Nate Brochmann, CFA
Matthew Young, CFA
William Blair & Company, L.L.C. intends to seek or expects to receive compensation for investment banking services in the next 3 months from Coinstar, Inc.
Please consult the last page of this report for all disclosures.
Third Quarter 2009 Results Exceed Expectations; Redbox
Viewpoint. Third-quarter adjusted EPS from continuing operations
exceeded expectations, largely driven by the DVD segment (Redbox).
Redbox continues to display rapid growth potential due to solid consumer
and retail store demand. Adjusted operating results exclude income from
discontinued operations of $31.7 million ($1.03 per share) associated with
the sale of the Coinstar’s entertainment segment (refer to our note from
September 11). Overall, we believe the company is executing well on its
plan to be a premier automated retail service provider, and the runway for
Redbox appears bright for at least the next few years.
Results. Third-quarter total sales increased 46%, to $296 million, with
adjusted EPS from continuing operations increasing to $0.31 (from $0.16
last year), above our $0.26 estimate and Street consensus of $0.25.
Comparisons with our estimate were challenging this quarter due to the
noise created by the entertainment unit divestiture and impact of the recent
convertible offering. Solid revenue growth reflected strong same-store-sales
growth in the DVD segment (26%), and increased sales volume from new
DVD (+8,800) and coin (+1,300) installations over the past year. These
factors were partly offset by same-store-sales decline in the coin-counting
segment (down 5.4%), due to less idle coin, as softer consumer spending
trends negatively affected cash transactions and foot-traffic at retailers.
Adjusted operating profit margin declined to 9.2%, from 9.9% in the year-
ago period, due to the growth of Redbox (which r