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Non-Tech : Catalina Marketing Corporation (POS) -- Ignore unavailable to you. Want to Upgrade?

To: JakeStraw who wrote (4)	3/6/2002 10:50:36 AM
From: JakeStraw	Read Replies (1) \| Respond to of 6

An Aisle Of Advertising Profitability forbes.com Catalina Marketing, based in St. Petersburg, Fla., sounds like sailboats or vacation packages. Actually, it's one of the best performing advertising outfits in what has been the worst period for the industry since 1991. It's also one of the best performing technology stocks. Since the March 2000 bull market peak, the Dow Jones U.S. advertising industry index has lost 39% and the S&P 500 27%. Catalina Marketing (nyse: POS) shares are up 3%. And their 8% gain over the past year trounced the S&P 500's 12% loss and the Dow Jones ad index's 19% decline. You already know about tech stocks. Each week, the company interacts with 209 million shoppers at 16,500 supermarkets via coupon printers linked to checkout scanners. Catalina's ticker symbol is the industry abbreviation for "point of sale." The company's computers match purchases with offers designed by client companies in consultation with Catalina. For example, buyers of boxed oatmeal might receive a coupon for higher margin single-serving packs, or lemonade buyers might get coupons for lemon cola. The possibilities for a single product can entail analysis of an entire shopping cart. Founded in 1983, Catalina competes most directly with the fliers that fill Sunday newspapers. They delivered 82% of the 240 billion coupons issued in 2001, according to NCH Marketing Services, the world's largest coupon-clearing house. Though Catalina's 3 billion annual coupon output is a sliver of the total, its targeting generates an average redemption rate six times the 1% to 2% of mass-distributed coupons. That enables Catalina to charge manufacturers a premium. Still, Catalina's expected 14% net profit margin on $450 million revenue for the fiscal year ending this March is matched by newspaper coupon king Valassis Communications (nyse: VCI), which booked $850 million in revenue in 2001. Weren't computers supposed to have killed off dead-tree media by now? Though that notion withered along with Internet stocks, Catalina maintains an appealing edge in its corner of the coupon universe. The company and Wall Street project that revenue and earnings growth for the fiscal year beginning this April will return to the 20%-plus notched in 1998 though 2000. The outlook for Valassis is that 2002 revenue will grow less than 4% and profits by 2% to 12%. Last year, both companies were hit by a slowdown, but Catalina appears better poised to recover. A wave of food industry mega-mergers done in 2000--such as Kraft (nyse: KFT)/Nabisco and PepsiCo (nyse: PEP)/Quaker Oats--crimped coupon distribution while the partners organized their marriages. Though Catalina can't compete with the exposure provided by Valassis, tight targeting and tracking of redemptions give manufacturers better measurement of return on investment and the ability to make adjustments more quickly. That's important when promotion budgets are tighter, especially at food giants anxious not to spoil projections used to justify acquisitions. Catalina gains its precision from a data warehouse containing 20.3 billion rows of decision-support information--the sixth-largest in the world and ahead of AT&T (nyse: T), according to database researcher Winter Corp. In addition to crunching extensive variables about shopping not identified with individual consumers, the data warehouse handles supermarket loyalty-card programs with 70 million participants. What Catalina does at a handsome profit sounds a lot like the promise of Internet marketing. But Catalina didn't put the Web before the shopping cart. Though 85% of Catalina-equipped supermarkets also participate in the company's valupage.com, Chief Financial Officer Joseph Port says, "We haven't figured out the business model for it yet." Net-centric couponer Coolsavings (nasdaq bb: CSAV), whose 1.6 million opt-in Web registrations are half those of Catalina's, last year lost $31 million on $22 million in revenue. The stock's current price-earnings ratio of 27 (on consensus estimates for Catalina's 2003 fiscal year) isn't cheap relative to the 25% growth rate forecast. But in the current advertising environment, double-digit growth is scarce. Still, there's a question about Catalina's ability to deliver beyond the easy comparison with the past year. The core business serves half of the nation's 31,800 supermarkets. But the company has been beating on their doors for 18 years. Overseas operations at 2,600 supermarkets account for about 15% of revenue but haven't contributed significantly to profit. Catalina's fastest growing business, Health Resource, delivers prescription-related information and advertising to consumers in 17,600 pharmacy outlets. In Catalina's fiscal quarter ended Dec. 31, that revenue doubled to 15% of Catalina's total but generated just 6% of earnings per share. Catalina's greatest leverage has been adeptly harnessing continual advancement of technology to create new capabilities for clients. In that sense, Catalina is similar to the $7 billion in sales Automatic Data Processing (nyse: ADP). Best known for payroll processing services, ADP has delivered double-digit earnings growth for 41 straight years. Catalina Marketing is still far from that record. But it has delivered better profit than new economy wannabes and better growth than bubble-busted old-tech outfits.