Viad Corp (VVI)

VVI 
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Viad Corp (VVI)

Q2 2013 Earnings Call

July 26, 2013 9:00 am ET

Executives

Joe Diaz

Paul B. Dykstra - Chairman, Chief Executive Officer, President and Member of Innovation & Marketing Strategy Committee

Ellen M. Ingersoll - Chief Financial Officer

Steven W. Moster - Group President of Marketing & Events and President of Global Experience Specialists, Inc.

Analysts

Stephen Altebrando - Sidoti & Company, LLC

John M. Healy - Northcoast Research

Luisa Lau

Presentation

Operator

Welcome to the Viad Corp Second Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded. If you have any objections, you may now disconnect at this time. I would now like to turn the conference over to Mr. Joe Diaz.

Joe Diaz

Thank you, and good morning. And I thank all of you for participating on the Viad Corp Second Quarter 2013 Earnings Conference Call.

I'd like to remind everyone that certain statements made during this call, which are not historical facts, may constitute forward-looking statements. Additional information concerning business and other risk factors that could cause actual results to materially differ from those in the forward-looking statements can be found in Viad's annual and quarterly reports filed with the SEC.

During today's call, we'll refer to Tables 1 and 2 in the Business Group Highlights section of the earnings press release, which is available on the Viad website at www.viad.com.

Today, you'll hear from Paul Dykstra, Viad's Chairman, President and CEO; and Ellen Ingersoll, Viad's Chief Financial Officer. Additionally, Steve Moster, President of Viad's Marketing & Events Group; and Michael Hannan, President of Viad's Travel & Recreation Group, will be available for comment during the question-and-answer session at the end of the call.

With that I'd like to turn the call over to Paul Dykstra, Chairman, President and Chief Executive Officer of Viad Corp Paul?

Paul B. Dykstra

Thank you, Joe, and thanks to all of you for participating on today's call. We appreciate your continued interest and support of the company.

I'm pleased to report that our results for the second quarter of 2013 were in line with our prior guidance. Income before other items was $0.33 per share, up about 14% from $0.29 per share in the 2012 quarter, with consolidated revenue of $249.3 million and segment operating income of $10.9 million. Overall, both business units posted solid results.

Our Marketing & Events Group realized modest growth during the quarter, driven by positive show rotation, continued same-show revenue growth and an ongoing focus on margin improvement. As we have discussed on past calls, we are targeting a full year operating margin at 2.5% for the Marketing & Events Group. This is up 50 basis points from 2012 despite significant revenue headwind from negative show rotation in the range of $55 million. In order to achieve this goal, we are focused on marketing and sales activities to generate new business and executing on our key initiatives to improve U.S. margins through a more efficient service delivery network and rigorous labor management.

Our service delivery initiative is aimed at reducing operating costs and investment capital by improving the efficiency and performance of our U.S. operations. Specifically, we are rationalizing our facilities, inventories and equipment in order to meet the demand patterns of our business in the most cost-effective manner while improving our already high service levels. Through the end of 2012, we have reduced our U.S. facility footprint by nearly 1/3 and realized a net reduction in annual U.S. facility costs of almost $7 million as compared to 2008. And we continue to make progress on this front.

I had mentioned on our prior call that we are preparing our Atlanta facility to become our East Coast depot. I'm happy to report that it is now fully operational and successfully supporting cities in the East region with inventory and equipment when show production requirements exceed local store set levels. By using a depot model, we will able to improve turns and reduce overall stock levels, and therefore, warehouse space. We're also able to drive down space requirements by applying lean practices to improve the efficiency of our warehouse organization.

We are preparing for 2 fairly significant facility moves later this year that will enable us to reap the benefits of the depot model and more efficient warehousing while also maintaining or improving our high customer service levels and providing a better work environment for our employees. During the third quarter, we will relocate our Baltimore and D.C. area operations into a more efficient facility in that same market. We are also finalizing plans to relocate our New Jersey, New York operations, which are currently housed in one of the few facilities that we own. As that facility does not meet our go-forward operational needs, we have found a buyer and expect to close on the sale during the third quarter. We have negotiated a leaseback through the end of the year that will enable us to complete a seamless relocation to a more efficient leased facility in the same market during the fourth quarter.

As compared to 2012, we expect the service delivery network changes to benefit U.S. segment operating segment income by approximately $4 million this year. Excluding the gain on sale and move costs, the ongoing annualized run rate savings are closer to $600,000 when comparing this year to 2012. We are pleased with the progress achieved in our U.S. margin improvement initiatives to this point. We will continue to effectively manage our U.S. cost structure for improved profitability in 2014 and beyond.

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