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Cuts run deeper at Harte-Hanks

Harte-Hanks Inc. reported a drop in total fourth quarter revenues to $269.6 million from $303 million last year, prompting the company to take steps to cut costs, including reducing circulation for the Shoppers brand, and wage freezes and reductions.

For the year, the direct marketing services provider’s revenues decreased 6.9% to $1.06 billion. As a result, Harte-Hanks is reducing headcount, consolidating businesses and closing facilities.

The company’s operating income for the three-month period, which ended December 31, totaled $25.5 million, a 46% drop. For the year, operating income decreased 28.9% to $117.3 million.

“The fourth quarter financial market events dramatically influenced business and consumer confidence and resulted in an immediate impact on our direct mar­keting revenue,” said chairman, president and CEO Larry Franklin, in a statement. “What began in prior quarters as caution with spending plans became even more pronounced throughout the fourth quarter, resulting in significant reductions and delays in spending by clients.”

The economic downturn hit Harte-Hanks across all verticals, with retail, pharma/health­care and financial most affected, Franklin said. Still, he sees reasons to be encouraged.

“I believe there is a bright future for marketing solutions that deliver value and achieve results for clients,” said Franklin later during a conference call. “And, both of our businesses provide services that are even more necessary in this environment because we help our clients talk directly to their customers and generate revenue.”

Hyundai Motor America, for example, recently named Harte-Hanks as its direct marketing agency of record, specifically focusing on vehicle owner and prospect communications programs.

The negative Shoppers performance experienced all year continued into Q4, with revenue decreasing 17.2% and oper­ating income declining $14.7 million. As a result, Harte-Hanks reduced Shoppers cir­culation by approximately 500,000 in south and central Florida. And, because of this, the company will consolidate two production facilities by the end of the first quarter.

In California, Harte-Hanks is reducing Shoppers circulation by approximately 700,000 early in the first quarter of 2009.

“We are removing the circulation that we think is a drag on us,” Franklin said.

Harte-Hanks aggressively expanded the Shoppers circulation between 2004 and 2006, adding close to 2 million names and another 900,000 through acquisition. Much of the current cuts come from this expan­sion period. Between 2007 and early 2009, Harte Hanks will have reduced circulation by approximately 2 million names.

With these curtailments, the company’s PennySaverUSA.com and TheFlyer.com publications will reach approximately 11.5 million addresses each week. And, the company will still invest in the business. PennySaverUSA.com, aimed at California shoppers, and TheFlyer.com, targeted to those in Florida, recently launched Power Sites, a new product aimed at helping small and medium sized business owners establish a Web presence and includes a call tracking number to help customers do a better job of retaining potential clients.

The company’s direct marketing revenue declined 8.1% in the fourth quarter while its operating income dropped 19.2%. The select markets vertical experienced revenue growth in the fourth quarter in the low single-digits, while the high tech/telecom vertical was essentially flat.

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