American Greetings Warns of Lower Earnings

American Greetings Corp. (AM) Thursday reported lower quarterly net income and forecast earnings above Wall Street estimates for the current period, but said increased investment in its core card business would depress earnings in the coming fiscal year.

The company, which also makes candles, calendars and other gift items, said it had reviewed various strategies and concluded that its best investment was in its greeting card business. It is now considering investing $70 million to $100 million over the next couple of years, with the majority coming in the fiscal year ending in February 2007.

"All things being equal, and they never are, the effect of the major investment in cards will significantly suppress earnings in fiscal 2007," company officials said on a conference call with analysts, although they did not provide a specific forecast.

After rising as much as 9 percent before the conference call, American Greeting shares were down about 1 percent.

The company attributed its drop in profit for the third quarter ended Nov. 30 to a $33 million charge for goodwill impairment as well as to weak sales in Britain and disappointing Christmas orders for its gift wrap.

Net income from continuing operations fell to $10.3 million, or 16 cents per share, from $40.3 million, or 51 cents per share, a year earlier. Results for both quarters include charges.

Excluding the charge, which involved an Australian operating unit and the company's retail operations segment, earnings in the latest quarter matched Wall Street estimates of 58 cents a share, according to Reuters Estimates.

American Greetings had warned earlier this month that profit would be much lower than expected. At the time, analysts expected earnings of 71 cents per share, according to Reuters Estimates.

Quarterly revenue fell to $558.6 million from $586.2 million a year earlier.

American Greetings said it expects earnings per share of between 44 cents and 59 cents for the fourth quarter. Wall Street was expecting 40 cents.

For the year, the company estimated profit at between $1.03 and $1.18 per share, including the impairment charge. The analysts' average estimate is $1.41, although that figure excludes the charge.

American Greetings also said it was considering a more aggressive share repurchase program because it thinks its stock is undervalued.

"We have also considered many other ways to wisely deploy the outstanding cash flow of the last few years and have concluded that in addition to an investment in cards, we should also invest in our own shares when we believe they are trading at a discount to intrinsic value," Chief Executive Zev Weiss said in a statement.

The company said the share repurchases should add to earnings over the long term.

American Greeting shares were down 29 cents, or 1.3 percent, at $22.67 in New York Stock Exchange trade.