting cards labels and retail/packaging supplies promotional products and merchandising materials fraud prevention services and customer retention programs. The Company also sells personalized checks and accessories directly to consumers. Deluxe Corp. has a market cap of $750.8 million; its shares were traded at around $14.69 with a P/E ratio of 6.9 and P/S ratio of 0.6. The dividend yield of Deluxe Corp. stocks is 6.7%. Deluxe Corp. had an annual average earning growth of 3% over the past 5 years.
Highlight of Business Operations:
As discussed in the Managements Discussion and Analysis of Financial Condition and Results of Operations section of the 2008 Form 10-K, we are pursuing aggressive cost reduction and business simplification initiatives which we expect to collectively reduce our annual cost structure by at least $300 million, net of required investments, by the end of 2010. The baseline for these anticipated savings is the estimated cost structure for 2006, which was reflected in the earnings guidance reported in our press release on July 27, 2006 regarding second quarter 2006 results. We are currently on track to realize approximately $90 million of the $300 million target in 2009. We estimate that we realized approximately $155 million of this target through the end of 2008, and we expect the remaining $55 million to be realized in 2010. To date, most of our savings are from sales and marketing, information technology and fulfillment, including manufacturing and supply chain.We anticipate that consolidated revenue will be between $1.3 billion and $1.385 billion for 2009, as compared to $1.47 billion for 2008. In Small Business Services, we expect that weak economic conditions will continue to adversely affect volumes and drive a mid-single to low-double digit decline in revenue despite modest contributions from our e-commerce initiatives and revenue from our 2008 acquisitions. The acquisitions are performing in line with our expectations and we continue to expect them to be accretive to earnings per share later in 2009. In Financial Services, we expect the acceleration of check order declines to reach approximately six to seven percent, compared to 2008, given the turmoil in the financial services industry and increases in electronic payments. We expect the related revenue pressure to be partially offset by a price increase implemented in the fourth quarter of 2008 and another increase scheduled for the third quarter of 2009, as well as a modest contribution from our loyalty, retention, monitoring and protection offers. In Direct Checks, we expect the revenue decline to be in the double digits, driven by the decline in check usage and the weak economy which is negatively impacting our ability to sell additional products. The upper end of our outlook assumes the current economic trends do not improve throughout the year and that we benefit only a modest amount from our revenue growth initiatives. The lower end of our outlook assumes a further deterioration in the economy throughout the year.
We expect that 2009 diluted earnings per share will be between $1.70 and $2.00, which includes an estimated $0.35 per share reduction for impairment charges, restructuring activities and gains on debt repurchases, compared to $1.97 for 2008. We expect that continued progress with our cost reduction initiatives, the gain recognized on the retirement of long-term notes in 2009, as well as the impact of higher restructuring charges in 2008, will be partially offset by the revenue decline and the increased impairment charges in 2009, as well as increases in materials and delivery costs, performance-based employee compensation and employee and retiree medical expenses. Our outlook also reflects a merit wage freeze in 2009 which avoids an $8 million increase in our expense structure. We estimate that our annual effective tax rate for 2009 will be approximately 37%, which includes 3.0 percentage points associated with gains on debt retirements, restructuring activities and the non-deductible portion of the goodwill impairment charge. Our annual effective tax rate was 33.9% in 2008.
We anticipate that net cash provided by operating activities of continuing operations will be between $175 million and $200 million in 2009, compared to $198 million in 2008. We anticipate that lower earnings and increased restructuring-related payments will be offset by lower performance-based compensation payments in 2009, associated with our 2008 performance, as well as working capital improvements. We estimate that capital spending will be approximately $40 million in 2009 as we continue to expand our use of digital printing technology, further advance our flat check packaging process and invest in manufacturing productivity and revenue growth initiatives.
Details concerning business challenges/market risks were provided in the Managements Discussion and Analysis of Financial Condition and Results of Operations section of our 2008 Form 10-K. There were no significant changes in these items, with the exception of the impairment charges recorded during the first quarter of 2009. During the quarter ended March 31, 2009, we recorded impairment charges in our Small Business Services segment of $20.0 million related to goodwill and $4.9 million related to an indefinite-lived trade name. Due to the ongoing uncertainty in market conditions, which may continue to negatively impact our expected operating results, we will continue to monitor whether additional impairment analyses are required with respect to the carrying value of these assets. The fair value of the reporting unit for which goodwill was impaired exceeded its carrying value by $12 million as of March 31, 2009, subsequent to the impairment charge. The calculated fair values of our other reporting units exceeded their carrying values by amounts between $17 million and $209 million as of March 31, 2009.
During the first quarter of 2009, we recorded net restructuring charges of $1.3 million. This amount included expenses related to our restructuring activities, including equipment moves, training and travel, as well as net restructuring accruals of $0.4 million. The net restructuring accruals included charges of $1.0 million related primarily to operating lease obligations on two manufacturing facilities which were closed during the quarter ended March 31, 2009, less the reversal of $0.6 million of previously recorded restructuring accruals as fewer employees received severance benefits than originally estimated. The net restructuring accruals were reflected as restructuring charges within cost of goods sold of $0.7 million and a reduction of restructuring charges within operating expenses of $0.3 million in the consolidated statement of income for the quarter ended March 31, 2009. The other costs related to our restructuring activities were expensed as incurred and were reflected as restructuring charges of $0.8 million within cost of goods sold and restructuring charges within operating expenses of $0.1 million in the consolidated statement of income for the quarter ended March 31, 2009. In addition to the amounts reflected in the restructuring charges captions in the consolidated statement of income, we incurred $1.1 million of other restructuring-related costs, such as redundancies occurring during the closing of facilities, during the quarter ended March 31, 2009.
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