Why Valassis Communications Shares Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Valassis Communications (NYSE: VCI  ) were taking a hit today, falling as much as 11%, after reporting a weak fourth quarter.

So what: The direct mail specialist said net income dropped slightly in the quarter, from $34.3 million, to $34.1 million, though earnings per share improved from $0.76, to $0.85, but missed estimates by $0.10. Revenue declined 3%, to $579.4 million, and sales in its targeted neighborhood segment dropped by 15% on lower demand. Management guided 2013 EPS at $3.50, slightly below expectations at $3.52.

Now what: As the post office's recent announcements indicate, physical mail is fading away, and the USPS's plan to eliminate Saturday delivery should only hasten the demise for companies like Valassis. At a forward P/E of eight, the stock is cheap, but it's cheap for a reason. As further confirmation of its impending decline, the company has promised to spend most of its free cash flow on dividends and share buybacks, indicating little opportunity for operational growth. I'd stay away from this one.

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