American Greetings Corp. (AM) Tuesday said quarterly earnings rose 25 percent, excluding debt repurchasing costs, on better-than-expected sales of items featuring licensed characters such as Strawberry Shortcake (search) and The Care Bears (search).

American Greetings, whose shares rose 5 percent in early trading, also said earnings in its second quarter, typically its most challenging quarter, would be about "break-even."

The Cleveland, Ohio-based maker of greeting cards and novelty gifts said net income fell to $4.2 million or 6 cehasing costs. A year earlier, the company reported net income of $19.7 million or 27 cents per share.

Excluding special items in both quarters, American Greetings said earnings were $28.1 million, compared with $22.5 million in the first quarter last year.

American Greetings reported net sales of $445.7 million for the quarter, down from $454.3 million a year earlier.

The company has licensing agreements to produce products featuring Strawberry Shortcake and The Care Bears characters, and there are plans to reintroduce the once-popular Holly Hobby (search) character.

"Our cost-reduction efforts were on track in the quarter, and our licensing results were better than expected," Zev Weiss, chief executive officer, said in a statement. "Cash flow was strong once again, as we continue to focus on improving our balance sheet."

The company estimated full-year earnings of $1.63 to $1.68 per share, or $1.46 to 1.51 per share including the costs and benefits of the debt repurchase.

During the quarter, American Greetings completed a tender offer for $186.2 million worth of senior subordinated notes due July 2008. The company has now reduced its debt by $368 million in a 13-month period, which it said cut annual interest expenses by about $38 million.