Vistaprint Shakes Europe Lag To Grow In Marketing Biz


Two years into a five-year plan to beef up its earnings and sales growth, online marketing firm Vistaprint has found that reality has a way of shifting your expectations.

The company provides online customized marketing products and services to small businesses and consumers in more than 130 countries around the world.

Its products include printed business cards, brochures, postcards, calendars, apparel and other promotional items.Vistaprint ( VPRT ) also offers services ranging from creative design and direct mail to signage and website design.

One of Vistaprint's latest ideas is Owner Nation , an online content hub of marketing help for business owners. It also operates Pagemodo , a do-it-yourself suite of online tools that businesses can use to market onFacebook ( FB ).

Vistaprint has achieved steady sales and earnings growth over the years. Still, a couple years ago, management decided it wanted more.

In July 2011, the company announced an initiative to swap near-term earnings growth for heavy upfront investments that were designed to deliver greater customer value, long-term scale advantages, higher organic revenue growth and operational advantages over the competition.

Window On Growth

Among other things, Vistaprint boosted its payroll by 30% over a 12-month period in 2011 and 2012 to help drive sales higher, and also spent more on advertising.

At the time, Vistaprint said if the strategy was executed correctly, the company would reach $2 billion in annual revenue and $5 a share in earnings by fiscal 2016. The target was a five-year compound annual growth rate of 20% or better.

Two years later, Vistaprint has scaled back those expectations, mainly due to slower-than-expected growth in Europe, which accounts for about 40% of its revenue.

Vistaprint Chief Executive Robert Keane addressed those issues during an analyst/investor day presentation in New York on Aug. 7.

"Given the challenges we face in Europe, we no longer expect to grow at 20% as we expected to when we started this project two years ago," Keane said. "And we do acknowledge that the revenue growth makes our previously stated net income targets less likely to be achieved."

However, Keane added, Vista-print is set to exit "the most intensive investment period" of its multiyear strategy, and the company should begin a period of much stronger earnings growth in coming quarters.

"We are at the beginning of what we believe will be a consistent, sustained and multiyear ramp of both our net income margins and our earnings per share," Keane said.

It's not like Vistaprint has been struggling. On Aug. 1, it reported solid results for its fiscal fourth quarter and year, which ended in June.

For the whole year, Vistaprint logged a 10% gain in earnings and a 14% rise in sales. Although the sales increase was its lowest rise in at least eight years, the EPS gain was an improvement for the firm over fiscal 2012, when yearly profit fell by 15%.

The company logged fourth-quarter earnings of 41 cents a share, up 3% from the prior year and well above consensus estimates for 33 cents. Revenue climbed 12% to $280.1 million, topping views for $273 million.

On a geographic basis, Vistaprint's quarterly sales climbed 18% in North America, which accounts for more than half of overall revenue. Revenue grew 4% in Asia-Pacific and 3% in Europe.

Victor Anthony, an analyst at Topeka Capital Markets, noted that average bookings per active customer grew 1.5% to $69 during the quarter.

"Average bookings is a critical metric to watch as a measure of the health of the overall business," Anthony said. "It decelerated from the low $70 range on pressures in Europe."

While Vistaprint management expects flat revenue growth in Europe for this fiscal year, there are reasons to believe the situation is improving.

"Recent data point to improving macroconditions in several key European markets," Anthony noted. "Our view is that a recovery could provide upside to guidance."

EPS Gains Despite Europe

Wall Street seems happy enough with Vistaprint's performance. The day after the company reported Q4 results, its shares rose 5% to a three-year closing high of 55.01. Vistaprint has since gained even more ground in the stock market and established a new three-year high of 57.54 on Aug. 6.

Despite its lowered expectations for long-term sales and earnings growth, Vistaprint remains committed to returning to net margins of 10% in the next few years. That compares to 2.5% in fiscal 2013 and an estimated 4% this fiscal year.

"Vistaprint has made significant progress on its plan to reform its brand image through better materials and customer service, faster delivery and transparent pricing," Kevin Kopelman, analyst at Cowen & Co., noted in a recent report.

Vistaprint is expected to deliver 9% overall revenue growth in fiscal 2014 as solid results in its North America operations help offset sluggishness in Europe.

"We are projecting EBITDA growth of 17% and non-GAAP EPS growth of 26%, driven largely by advertising reductions in Europe," Kopelman added.

Analysts polled by Thomson Reuters expect Vistaprint to grow annual earnings 26% this fiscal year and 29% in fiscal 2015.

Vistaprint is the third largest company by market cap in the hot Commercial Services-Document Management industry, which is currently ranked No. 10 of 197 industries that IBD tracks.

The larger two firms areIron Mountain ( IRM ) andR.R. Donnelly & Sons ( RRD ) .Quad/Graphics ( QUAD ) is a little smaller. Vistaprint has the highest Composite Rating in the whole group, 97 out of a possible 99.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas

Referenced Stocks: FB , IRM , QUAD , RRD , VPRT

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