Magazine article American Banker

Deluxe's Overhaul Pays off in Quarterly Profit

Magazine article American Banker

Deluxe's Overhaul Pays off in Quarterly Profit

Article excerpt

Deluxe Corp., halfway through a yearlong effort to reinvent itself, delivered better-than-expected earnings in the second quarter.

Revenues of $407.8 million were down 2.8% from the same quarter a year earlier, reflecting divestitures of several noncore businesses.

However, net income of $47.4 million was up 17.3%. Deluxe earned 61 cents per share, exceeding First Call Corp.'s consensus estimate by a penny.

Tom Van Himbergen, Deluxe's chief financial officer, said that walking away from unprofitable check-related businesses boosted operating margins to 19% of revenues, from 14% in the comparable 1998 quarter.

Deluxe, the nation's largest check printer, has been investing in higher-growth businesses such as outsourcing and electronic payment services.

On April 22 it announced the formation of four subsidiaries, each with the autonomy to go after business opportunities and allocate resources as it sees fit. The realignment of the 84-year-old company should be complete by Jan. 1.

E-Funds, a provider of merchant electronic payment services that was bought by Deluxe in February, is expected to be a growth engine. Deluxe predicted that the Tustin, Calif., company will achieve revenue growth of more than 20% annually in the next two years.

A subsidiary that offers software and outsourcing services to banks, iDLX, is another promising source of revenues, said Deluxe. It started as a joint venture between Deluxe and the Indian company HCL Corp. of New Delhi.

Deluxe, which increased its stake to 100% in the first quarter, predicted that iDLX's revenues will rise to $28 million this year, from $13 million in 1998.

The other units of the St. Paul company are the core check printing business and the government services division, which supplies electronic benefits transfer services in 29 states.

Deluxe is "slowly but surely building investor confidence," said Heather Bellini, an analyst at Salomon Smith Barney. …

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