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Why Is Shutterfly (SFLY) Down 0.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Shutterfly (SFLY - Free Report) . Shares have lost about 0.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Shutterfly due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Shutterfly Q4 Earnings Beat Estimates, Revenues Miss

Shutterfly reported mixed fourth-quarter 2018 results, wherein the bottom line surpassed the Zacks Consensus Estimate but the top line lagged the same. Notably, this marked the company’s eighth straight quarter of earnings beat, while revenues missed estimates for the second straight quarter. Adjusted earnings came in at $5.47 per share, beating the consensus estimate of $5.28. The bottom line also surged 75.9% on a year-over-year basis.

Net revenues totaled $950 million, which improved 60% year over year but fell short of the consensus mark of $956 million. The sharp increase in the top line was primarily owing to robust performance by the Lifetouch and Business Solutions segment, offset by a lower-than-expected Shutterfly Consumer segment revenues. Notably, fourth-quarter earnings marked the 72st consecutive quarter of year-over-year net revenue growth.

Revenues in Detail

Revenues at the Consumers category amounted to $528 million, up 1% year over year. The segment’s lower-than-expected performance was due to a 17% decline at Tiny Prints boutique. However, Shutterfly brand revenues increased 3% during the quarter.

The Lifetouch segment generated revenues of $348 million. This segment was formed following the acquisition of Lifetouch. Revenues from the Shutterfly Business Solutions (SBS) segment rose 3% year over year to $74 million.

Unique customers declined 1% year over year to 6.1 million and total orders decreased 7% year over year to 9.8 million. Meanwhile, average order value increased 8% to $54.03 backed by better product mix and larger basket size.

Operating Performance

Adjusted gross margin in the fourth quarter was 60.3%, which was below the midpoint of the company’s guidance due to lower consumer revenues. Shutterfly Consumer gross margin contracted 90 basis points (bps) to 62.1% primarily due to lower volumes, pricing pressure and product mix.

However, Lifetouch gross margin was 67.4%, in line with the company’s expectation. Shutterfly Business Solutions’ gross margin expanded 120 bps to 19.4% on reduction in technology related expenses.

The company reported adjusted EBITDA of $319.8 million, which was below the company’s expectation. Operating expenses totaled $313.4 million.

Balance Sheet

Shutterfly exited the fourth quarter with cash and cash equivalents of $521.6 million compared with $489.9 million at the end of 2017. Accounts receivables summed $87 million, down from $82.3 million as of Dec 31, 2017. Long-term debt totaled approximately $1,090.4 million compared with $292.5 million at the end of 2017.

1Q19 Guidance

For first-quarter 2019, net revenues are projected between $317 million and $328 million. Gross profit margin is estimated in the range of 35.8-36.7%. Adjusted EBITDA loss is anticipated in the $43-$48 million band. Operating loss is envisioned in the $102-$107 million range. Also, Shutterfly Consumer revenues are projected in the band of $146-150 million, while the same from Shutterfly Business Solutions are likely to be between $45 million and $48 million. Lifetouch revenues are envisioned in the $126-$130 million range.

2019 View

Net revenues are estimated to be between $2,130 million and $2,210 million. Gross profit margin is expected to be in the 51.4-51.7% range. Meanwhile, adjusted EBITDA is anticipated in the band of $315-$340 million. Operating income is envisioned in the $76-$101 million range.  Also, Shutterfly Consumer revenues are projected in the band of $975-1,025 million, while the same from Shutterfly Business Solutions are likely to be between $240 million and $250 million. Lifetouch revenues are envisioned in the $915-$935 million range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -35.86% due to these changes.

VGM Scores

Currently, Shutterfly has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Shutterfly has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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