Please ensure Javascript is enabled for purposes of website accessibility

Deluxe Soars on a Strong Finish to 2015, Upbeat 2016 Guidance

By Dan Caplinger - Jan 28, 2016 at 11:35AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company known for checks grew faster than expected and sees further gains in 2016.

Deluxe has moved beyond checks to seek out new business opportunities. Image source: Deluxe.

The challenge of making a transition from a declining business is one that many companies never make successfully. Deluxe Corp. (DLX -2.54%) has been in that position for years, because the printer of paper checks has had to deal with the rise of electronic payments and credit and debit cards. Yet just as mailing specialist Pitney Bowes (PBI 0.57%) has looked for ways to go beyond its traditional perch atop the postage and mailing-services industry, Deluxe has broadened its scope to serve small businesses and financial institutions with a broader set of needs. Coming into Thursday's fourth-quarter financial report, Deluxe shareholders expected modest growth from the company, and its results were actually quite a bit stronger than many had expected. Let's take a closer look at Deluxe's latest results and what they say about the company's efforts to reinvent itself.

Deluxe gets growing
Deluxe's fourth-quarter results were encouraging for those following the company. Revenue climbed 3.3% to $463.5 million, surpassing the $462 million in sales that most investors were expecting to see. Net income also rose roughly 3% to $59.7 million, and that produced adjusted earnings of $1.26 per share. The bottom-line figure was a nickel per share better than the consensus forecast among investors.

Looking more closely at the company's performance, Deluxe had considerable success across the business. The Small Business Services division matched the company's overall 3.3% sales growth rate, but the Financial Services segment outpaced that growth rate with gains of more than 7%. Sales from marketing solutions and other services grew more than 12% from the year-ago quarter, and that part of the business now accounts for almost a third of Deluxe's overall revenue. Most of those gains came from the acquisition of Datamyx, which the company highlighted as a key contributor on the marketing front because of its provision of integrated information, technology, and analytics. The Direct Checks unit saw revenue slump 7%.

On the profit front, though, the main businesses diverged. Small-business services saw adjusted operating income climb 8%, but the corresponding adjusted profit figure for the financial services division fell 5.5% due to transaction-related costs and the ongoing decline in check usage. Direct Checks saw a 0.7% drop in adjusted operating income.

Deluxe CEO Lee Schram was happy with the company's progress. "Through 2015 we made substantial progress on our transformation," Schram said, pointing to the Datamyx acquisition as well as serving web-hosting customers and expanding its direct-sales channels to attract more small-business clients.

Can Deluxe keep climbing?
Schram also believes that 2016 will be favorable for Deluxe as it continues to follow its strategic plan. In particular, he believes that marketing solutions will continue to play an increasingly vital role in the growth of the business. That's similar to what Pitney Bowes has said with its diversification efforts, as it has highlighted enterprise resource planning as a growth area for Pitney Bowes in conjunction with its technology focus. Like Pitney Bowes, Deluxe is aiming to cater to its strengths while also tapping new opportunities.

Deluxe's guidance was encouraging as well. For the first quarter, it expects adjusted earnings of $1.12 to $1.17 per share, which matches up well with current expectations among investors. Revenue of $448 million to $456 million also aligns with expected figures. For 2016, it now believes revenue will come in between $1.835 billion and $1.875 billion, implying 3.5% to 6% sales growth, and earnings of $4.75 to $4.95 per share compares favorably with the $4.82 consensus figure for the full year.

Shareholders celebrated the news, sending the stock up nearly 10% in the first hour of trading following the announcement. Deluxe still has to follow through on its strategy, but right now, things look good for the company in its attempt to adapt to its new business environment.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Deluxe. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Pitney Bowes Inc. Stock Quote
Pitney Bowes Inc.
$3.51 (0.57%) $0.02
Deluxe Corporation Stock Quote
Deluxe Corporation
$23.18 (-2.54%) $0.60

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.