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American Greetings Corp. (AM)

F2Q11 (Qtr End 08/27/2010) Earnings Call

September 29, 2010 9:00 am ET

Executives

Greg Steinberg - Treasurer and Manager, IR

Zev Weiss - CEO

Jeff Weiss - COO

Steve Smith - CFO

Analysts

Jeff Stein - Soleil Securities

Mimi Noel - Sidoti and Company

Philip Lee - First Investors

Presentation

Operator

Good day and welcome to the American Greetings Corporation second quarter fiscal 2011 earnings conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Gregory Steinberg.

Gregory Steinberg

Good morning everyone and welcome to our second quarter conference call. I am Greg Steinberg, the company's Treasurer, and I help manage our Investor Relations. Joining me today on the call are Zev Weiss, our CEO; Jeff Weiss, our COO; and Steve Smith, our CFO.

We released our earnings for the second quarter of fiscal 2011 this morning. If you do not yet have our second quarter press release, you can find a copy within the Investors section of the American Greetings website at investors.americangreetings.com.

As you may expect, some of our comments today include statements about projections for the future. Those projections involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. We cannot guarantee the accuracy of any forecasts or estimates, and we do not plan to update any forward-looking statements.

If you'd like more information on our risks involved in forward-looking statements, please see our annual report or our SEC filings, previous earnings releases, as well as our 10-Qs, 10-Ks and annual report are available on the Investors section of the American Greetings website.

We will now proceed with comments from both our CEO and CFO, followed by a question-and-answer session. Zev?

Zev Weiss

Today I'll cover four main topics. First, I will speak about some of our recent product introductions in support of our product leadership strategy; second, I will give an update on the integration of Recycled Paper Greetings and Papyrus; third, I'll comment on our systems refresh project. And finally, I will speak to our outlook for the balance of fiscal year 2011.

I am pleased with our overall performance for the first half of this year. While we continue to see an erratic recovery in the economy and a defect in our top-line, our team has tightly managed both expenses and our balance sheet which has directly led to health cash flow.

Our cash flow from operations minus capital expenditures of $74 million in the first half gets us more than halfway to our full year cash flow forecast of approximately $125 million. Despite the economic softness, we remain focused on product leadership in our core business.

We have consistently discussed our product innovation this past several quarters in order to underscore thrill at our success. Our team has continued to impress me with their creativity, as they have developed spectacular new products. We believe product leadership, which depends to a large extent on product innovation will keep our retail progress first in the mind of the consumer when they shop for greeting cards.

If the consumer can find the card they like when they need it at the right price, they will remember the location where they had that positive experience and return there when they need cards again. Specifically, product leadership means getting four important variables correct simultaneously; the right card with the right presentation at the right time with the right price.

Daily execution on this strategy in tens of thousands of retail stores is not easy, but that is our challenge and we believe that we succeeding now more than ever.

We have brought innovation into greeting cards through a variety of formats included in paper engineering, interactive technology and the use of multiple sensory items. Let me share with you a few specific examples of products we believe are enhancing the consumer experience.

We have an innovative new greeting card design to simulate an actual guitar. This next generation music greeting features a telescoping birthday card that when pulled extends into a mini guitar. Once fully extended, the music is triggered, and the recipient can enjoy the electric and acoustic versions of Happy Birthday.

My next example is a new line of cards that we call Dance Machine. These cards feature characters with moves sure to put a smile on everyone's face. Combining music and motion in a new way, Dance Machine cards feature bobble head characters that dance along to a festive song. These characters spring to life as soon as the greeting card is opened, revealing mobile arms and legs that move in rhythm to the music.

One last example is a greeting card that allows the user to utilize the sense of touch to control their own birthday greeting. These cards are called Magic Touch. Each one of these cards features a character icon waiting to greet the recipient with their own special greeting.

On opening the card, the character instructs them to touch a spot inside the card in order to trigger the surprise message. As the recipient rubs the area, the character delivers a message that is controlled by the user. For example, one of these cards has a guitar; when you strum the guitar faster, the music plays faster, and if you strum the guitar slower, the music slows down as well. This design provides multiple, interactive experiences for the recipient, all from one card.

We will continue to work hard to surprise and engage the consumer when they shop the greeting card aisle and to help them make meaningful connections with their families and friends.

Read the rest of this transcript for free on seekingalpha.com