Why Is Shutterfly (SFLY) Up 0.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Shutterfly (SFLY). Shares have added about 0.2% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Shutterfly due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Shutterfly Posts Q2 Loss, Margins Under Pressure

Shutterfly reported second-quarter 2019 results, wherein loss was in line with the Zacks Consensus Estimate but revenues missed the same.

The company registered adjusted loss of 23 cents per share, which declined significantly from earnings of 38 cents recorded a year ago.

Net revenues during the quarter came in at $473.4 million, which grew 6.8% year over year but lagged the consensus mark of $475 million by 0.4%. Notably, its second-quarter results marked the 74rd consecutive quarter of year-over-year net revenue growth.

Segment Results

Revenues from the Shutterfly Consumers segment totaled $169.6 million, up 2.8% year over year. Cost of net revenues increased 10.7% year over year during the quarter. Margin, as a percentage of total revenues, contracted 670 basis points (bps) to 2.3%.

During the quarter, Customers traffic declined 3% and orders fell 8% year over year. Average order value, however, grew 12% from the year-ago period.

The Lifetouch segment generated revenues of $254.2 million. During the reported quarter, cost of net revenues grew 8.4% year over year to $98.8 million. Margin — as a percentage of total revenues — was 21.5%, down 730 bps from the prior year.

Also, revenues from the Shutterfly Business Solutions segment declined 0.3% year over year to $49.7 million. Cost of net revenues in the segment increased 3.2% year over year. The segment’s margins declined 330 bps to 3.8% in the reported quarter.

Expenses and Profits

In the reported quarter, adjusted gross margins were 49.2%, down 420 bps from the prior-year level. Adjusted operating expenses were $229.4 million, up 3.3% from the year-ago quarter.

Adjusted operating income of $3.5 million declined significantly from the year-ago figure of $32.3 million. Adjusted operating margin came in at 0.7%, contracting 610 bps year over year. Adjusted EBITDA margins also contracted 560 bps to 12.1% in the reported quarter.

Balance Sheet

Shutterfly exited the second quarter with cash and cash equivalents of $105.3 million compared with $521.6 million at the end of 2018. Accounts receivables of $60.4 million were down 30.6% from $87 million as of Dec 31, 2018. Long-term debt totaled approximately $898 million compared with $1,090 million at the end of 2018.

In the first six months of 2019, net cash used in operating activities was $165.6 million compared with $199.6 million reported in the comparable prior-year period.

Acquisition Update

In June 2019, Shutterfly announced that it has entered into a definitive Merger agreement with a private-equity firm, Apollo Global Management, LLC. The value of the deal stands at nearly $2.7 billion. Apollo paid $51 per share to Shutterfly’s shareholders, a 31% premium to the company's value on Apr 23, 2019. The transaction is expected to close within early fourth-quarter 2019. Shutterfly will become a privately-held firm, on completion of the transaction.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

Currently, Shutterfly has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Shutterfly has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.