John H. Harland Co. plans to merge its Scantron educational testing unit into its technology subsidiary, Harland Financial Solutions Inc., in anticipation of spinning off the tech operation from its core check-printing business, its chairman Timothy C. Tuff said Thursday.
Mr. Tuff, who is also the Atlanta company’s president and chief executive officer, would not say when a spinoff might happen.
But in discussing Harland’s third-quarter earnings with analysts, he gave the clearest indication yet that it intends to pursue the same strategy as its chief rival Deluxe Corp., which spun off its technology and transaction processing operations in 2000 to form eFunds Corp.
Harland reported late Wednesday that its net income fell 10.4% year over year in the quarter, to $16.6 million. Earnings per share were 63 cents, beating the average analyst estimate by 2 cents. Sales fell 1.6%, to $256.6 million.
“I have said before that we will look at all opportunities to increase shareholder value, including an equity spinoff of this business,” Mr. Tuff said of Harland Financial during Thursday’s conference call. “This business has now reached critical mass, and once it has demonstrated margin improvement, it could be a candidate for a spinoff.”
The consolidation of Scantron into Harland Financial is to take place this quarter, Mr. Tuff said.
Printing, especially check printing, remains the largest part of the company, but it has been declining because of the general decline of checks as Americans shift to electronic payment systems.
Harland’s sales of printed product fell 6.1% in the quarter, to $154.4 million, and income from the segment fell 1%, to $23 million.
The software and services segment’s sales grew 7.7%, to $70.4 million, but its income grew only 2.0%, to $8.2 million.
John Kraft, an analyst at D.A. Davidson & Co., downplayed the talk of a spinoff, calling the quarter’s results “mediocre.” Although the prospect “will likely cause buzz with investors, we would not recommend chasing the stock,” said Mr. Kraft, who rates Harland “neutral,” in a note to investors. “We suspect any transaction would be a year or more out,” and the expectation is already priced into the shares.
