Coinstar Inc. (CSTR) reported first-quarter 2013 core operating earnings of 93 cents per share which exceeded the Zacks Consensus Estimate of 85 cents per share. However, results lagged the year-ago operating earnings by 33.1%. Lower revenue growth in the Redbox segment and increased expenses resulted in the downside.
Including a loss of 15 cents from equity method investments, net income reported by Coinstar was 78 cents, down 52.7% year over year.
Quarterly Operational Update
Total revenue during the quarter was $574.7 million, up 1.1% year over year. The upside was driven by higher Redbox segment and Coin segment revenue. However, results were below the Zacks Consensus Estimate of $594 million.
Total expenses of Coinstar increased 7.5% year over year in the quarter to $526.8 million. Higher direct operating expenses (up 4.5% year over year), marketing expenses (up 14.4% year over year), research and development (up 11.9% year over year), general and administrative (up 15.5% year over year), depreciation and other (up 23.3% year over year) and amortization of intangible assets (up 193.6% year over year) led to the increase.
Adjusted EBITDA was $97.2 million, down 32.1% year over year.
Quarterly Segment Update
Redbox: Revenues increased 1.0% year over year to $507.9 million during the quarter.
Operating income declined 32.2% year over year to $51.8 million.
Coin: Revenues in the segment were $65.4 million, up 0.9% year over year.
Operating income decreased 5% year over year to $10.4 million.
New Ventures: Revenues increased 236.5% year over year to $1.4 million during the quarter
Operating loss was $11.2 million compared with $5.6 million in the year-ago quarter.
Share Repurchase Update
During the first quarter, Coinstar repurchased 0.9 million shares for $46.5 million at an average share price of $49.58 per share.
In Jan 2013, the board authorized a $250 million increase to the $133.6 million remaining under its previous share repurchase authorization plus the amount of cash proceeds received by Coinstar from the exercise of stock options by its officers, directors and employees. Currently, the company is left with $341.8 million under its authorization.
Senior Notes Update
Coinstar retired $44.6 million of its 4% convertible senior notes for $62.5 million in cash during the quarter. It had $140.4 million of aggregate outstanding principal remaining at the quarter end.
In Mar 2013, Coinstar issued 6% senior notes worth $350 million, scheduled to expire in 2019.
As of Mar 31, 2013, cash and cash equivalents of Coinstar was $453.5 million, up 60.3% from $282.9 million from year end 2012.
Total assets of Coinstar at Mar 31, 2013 were $1.8 billion compared to $1.6 billion at Dec 31, 2012.
Net cash from operations was $41.1 million, down 25.1% year over year.
Capital expenditures during the quarter declined 12.6% year over year to $33.2 million.
Free cash flow was $7.9 million, down 53.3% from $16.9 million in the first quarter of 2012.
Long-term debt increased 50.9% to $514.9 million from 2012 end level. Debt to capital ratio of Coinstar increased 1180 basis points from 39.4% at year end 2012 to 51.2% at the end of first quarter 2013.
Guidance for 2013
Coinstar expects second-quarter 2013 core operating earnings between 90 cents and $1.50 per share. Core adjusted earnings before interest, tax, depreciation and amortization (EBITDA) is expected to be within the range of $103– $113 million. Total revenue is expected between $555– $585 million.
For full year 2013, management expects core operating earnings in the range of $5.05–$5.55 per share. Core adjusted EBITDA is expected in the range of $483 – $518 million. Total revenue for 2013 is anticipated to be between $2.4 billion and $2.5 billion. Free cash flow within $185–$200 million is expected for 2013.
Performance of Others in the industry
H&R Block Inc.’s (HRB - Analyst Report) third quarter 2013, ended Jan 1, adjusted loss from continuing operations came in at 22 cents per share, much wider than the Zacks Consensus Estimate of a loss of 3 cents. H&R Block broke even in the year-ago period.
Shares of Netflix Inc. (NFLX - Analyst Report) surged 19.08% in after hours trading after the streaming service provider reported better-than-expected first quarter 2013 results. Non-GAAP earnings per share (excluding loss on extinguishment of debt) of 31 cents were significantly ahead of the Zacks Consensus Estimate of 18 cents per share. On a year-over-year basis, reported earnings also improved from a loss of 8 cents per share.
Coinstar currently carries a Zacks Rank #3 (Hold). Among others in the industry, Weight Watchers International Inc. (WTW - Snapshot Report) with a Zacks Rank #2 (Buy) is scheduled to report its first-quarter 2013 results on May 2.