Vistaprint: Earnings Preview

Jan.27.11 | About: Cimpress N.V. (CMPR)

Vistaprint N.V. (VPRT), one of the leading online providers of professional marketing products and services to micro businesses, is slated to release its second quarter 2011 results on January 27, after the market closes. The current Zacks Consensus Estimate for the second quarter is 65 cents per share, representing an annualized growth of 9.98%. The Zacks Consensus sales estimate is $224.0 million.

With respect to earnings surprises, over the trailing four quarters, Vistaprint has outperformed the Zacks Consensus Estimate. The average earnings surprise was a positive 17.19%. This implies that the company has beaten the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Previous Quarter Recap
The Netherlands-based company posted first quarter 2011 adjusted earnings per share of 36 cents, which declined 12% year over year but surpassed the Zacks Consensus Estimate of 19 cents. Earnings were at the high end of the guidance range of 27–32 cents per share. The better-than-expected results were driven by effective cost-control initiatives.

The company registered an 18% year-over-year growth in revenues to $170.5 million, including the impact of currency exchange rate fluctuations. Revenues were above management’s guidance range of $159 million to $164 million and the Zacks Consensus Estimate of $163 million.

In the first quarter, gross margin declined 50 basis points (bps) from the year-ago quarter to 63.1% and operating margin contracted 270 basis points from the prior-year quarter to 7.2%. Key operating metrics also remained strong.

Outlook
For the second quarter of 2011, Vistaprint expects earnings per share (NYSEARCA:EPS) to range within 69–80 cents, excluding expected share-based compensation expense and its related tax effect. On a GAAP basis, the company expects EPS in the range of 58 cents to 69 cents, based on revenues in the range of $210 million to $230 million.

For full-year 2011, the company reiterated its earnings outlook. The company continues to expect adjusted EPS in a range of $2.09 to $2.24 per share. On a GAAP basis, EPS is projected to range within $1.65–$1.80. The company has raised its revenue guidance range to $755–$790 million from $750–$780 million.

Estimates Revisions Trend
Estimates have not moved up significantly in the last 30 days, implying that the analysts are maintaining their view on the stock. The current Zacks Consensus Estimate is $1.74 for 2011 (reflecting a year-over-year growth of 17.00%) and $2.17 for 2012 (reflecting a year-over-year growth of 24.64%). The Zacks Consensus sales estimates for 2011 and 2012 are $785 million and $919 million, respectively.

Agreement of Estimate Revisions
There has been no movement in estimates of the analysts over the last 7 days due to the lack of any meaningful catalyst to drive estimates upward or downward. Additionally, the estimates have also not budged for the quarter in the last 30 days.

However, in the last 30 days, 1 analyst out of 9 has raised the estimates for 2011 and 2012, but none of the analysts reduced the same. Thus, the analysts have slightly drifted toward the positive side.

The upward movement by one analyst over the last 30 days in based on Vistaprint’s focus on small business markets, which provide it with ample opportunities for growth. Vistaprint is also strengthening its geographical footprint, which will further accelerate its growth. The analyst also expects margin expansion based on company’s cost-control initiatives.

Magnitude of Estimate Revisions
Over the last 60 days, there has been no change in the earnings estimate of 65 cents per share for the second quarter of 2011. Therefore, the analysts expect the company to report in line. In the last 60 days, estimates for 2011 and 2012 have jumped by a penny each to $1.74 and $2.17, respectively.

Our Take
We expect Vistaprint’s second quarter results to be in line with estimates, in the absence of any near-term catalyst.

Vistaprint primarily targets the small business market, particularly businesses or organizations with less than 10 employees, and often with less than 5 employees. This focus presents Vistaprint with substantial market opportunity, as the company estimates a presence of approximately 50 million such small businesses throughout the United States, Canada and the European Union.

Moreover, the scale of Vistaprint’s operation gives small business customers access to quality products and printing services that would otherwise have been out of their reach. Additionally, Vistaprint’s business is scalable, and increased top-line revenue will likely result in margin expansion in the long run.

Furthermore, Vistaprint has a strong international presence in Europe and Continental Europe and is poised to tap the immense growth opportunity in the Asian Market.

However, we believe that the ongoing economic uncertainty coupled with substantial competition resulting in slowing growth of new customer additions will restrict significant improvements in its top as well as bottom lines. Moreover, substantial exposure to international markets also makes the company vulnerable to currency fluctuation risks.

Accordingly, we keep our conservative view on Vistaprint’s shares and have a Zacks #2 Rank (short-term Buy recommendation). Our long-term recommendation for the stock remains Neutral.

One of Vistaprint’s competitors, Sykes Enterprises Inc (NASDAQ:SYKE), is slated to release its fourth quarter results on February 28, 2011.