Harte-Hanks sees big declines in first quarter

Net income for Harte-Hanks Inc. fell 33 percent in the first quarter as economic conditions for the company's core shopper business remained "dismal."

San Antonio-based Harte-Hanks (NYSE: HHS) reported net income of $13.5 million, or 21 cents per diluted share, on revenues of $268.5 million for the quarter ended March 31, 2008. That compares to net income of $20.3 million, or 27 cents per diluted share, on revenues of $283 million for the prior-year period.

"Company-wide revenue and profits were down compared to the first quarter of 2007," says Harte-Hanks President and CEO Dean Blythe. "Similar to our results in 2007, our two businesses are delivering different results."

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Blythe notes that the company's direct marketing business is doing well with revenue growth of 4.6 percent and operating income up 4 percent for the quarter. But the shopper business has done poorly.

"We stated in our fourth quarter 2007 earnings release that we did not believe we would see any meaningful improvement in the Shoppers business environment in 2008, and that in fact it could deteriorate," Blythe says. "Unfortunately, we were accurate in our assessment and have seen further deterioration in the Shoppers revenue environment in the first quarter. Consequently, we have made and are continuing to make adjustments to our cost structure across the company."

Dean Shepard, chief financial officer, says the shopper business continues to be weak with revenue declines of 20 percent from the first quarter of 2007 and operating income down 58.9 percent.

"While we continue to believe in the long-term strength and viability of our Shoppers business," Shepard says, "the general economic conditions -- initially created by weakness in the real estate and associated financing markets -- in the California and Florida geographies in which we operate are dismal."

Blythe says 2008 has begun much like 2007 and shoppers "continue to suffer in a very difficult environment."

"The external environment remains confusing, but our revenue growth in the direct marketing business has remained steady," Blythe says. "We also believe in the resiliency of our Shoppers business to return to top and bottom line growth when the California and Florida economies show signs of stability."

Harte-Hanks provides direct and targeted marketing services to local, regional, national and international companies. Harte-Hanks Shoppers is North America's largest owner, operator and distributor of shopper publications. Its editions reach 12 million households each week in California and Florida.