Deluxe Announces Higher Revenue as Its Checking Business Shrinks

Image source: Deluxe.

Small-business services specialist Deluxe (NYSE: DLX) posted second-quarter results on July 28 that kept the company on track to post its seventh consecutive year of sales growth.

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Here's how the headline numbers stacked up against the prior-year period:

Data source: Deluxe's financial filings.

What happened this quarter?

Sales weighed in at $451 million as earnings per share rose to $1.18. Both the top- and bottom-line figures fit squarely within management's April forecast and their outlook for the full year.

Looking deeper into the results, here are a few financial highlights from the quarter:

  • The financial services segment led the way higher with a 10% sales improvement. Those gains came mostly from Deluxe's recent acquisitions of Datamyx and FISC Solutions. Profitability expanded as Deluxe held the line on costs and passed on higher prices to customers.
  • Small-business services ticked up 2% thanks to increased demand for marketing solutions. Operating income was flat in the segment.
  • The legacy check-printing unit continued shrinking, declining 7% and producing 15% lower profits.
  • Operating cash flow improved to $147 million from $128 million.
  • Overall gross profit margin ticked up to 65% of sales from 64% in the prior-year period.
  • Bottom-line profitability held steady at 13% of sales, which translated into $58 million of net income compared to 56% last year.

What management had to say

Executives described the Q2 results as fitting right into their plan to achieve steady sales and profit growth this year. "Our transformation strategy continues to deliver strong results as we again saw growth in revenue and earnings," CEO Lee Schram said in a press release.

Deluxe had to navigate several adverse news events, such as Brexit and interest rate hike debates that threatened to distract small-business and financial services clients from expanding their spending. However, "our team continues to be squarely focused on executing our strategy to consistently grow by expanding our marketing solutions and other services offerings while stabilizing our core printed products," Schram explained. "We believe we are well positioned as we enter the third quarter to grow 2016 revenue for a seventh consecutive year and continue to enhance shareholder value."

Looking forward

To that end, management left its full-year sales outlook unchanged, meaning the company should generate roughly $5 per share of earnings from $1.9 billion of revenue in 2016. That would mark 5% higher overall revenue, which is impressive given the fact that its legacy check-printing business -- and the steady profits it produced -- is fading quickly.

New business lines like email marketing solutions are completely offsetting that shrinking segment, though. And the solid sales growth and steady profitability that Deluxe is managing right now add weight to executives' claim that its transformation strategy is progressing according to plan.

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Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Deluxe. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.