Morningstar came out with a relatively new report about FTD...
Analyst Note 05-22-2006
On Monday, FTD Group FTD announced results for this year's Mother's Day season. The consumer segment, which sells products to individuals via the Internet and telephone, experienced a 12% increase in total order volume, up from a 7% increase in the prior year. The florist segment, which offers goods and services to a network of member florists, also saw solid growth. Management expects fiscal 2006 revenue to total $460 million, with net income targeted at $24 million and earnings before interest, taxes, depreciation, and amortization at $69 million. This forecast is in line with our expectations, so our fair value estimate is unchanged. We are pleased to see that the company was able to continue strong growth following a 14% increase in Valentine's Day orders this year, and we anticipate seeing solid year-end results.
Thesis 05-01-2006
FTD operates in two areas of the highly competitive floral industry. It markets flowers and other gifts to consumers, and also offers products and services to a network of participating floral retailers. Because of the high level of competition the firm faces, we'd demand a large margin of safety to our fair value estimate before investing.
In the florist segment, FTD provides products and services to members in its network. However, none of these are exclusive relationships, enabling the florist to also be a member in competitors' networks simultaneously. Teleflora boasts a much larger network of 25,000 members in the U.S. and Canada, and 20,000 outside of North America, compared with 20,000 FTD members primarily in the U.S. and Canada. Additionally, 1-800-Flowers' FLWS BloomNet has experienced strong growth and threatens the incumbents' hold in this segment.
FTD sells to consumers through its Web site and toll-free telephone number. We see this as a hard segment to compete within due to low switching costs for consumers. Individuals can easily compare products and prices online. The low-cost shop is rival ProFlowers, which passes on cost savings by working directly with growers rather than wholesalers. A dozen red roses in a vase totaled $12 less on ProFlowers' Web site, compared with both FTD and 1-800-Flowers.com. FTD plans on expanding its line of higher-margin specialty gifts such as fruit baskets, baked goods, chocolates, and stuffed animals, which amounted to 29% of total order volume in fiscal 2005. However, differentiation remains tough. Many similar, if not identical, items appear on both the FTD and 1-800-Flowers Web site. Furthermore, FTD faces additional competition in this area, including the increasingly popular gift card.
Operating margins in the consumer segment reflect the tough competitive landscape. In fact, after allocating for corporate expenses, we estimate that the consumer segment managed to just break even for fiscal-year 2005. The florist segment, on the other hand, had a healthy 21% operating margin and contributed nearly all of the company's $40 million operating profit on $191 million in revenue.
The two segments have performed very differently in their respective arenas. Yet, there exists a symbiotic relationship between them. They are highly complementary, as member florists fulfill the majority of orders that FTD generates from consumers. Future growth in the more-profitable florist segment will partly depend on FTD's ability to successfully draw consumers to its products.
Valuation
We have increased our fair value estimate to $14 per share from $13, due to additional cash generated by the business and other minor changes to our discounted cash-flow analysis. We expect the company to grow annual revenues by 5%-6% on average for the next five years. Excluding one-time restructuring charges, operating margins in 2005 were 12%. We expect margins to remain around 12% in the next five years, primarily from leverage in its general and administrative expenses.
Risk
FTD is highly dependent on seasonal sales, with peaks around Valentine's Day, Easter, Mother's Day, Thanksgiving, and Christmas. A decrease in order volume around these times will have a negative impact on overall profitability. The company also has a substantial amount of debt, which limits its ability to invest in its business and makes it vulnerable to an economic downturn.
See Previous Analyst Reports
Close Competitors TTM Sales $Mil Market Cap $Mil
FTD Group 446 372
* 1-800 Flowers.com 734 409
Provide Commerce 184 405
Teleflora NA NA
* Morningstar Analyst Report Available | Compare These Stocks
Data as of 06-30-2005
Strategy
In the consumer segment, FTD aims to continue to increase its product offering into gift baskets, stuffed animals, food, and wine in addition to flowers. In the florist segment, the company looks to expand its presence within the supermarket and mass market channels.
Management & Stewardship
CEO, president, and director Michael Soenen has been with the firm in various capacities since 1997. We find corporate governance to be a little above average. We like the fact that the chairman and CEO positions are split. Additionally, all directors are up for re-election at the same time every year, and a large component of their compensation is in stock options. In fiscal-year 2005, Soenen earned a salary of $500,000, plus an $823,643 bonus, which we view as reasonable compensation, considering that he led the company through a $192 million initial public offering. In that same year, he was also awarded 925,001 options, amounting to 41% of the total granted to employees. In addition to the 158,434 shares Soenen already owns, we see this as a strong incentive to increase shareholder wealth. In total, over half of the common stock is owned by private equity firm Leonard Green & Partners, accounting for three of the seven seats on the board of directors. With only two members of the board considered independent, outside shareholders may not have a large voice in decision making.
Profile
FTD is a leading provider of floral-related products. The company markets flowers and specialty gift items to individuals through its Web site and toll-free number, offering same-day delivery in the U.S. and Canada, and next-day delivery in over 150 countries. The firm also provides a comprehensive suite of products and services to a network of approximately 20,000 FTD members, which includes traditional retail florists as well as other retailers offering floral products.
Growth
The company delivered average annual top-line growth of 10% over the past three years. However, we do not think this is sustainable and forecast sales growth to average 5%-6% in the next five years.
Profitability
In 2004 and 2005, excluding one-time restructuring charges, operating margins were 10% and 12%, respectively. We anticipate margins to remain around 12% in the near future.
Financial Health
As of December 2005, FTD had $233 million in long-term debt on its books. Low capital expenditure requirements allow the firm to generate substantial free cash flow, but this may disappear quickly if consumer demand drops.
I like the last paragraph..replace "low capital expenditures" with for "sucking the florists dry"...this is probably old news but maybe someone is interested.
Analyst Note 05-22-2006
On Monday, FTD Group FTD announced results for this year's Mother's Day season. The consumer segment, which sells products to individuals via the Internet and telephone, experienced a 12% increase in total order volume, up from a 7% increase in the prior year. The florist segment, which offers goods and services to a network of member florists, also saw solid growth. Management expects fiscal 2006 revenue to total $460 million, with net income targeted at $24 million and earnings before interest, taxes, depreciation, and amortization at $69 million. This forecast is in line with our expectations, so our fair value estimate is unchanged. We are pleased to see that the company was able to continue strong growth following a 14% increase in Valentine's Day orders this year, and we anticipate seeing solid year-end results.
Thesis 05-01-2006
FTD operates in two areas of the highly competitive floral industry. It markets flowers and other gifts to consumers, and also offers products and services to a network of participating floral retailers. Because of the high level of competition the firm faces, we'd demand a large margin of safety to our fair value estimate before investing.
In the florist segment, FTD provides products and services to members in its network. However, none of these are exclusive relationships, enabling the florist to also be a member in competitors' networks simultaneously. Teleflora boasts a much larger network of 25,000 members in the U.S. and Canada, and 20,000 outside of North America, compared with 20,000 FTD members primarily in the U.S. and Canada. Additionally, 1-800-Flowers' FLWS BloomNet has experienced strong growth and threatens the incumbents' hold in this segment.
FTD sells to consumers through its Web site and toll-free telephone number. We see this as a hard segment to compete within due to low switching costs for consumers. Individuals can easily compare products and prices online. The low-cost shop is rival ProFlowers, which passes on cost savings by working directly with growers rather than wholesalers. A dozen red roses in a vase totaled $12 less on ProFlowers' Web site, compared with both FTD and 1-800-Flowers.com. FTD plans on expanding its line of higher-margin specialty gifts such as fruit baskets, baked goods, chocolates, and stuffed animals, which amounted to 29% of total order volume in fiscal 2005. However, differentiation remains tough. Many similar, if not identical, items appear on both the FTD and 1-800-Flowers Web site. Furthermore, FTD faces additional competition in this area, including the increasingly popular gift card.
Operating margins in the consumer segment reflect the tough competitive landscape. In fact, after allocating for corporate expenses, we estimate that the consumer segment managed to just break even for fiscal-year 2005. The florist segment, on the other hand, had a healthy 21% operating margin and contributed nearly all of the company's $40 million operating profit on $191 million in revenue.
The two segments have performed very differently in their respective arenas. Yet, there exists a symbiotic relationship between them. They are highly complementary, as member florists fulfill the majority of orders that FTD generates from consumers. Future growth in the more-profitable florist segment will partly depend on FTD's ability to successfully draw consumers to its products.
Valuation
We have increased our fair value estimate to $14 per share from $13, due to additional cash generated by the business and other minor changes to our discounted cash-flow analysis. We expect the company to grow annual revenues by 5%-6% on average for the next five years. Excluding one-time restructuring charges, operating margins in 2005 were 12%. We expect margins to remain around 12% in the next five years, primarily from leverage in its general and administrative expenses.
Risk
FTD is highly dependent on seasonal sales, with peaks around Valentine's Day, Easter, Mother's Day, Thanksgiving, and Christmas. A decrease in order volume around these times will have a negative impact on overall profitability. The company also has a substantial amount of debt, which limits its ability to invest in its business and makes it vulnerable to an economic downturn.
See Previous Analyst Reports
Close Competitors TTM Sales $Mil Market Cap $Mil
FTD Group 446 372
* 1-800 Flowers.com 734 409
Provide Commerce 184 405
Teleflora NA NA
* Morningstar Analyst Report Available | Compare These Stocks
Data as of 06-30-2005
Strategy
In the consumer segment, FTD aims to continue to increase its product offering into gift baskets, stuffed animals, food, and wine in addition to flowers. In the florist segment, the company looks to expand its presence within the supermarket and mass market channels.
Management & Stewardship
CEO, president, and director Michael Soenen has been with the firm in various capacities since 1997. We find corporate governance to be a little above average. We like the fact that the chairman and CEO positions are split. Additionally, all directors are up for re-election at the same time every year, and a large component of their compensation is in stock options. In fiscal-year 2005, Soenen earned a salary of $500,000, plus an $823,643 bonus, which we view as reasonable compensation, considering that he led the company through a $192 million initial public offering. In that same year, he was also awarded 925,001 options, amounting to 41% of the total granted to employees. In addition to the 158,434 shares Soenen already owns, we see this as a strong incentive to increase shareholder wealth. In total, over half of the common stock is owned by private equity firm Leonard Green & Partners, accounting for three of the seven seats on the board of directors. With only two members of the board considered independent, outside shareholders may not have a large voice in decision making.
Profile
FTD is a leading provider of floral-related products. The company markets flowers and specialty gift items to individuals through its Web site and toll-free number, offering same-day delivery in the U.S. and Canada, and next-day delivery in over 150 countries. The firm also provides a comprehensive suite of products and services to a network of approximately 20,000 FTD members, which includes traditional retail florists as well as other retailers offering floral products.
Growth
The company delivered average annual top-line growth of 10% over the past three years. However, we do not think this is sustainable and forecast sales growth to average 5%-6% in the next five years.
Profitability
In 2004 and 2005, excluding one-time restructuring charges, operating margins were 10% and 12%, respectively. We anticipate margins to remain around 12% in the near future.
Financial Health
As of December 2005, FTD had $233 million in long-term debt on its books. Low capital expenditure requirements allow the firm to generate substantial free cash flow, but this may disappear quickly if consumer demand drops.
I like the last paragraph..replace "low capital expenditures" with for "sucking the florists dry"...this is probably old news but maybe someone is interested.
