When I saw the earnings announcement from greeting card producer American Greetings
As it turns out, American Greetings would have liked to see a few more birthdays in the just-completed quarter -- the company reported a net loss from continuing operations of $13.2 million, down from a $3.8 million positive income on the same basis a year ago. Costs were flattish and even down a little, $374.7 million versus the year-ago period's $376.1 million, but net sales dropped 6.5% to $360 million.
Granted, the summer months are slow in this business with a dearth of holidays that would inspire card purchases, and American Greetings expects to return to solid profitability in the second half of the year. I wish I had the financial freedom to say what CEO Zev Weiss said about this performance: "Our results were slightly below our plan by a few million dollars." But then again, I don't have a $1.3 billion market cap.
Last night, American Greetings didn't, either, though -- it sported a cap of over $1.4 billion, and the market just gave it a severe haircut on what looks like a rather marginal underperformance. This $17 million year-over-year net profit drop in its seasonally weakest quarter pales next to the $39.1 million the company spent on share buybacks in the period. Over the past 18 months, American Greetings has spent $351 million on buybacks, reducing the outstanding share count by over 25%.
It's not the biggest buyback program in market history, but it is rather impressive.
In short, I think American Greetings got unfairly pummeled in the market today because it showed red where investors wanted black, a psychological warning sign that triggered an overreaction. America won't stop buying greeting cards any time soon, and privately held Hallmark does not have a market monopoly. Expect the shares to bounce back once the panic settles and rational analysis prevails once again.
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