Valassis: Layoffs Will Continue as It Reduces Newspaper Coupon Business; It's All News America's Fault

Last Updated Feb 19, 2009 2:38 PM EST

Valassis executives told Wall Street analysts that they intend to continue laying people off in order to reduce their operating costs. The company made a loss of $222 million in Q4 2008.

In addition, the company explained why it was closing down its coupon operations with many newspapers even though that revenue segment is still growing and still profitable for the company (unlike the rest of its business, which saw an overall revenue decline of 5.3 percent for the quarter).

It also gave some more information about the hefty legal bills that are currently proving ruinous for Valassis's business (and contributing heavily to the operating costs the company is trying to reduce). First, here's what they said about the layoffs:

Alan Schultz, CEO: In 2009, we reduced our associate benefit package to be consistent with what other companies are offering in the market place. Merit salary increases were also suspended. Since September, we have reduced our sales staff by just over 100.

... Our client services division reduced staffing by 160 people yet increased service levels.

Robert Recchia, CFO: Headcount reductions across the entire organization in 2008 and the first quarter of 2009 will account for approximately $15 million of year-on-year savings

Alan Schultz: ... I would tell you the bulk of it is down there still some headcount reduction that is going on in the first quarter.

They also explained what is going on with their coupon business, which as BNET noted recently is distressing newspaper subscribers, coupon clippers and publishers throughout the country. Valassis's coupon business (which it refers to as "free-standing inserts") was actually up 1.4 percent to $91.5 million. Its profit on the segment was up even more, 66.7 percent, to $2 million.

The company said that where newspaper circulation falls below 60 percent penetration they are going to start switching to direct mail coupons ("shared mail.") Because shared mail is cheaper, they're also pushing newspapers to lower the cost of taking the coupons they still handle. Newspaper subscribers who still want the coupons they used to get can go online to and get them there.

Basically, it's a double whammy for newspapers from which they will never recover. The only winner here will be the U.S. Postal Service. CEO Schultz noted that he had heard "grumbling" from consumers about coupons being removed from their papers, particulary in Cleveland:

Chuck Cerankosky - FTN Equity Capital Markets: Any update on the use of the Shared Mail to carry the FSI. We have seen a little bit here in Cleveland?

Alan Schultz: For the most part, the results we've seen are fairly positive in terms of the impact on retailers and consumer package goods companies. But in Cleveland as an example, I think the newspaper and one of its affiliates is trying to rally consumers to encourage us to move back into the Cleveland Plain Dealer newspaper.

And so, we are hearing some consumer grumbling, although again, at the end of the day there is going to be nearly a doubling of the number of consumers receiving the values. So, we think it's the right thing to do.

Analysts also asked about Valassis's crippling legal expenses. The company claims its main rival, News America Marketing Group, is price-fixing. Note that Schultz essentially concludes that any revenue growth problem that Valassis has is all News America's fault:
Kevin Seagraves - Fort Washington: And then lastly, can you give you give just bit of an update may be on the legal situation, I guess timing and then also you have, is there any risk I guess to the SG&A budget from additional legal costs at this point or do you feel like you have that kind of budgeted correctly or?

Alan Schultz: Yeah, we think we have it budgeted correctly. There is actually a meeting down in the chambers of the judge as we speak right now to talk about the March court date. News Corp or News America has been trying to delay these trials as long as they can and push them off as long as they can. So, my understanding is there is a motion being heard by the judge right now where they are trying to delay the March trial date, because they've got another trial that overlaps with FLOORgraphics who has a case against them. So, we'll have to see how the judge rules on that today, but that meeting is taking place simultaneously with this one.

He also said:
The bad news is, News America continues to aggressively price and aggressively pursue market share in this environment and so from a competitive standpoint, we really haven't seen any change in their activity.
  • See BNET's previous coverage of Valassis: