Although Valassis Communications
According to the fourth-quarter and year-end earnings release, sales are on the rise. Revenue grew almost 27% in the fourth quarter, and Valassis just eclipsed $1 billion in yearly revenue. When you are good at helping product providers reach potential customers and turn them into buyers, people will pay for your services. On the conference call, management spoke about how it expects the momentum to continue into 2005 as well, earning Valassis an upgrade from the Robert W. Baird analyst to outperform.
But management was quick to point out something else clearly evident on the income statement. Even though revenues were rising due to higher volumes of FSI products, increases in bundled selling, and new customers, not all of the benefits dropped to the bottom line. That's because the cost of goods sold and selling, general, and administrative (SG&A) expenses have been rising faster than sales, as shown in the table below.
|Cost of Goods Sold||67.8%||72.2%||70.3%||74.3%|
To increase volume and deal with competitors like ADVO
While you can't argue with its past success, Valassis is in a tough business where it can get squeezed by both newspapers (the distribution system) and the product providers. It will have to continue to innovate in order to fight off the commodity moniker. And with its stock price reaching a 52-week high, I would wait for lower levels before buying.