Larger DM Players Report Strong Results

Reflecting the market trend of upbeat third-quarter earnings reports, American Express, America Online, Big Flower Holdings led the way this week in posting record results. and Readers Digest also reported better than expected results while infoUSA reported lower results as it had warned and confirmed layoffs of 350 employees.

Boosted by a record performance in its travel-related services division — which includes the direct marketing of charge cards and membership services — American Express, New York, reported record net income of $574 million for the third quarter, a 9.5 percent increase over the same period in 1997.

AmEx also reported that earnings per share rose 14 percent to $1.25 while revenues were up 6 percent to $4.8 billion. The travel division led the way with quarterly net income up 17 percent to a record $362 million and revenues up 8 percent to $3.3 billion. The company attributed the increases to more cards in circulation and higher spending per cardmember, which was buoyed by rewards programs. For the first nine months of 1998, net income and revenues each were up 7.5 percent to $1.6 billion and $14 billion, respectively, while EPS is up 9.6 percent to $3.53.

America Online, Dulles, VA, saw its revenues rise 65 percent to a record $858.1 million and net income more than triple to $68 million for earnings of 39 cents per share. Excluding tax benefits, AOL posted earnings of 26 cents per share, beating analyst expectations of 23 cents.

The nation's leading Internet service provider attributed the results to strong growth in membership, advertising and e-commerce. Membership revenues jumped 65 percent thanks to an influx of 951,000 new members in the quarter for a total of 4 million new members in the last year and 13.5 million total. Advertising and e-commerce revenues were up 133 percent. AOL also has announced a 2-for-1 stock split for shareholders of record Nov. 17. The split is the second this year and fifth in four years.

Big Flower, New York, is showing the fruits of its 13 acquisitions in the last 14 months. Big Flower saw sales rise 29 percent in the quarter to $440.1 million while net income was up 60 percent to $13 million for earnings per share of 57 cents. The company's direct marketing services, insert advertising and digital services units spurred much of the growth with sales increases of 16 percent, 33 percent and 188 percent, respectively.

Other companies reporting positive results were West Teleservices, Omaha, NE, which saw revenues increase 23 percent to $123.3 million, net income 27 percent to $11.3 million and EPS rise 28 percent to $0.18; and Quebecor, St. Paul, MN, with revenues up 26 percent to $2.2 billion, net income up 26 percent to $48.3 million, and EPS up 25 percent to 73 cents., Seattle, reported a loss of $0.49 per share or $45.2 million, beating analyst estimates of $0.57 per share. The online book and music seller saw revenues jump over 306 percent to $153.7 million and cumulative customer accounts rise 377 percent to 4.5 million. Music sales accounted for $14.4 million in revenues for its first full quarter.

Readers Digest, Pleasantville, NY, reported earnings of 2 cents per share, up from a loss of 5 cents per share a year ago. Revenues were up 2 percent to $575 million, the first increase in 11 quarters. CEO Thomas Ryder cited improved customer response rates for the uptick most of which was offset by a $16.4 million loss in Russia.

On the negative side, infoUSA, Omaha, NE, reported a 9 percent increase in sales to $55.1 million but reported a net loss for the quarter of $13.3 million or 27 cents per share. Contributing to the loss were $21.4 million in pre-tax charges related to sales weakness in the data provider's CD-ROM and national accounts business, executive severance and a litigation settlement.

InfoUSA had issued an earnings warning in late September. For the first nine months of the year, the company experienced revenue growth of 24 percent to $172.5 million and a net loss of $4.2 million or 9 cents per share. The loss compared favorably to a loss of $43.5 million or 91 cents per share for the same period a year ago. The weakness in its large customer business was in part because of the cancellation of a direct mail campaign by what chairman/CEO Vin Gupta called a major customer.

Gupta also confirmed that the company had laid off 350 employees in the third quarter or 17 percent of its work force as part of an aggressive cost control program. He said the cuts have not affected its database compilation and maintenance, sales or customer service departments.

Sub-prime lender Advanta Corp., Spring House, PA, also reported a negative quarter with net income down 64 percent to $15 million and EPS off 37 percent to 58 cents. These results were in line with analyst expectations.

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