Vistaprint Q3 Earnings Miss Miserably - Analyst Blog

Business services provider Vistaprint N.V. VPRT reported unimpressive third quarter fiscal 2014 results with revenues and earnings declining year over year due to headwinds in core markets. Net income for the reported quarter dropped sharply to $1.4 million from $5.9 million in the year-earlier quarter. On a per share basis, earnings for third quarter fiscal 2014 plummeted to 4 cents from 17 cents in the year-ago quarter.

Excluding one-time items, adjusted earnings for the reported quarter halved to $8.3 million or 24 cents per share from $16.9 million or 48 cents per share in the prior-year period. The quarterly adjusted earnings were way below the Zacks Consensus Estimate of 46 cents.

Quarter Details

Total revenue in third quarter fiscal 2014 decreased 1% year over year for the first time in over 14 years to $286.2 million. The year-over-year decline in revenues was primarily attributable to headwinds in the leading markets – the U.S., Germany and the U.K. – due to changes in pricing and marketing practices. Geographically, revenues were up 2% in North America to $166.1 million and down 4% and 3% in Europe and Most of the World, respectively, to $104.2 million and $15.9 million.

Vistaprint is shifting its value proposition away from deep discounts and free-offer direct marketing efforts to tap the large market opportunity beyond the traditional base of highly price-sensitive customers. Revenues also missed the Zacks Consensus Estimate of $310 million.

Gross margin in the reported quarter fell to 64.7% from 65.5% in the year-ago period. Operating income also decreased to $5.2 million from $9.7 million in the prior-year period. The year-over-year decrease in margins was largely due to higher operating expenses for better customer service availability, improved product substrate quality, more reliable shipping methods, assistance for graphic design creation, new options for premium finishes, and more stock keeping unit (SKU) choices. Despite the current slump in quarterly results, management remains confident of healthy returns in the long run. The company hopes to retain customer loyalty as its focused services translate into renewed organic growth.

Acquisitions

During the reported quarter, Vistaprint inked a definitive agreement to acquire privately-held printing and graphic product producer People & Print Group B.V. for an undisclosed amount. The transaction is likely to form a behemoth in its category with complementary product offerings, operating synergies through economies of scale and technological collaboration to serve a wide spectrum of customers across the globe.

Subsequent to the end of the quarter, Vistaprint signed an agreement to acquire Italian design firm Pixartprinting Srl. The acquisition involves a base purchase price of about €127 million. The acquisition is expected to be accretive to revenues and operating cash flow for fiscal 2014. However, it will have a weakening effect on GAAP earnings per share EPS till fiscal 2015, owing to transaction costs and expected amortization of intangible assets connected to the acquisition. For non-GAAP EPS, the acquisition is expected to be neutral to earnings in fiscal 2014, but accretive to fiscal 2015 results.

Vistaprint also reached an agreement with Namex Limited to divest its minority equity interest in the firm. The company expects to sell its 45% stake to the majority shareholder and recognize a loss of up to $14 million in the fourth quarter of fiscal 2014. The decision was made as the carrying value of the investment exceeded the expected proceeds.

Balance Sheet & Cash Flow

The company exited the quarter with $46.5 million in cash and cash equivalents. Total debt was $202 million. The company had $301.4 million available under its credit facility.

The company generated $3.1 million of cash from operations compared with $8.1 million in third quarter fiscal 2013. Capital expenditures for third quarter fiscal 2014 were $11.8 million.

Outlook

For fiscal 2014, the company updated its revenue and earnings guidance to better reflect the current market conditions and acquisitions. Revenues for the current fiscal are expected in the range of $1,250 million to $1,270 million, up from the earlier projection of $1,235 million to $1,265 million. Fiscal 2014 GAAP earnings are expected in the range of $1.00–$1.15 per share, down from $1.55–$1.80 expected earlier. Adjusted earnings for fiscal 2014 are currently expected in the range of $2.70–$2.85 per share, compared with the prior range of $2.68–$2.93 per share. Capital expenditures for fiscal 2014 are expected within $70 million to $80 million, down from previous guidance range of $80 million to $90 million.

Vistaprint is focused on leveraging its investments and expects meaningful earnings growth in fiscal 2014. The company expects its strategic initiatives to drive customer loyalty and lifetime value. Expansion in new geographic areas and customer additions will bear fruit in the long term. Although we expect the company to face short-term headwinds, it is likely to deliver solid results in future on the back of these initiatives.

Vistaprint currently has a Zacks Rank #3 (Hold). Stocks that look promising and are worth considering now include Genpact Limited G, Exlservice Holdings, Inc. EXLS and Paychex, Inc. PAYX, each carrying a Zacks Rank #2 (Buy).