Deluxe Corp. expects the decline in its check-printing business to slow this year, but it still plans to focus on building up its small-business printing and office supply operations.
The Shoreview, Minn., company, which reported surprisingly strong earnings last week, also said it had sold a packaging operation that is not core to its business. Related Link
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"We put a plan together that whether there's two of them or one of them is irrelevant to us," he said. "Our customers will dictate what's going to happen in the market," and Deluxe must be "prudent until we get more clarity with our two competitors."
M&F Worldwide Corp., a New York company controlled by the financier Ronald Perelman, announced plans last month to buy John H. Harland Co., a Deluxe rival. M&F already owns the No. 3 check printer, Clarke American Corp. of San Antonio.
Analysts said that the deal, if approved by antitrust regulators, could ease price competition in the check printing industry.
"Maybe the bitter battle will settle a little bit," said John Kraft, an analyst at D.A. Davidson & Co. "The vendors all would like to see the pricing pressure minimized."
But Charles Strauzer, an analyst at CJS Securities Inc. of White Plains, N.Y., said the deal for Harland is not likely to close for nine to 12 months.
In the meantime, Deluxe "has a major turnaround to focus on," Mr. Strauzer said. "The last thing they need to do is to concern themselves with a merger between competitors."
Deluxe's fourth-quarter net income rose 20.5% from a year earlier, to $47 million, though revenue fell 1.2%, to $427 million. When adjusted for one-time gains and charges, earnings of 89 cents a share beat the average estimate of analysts by 15 cents. The company had forecast earnings of 71 to 75 cents.
For the full year, net income fell 36.1%, to $101 million, or $1.96 a share, and revenue fell 4.1%, to $1.64 billion.
Deluxe took a $45 million charge in the second quarter after shelving a major technology project, and it has been closing facilities and cutting costs while shifting its focus toward small-business services and away from checks, which generated 37.7% of its fourth-quarter revenue.
Mr. Kraft applauded the early results from the reorganization efforts. "Their cost-cutting initiatives are factoring in earlier than anybody expected," he said.
Richard S. Greene, Deluxe's chief financial officer, said his company expects check printing to continue to decline this year, "although the rates of decline are expected to ease to single-digit levels, and that's lower than 2006 and 2005 rates of decline."
Revenue from the company's small-business services unit grew, because of higher revenue per order and the October acquisition of the Rockford, Ill., printer Johnson Group.
The packaging operation that Deluxe is selling generated $51 million of revenue last year. The company said it expects to record a $4 million pretax gain this quarter on the sale.
Revenue per order from financial institutions fell, and so did direct-to-consumer order volume.
This quarter Deluxe said it expects to earn 50 to 54 cents on $392 million and $400 million of revenue. For the full year, it expects to earn $2.35 to $2.50 a share on $1.56 billion to $1.6 billion of revenue.
