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EX-99.1 2 a4938995ex991.txt EXHIBIT 99.1 Exhibit 99.1 ADVO Reports Third Quarter Results WINDSOR, Conn.--(BUSINESS WIRE)--July 26, 2005--ADVO, Inc. (NYSE: AD) today reported that revenue for its third fiscal quarter ended June 25, 2005 grew to $353.6 million, increasing $34.8 million, or 10.9%, over the prior year quarter. Operating income for the quarter was $22.4 million, up $1.8 million or 8.5% over the prior year period, and net income was $13.0 million, down $0.2 million, or 1.9% versus prior year. Diluted E.P.S. for the third quarter was $0.41, down $0.02 or 4.7%. Third quarter 2005 results include the previously announced realignment charge of $3.5 million, or $0.07 in E.P.S. Excluding this charge, operating income and diluted E.P.S. were $25.9 million and $0.48, respectively. The Company's 10.9% third quarter revenue growth was on top of a 10.1% year-over-year increase in revenue the prior year, with gains driven by sustained growth across customer categories and geographies. These revenue results were driven by double-digit increases in advertising volume, with total advertising pieces up 15.9% over the prior year quarter. Additionally, year-over-year increases in the frequency and reach of the Company's advertising programs drove a 15.8% increase in shared advertising packages. Revenue per piece was down 4.0% versus the prior year period, largely driven by declines in average weights of preprint advertisers. Pieces per package for the quarter were 8.43, flat to prior year, despite the dilutive impact of package increases on this statistic. Gross margin for the quarter was up $0.4 million, but down 2.6 percentage points as a percent of revenue, primarily driven by the significant postage cost related to the Company's investment in its new Southern California weekend advertising program. Operating margin for the third quarter of 2005 was 6.3% of revenue on an as reported basis, and 7.3% excluding the realignment charge. During the third quarter the Company also showed sequential improvement in its Southern California weekend advertising program across the program's key performance metrics. The program's average weekly revenues increased 22.2% sequentially in the third quarter versus the second quarter, with revenue per piece up 6.9% and pieces per package up 10.3% on a sequential basis. For the full fiscal year 2005, the Company expects that revenue will grow 15% overall in the Southern California market. This incremental revenue will fund approximately half of the estimated $50 million investment in postage and other costs for the new weekend advertising program during its first full year. These expectations, which include a year-over-year operating investment of $25-30 million for the market, are in line with the forecast revisions the Company made in April. Scott Harding, ADVO's Chief Executive Officer, said, "Advertisers continue to move toward measurable, targeted media that drive ROI. We are capitalizing on this significant marketplace trend with our growth strategy, driving new business across key retail sectors - and delivering year-over-year, double-digit revenue growth for the first time in recent memory. Moreover, our growth has been consistently strong throughout this fiscal year, with fiscal year-to-date revenues up 12.6%. Importantly, our profitability continues to be strong in our core business, and our new Southern California advertising program is showing positive trend-lines on pace with our current expectations." Mr. Harding continued, "We are reiterating the full year 2005 guidance we provided last quarter, expecting fiscal 2005 revenue growth versus prior year to be in the low-double digits, and E.P.S. to be below prior year by a percentage in the low teens." The Company will hold an analyst conference call to discuss its third quarter earnings today at 5:15-6:00 p.m. ET. The call in number is 1-800-565-5442, and the replay number is 888-203-1112 (access code #3314786). The replay will be available until midnight August 26, 2005. The call will also be available via webcast through the Investor Relations section of ADVO's website at www.advo.com. Diluted Earnings per Share: Reconciliation of GAAP to Non-GAAP Measures (1) Three Months Ended ------------- June June 25, 26, 2005 2004 ------ ------ Diluted Earnings per share - As Reported $0.41 $0.43 Charge - Realignment (3Q05) 0.07 -- Charge - CEO Departure (3Q04) -- 0.08 ------ ------ Diluted Earnings per share - Pro Forma (2) $0.48 $0.52 ====== ====== (1) This non-GAAP financial measure reconciliation is provided because management believes the charges the Company incurred in its third quarters of fiscal 2004 and 2005 are not directly related to operating results for the period, and that reconciling E.P.S. in this manner facilitates comparisons to prior period results. The non-GAAP E.P.S. measure is also comparable to earnings forecasts made by securities analysts and others, which have generally excluded these special items. The above non-GAAP E.P.S. calculation should not be considered a substitute for GAAP E.P.S. (2) June 26, 2004 column does not add due to rounding. In addition to the financial measures presented in this report, the following table includes certain key internal shared mail metrics the Company uses to evaluate on-going performance: Key Shared Mail Statistics 1Q05 2Q05 3Q05 YTD05 -------------- -------------- -------------- % % % % Growth Growth Growth Growth vs. PY vs. PY Actual vs. PY Actual vs. PY -------------- -------------- -------------- Total Shared Advertising Pieces (billions) 17.5% 13.5% 8.7 15.9% 25.4 15.6% Total Shared Advertising Packages (billions) 21.5% 17.1% 1.0 15.8% 3.1 18.1% Pieces per Package -3.3% -3.1% 8.43 0.0% 8.16 -2.1% Revenue per Thousand Pieces 0.2% -0.8% $37.42 -4.0% $37.80 -1.6% 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. 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 week to week, depending on its customers' promotional needs, inventories, and other factors. In any particular quarter 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 and paper prices; possible governmental regulation or legislation affecting aspects of the Company's business; the efficiencies achieved with technology upgrades; the amount of shares the Company repurchases in the future under its buyback program; fluctuations in interest rates related to the outstanding debt; and other general economic factors. ADVO is the nation's leading direct mail media company, with annual revenues of more than $1.2 billion. Serving 17,000 leading national, regional and local retailers, the company reaches 113 million mailboxes, or 90 percent of the nation's households, with its ShopWise(R) shared mail advertising. At the same time, the company's industry-leading targeting technology, coupled with its unparalleled logistics capabilities, enable retailers seeking superior ROI 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. This signature public service program has been responsible for safely recovering 137 children. The program was created in partnership with the National Center for Missing & Exploited Children and the U.S. Postal Service in 1985. ADVO employs 3,700 people at its 23 mail processing facilities, regional sales offices and headquarters in Windsor, CT. The company can be visited online at www.advo.com. ADVO, Inc. Results of Operations (Unaudited) Three and Nine Months Ended June 25, 2005 (In thousands, except per share data) Three months ended Nine months ended June 25, June 26, June 25, June 26, 2005 2004 2005 2004 Revenues $353,642 $318,879 $1,042,459 $925,567 Cost of sales 265,723 231,362 795,122 676,179 Selling, general and administrative 65,497 66,858 192,307 190,016 Operating income 22,422 20,659 55,030 59,372 Interest expense (1,798) (1,334) (5,038) (3,958) Write-off debt issue costs -- -- -- (1,401) Equity earnings in joint ventures 405 981 1,478 2,136 Other expense, net (58) (178) (338) (492) Income before income taxes 20,971 20,128 51,132 55,657 Provision for income taxes 7,952 6,862 19,574 19,653 Net income $ 13,019 $ 13,266 $ 31,558 $ 36,004 Basic earnings per share $ 0.42 $ 0.44 $ 1.02 $ 1.20 Diluted earnings per share $ 0.41 $ 0.43 $ 1.01 $ 1.18 Dividends declared per share $ 0.11 $ 0.11 $ 0.33 $ 0.33 Weighted average basic shares 31,083 30,204 30,932 30,080 Weighted average diluted shares 31,407 30,719 31,330 30,609 ADVO, Inc. Consolidated Balance Sheets (In thousands) June 25, September 25, 2005 2004 ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 36,591 $ 30,284 Accounts receivable, net 169,286 149,606 Inventories 2,427 2,123 Prepaid expenses and other current assets 9,992 7,788 Deferred income taxes 13,216 15,484 Total current assets 231,512 205,285 Property, plant and equipment 401,202 374,139 Less accumulated depreciation and amortization (221,212) (196,202) Net property, plant and equipment 179,990 177,937 Investment in deferred compensation plan 14,236 12,800 Goodwill 22,546 22,514 Other assets 5,317 8,873 TOTAL ASSETS $ 453,601 $ 427,409 LIABILITIES Current liabilities: Current portion of long-term debt $ --- $ --- Accounts payable 43,116 51,880 Accrued compensation and benefits 29,636 28,050 Customer advances 5,093 8,650 Federal and state income taxes payable 3,533 3,405 Other current liabilities 22,239 24,088 Total current liabilities 103,617 116,073 Long-term debt 125,449 125,159 Deferred income taxes 27,978 25,330 Deferred compensation plan 15,335 13,821 Other liabilities 5,429 5,205 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 31,577,846 and 31,020,658 shares, respectively) 316 310 Additional paid-in capital 176,462 160,145 Unamortized deferred compensation (4,114) (1,879) Accumulated earnings (deficit) 12,240 (9,073) 184,904 149,503 Less shares of common stock held in treasury, at cost (7,948) (6,547) Less shares of common stock held in deferred compensation trust (1,100) (1,021) Accumulated other comprehensive loss (63) (114) Total stockholders' equity 175,793 141,821 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 453,601 $ 427,409 ADVO, Inc. Consolidated Statements of Cash Flows (Unaudited) (In thousands) Nine Months Ended June 25, June 26, 2005 2004 Cash flows from operating activities: Net income $ 31,558 $ 36,004 Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation 28,644 27,112 Amortization of intangibles and deferred compensation 1,947 1,382 Amortization of debt issue costs 416 488 Deferred income taxes 4,930 240 Provision for bad debts 6,327 5,695 Equity earnings from joint ventures (1,478) (2,136) Debt issue costs associated with debt retirement --- 1,401 Other 34 16 Change in operating assets and liabilities, net of effects of acquisitions: Accounts receivable (25,874) (22,358) Inventories (303) 543 Prepaid expenses and other current assets (2,205) 3,332 Investment in deferred compensation plan (296) (318) Other assets 1,581 3,340 Accounts payable (8,895) 5,477 Accrued compensation and benefits 1,575 5,041 Deferred compensation plan 296 318 Customer advances (3,560) 1,379 Federal and state income taxes payable 1,985 (5,816) Other liabilities (1,390) 2,829 Net cash provided by operating activities 35,292 63,969 Cash flows from investing activities: Acquisition of property, plant and equipment (30,992) (48,779) Proceeds from disposals of property, plant and equipment 1,722 96 Distributions from equity joint ventures 1,583 1,730 Net cash used by investing activities (27,687) (46,953) Cash flows from financing activities: Revolving line of credit - net --- (29,000) Payments on term loan --- (101,250) Proceeds on private placement notes --- 125,000 Proceeds from exercise of stock options 10,281 5,864 Treasury stock transactions (1,400) (2,699) Payment of debt issue costs --- (2,213) Cash dividends paid (10,220) (9,921) Net cash used by financing activities (1,339) (14,219) Effect of exchange rate changes on cash and cash equivalents 41 (2) Change in cash and cash equivalents 6,307 2,795 Cash and cash equivalents at beginning of period 30,284 17,012 Cash and cash equivalents at end of period $ 36,591 $ 19,807 CONTACT: ADVO, Inc. Chris Hutter Vice President, Financial Planning & Analysis, Investor Relations, and Treasurer 860-285-6424
The following information was filed by Advo Inc on Tuesday, July 26, 2005 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.
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