Analyst: Struggling Outerwall Will Benefit From ecoATM

Earnings Reports

The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.

After the market close on Monday, Outerwall (NASDAQ:OUTR) lowered Q3 and FY:13 guidance due to the worse-than-expected performance of its Redbox business. While revenues are expected to grow year-over-year, Redbox profits were lower than expected in part due to heightened promotional activity, which had an adverse impact on average transaction size and led to more single night rentals. Management had expected a strong Q3 due to a more linear release slate, no Summer Olympics, and 5 percent y-o-y customer growth in 1H:13. Its Coinstar business remains on track with prior expectations, although it did announce a price increase in the cash voucher rate in the U.S. to 10.9 percent from 9.8 percent, effective October 1.

ecoATM is trending above expectations for 2013, and management will conduct a full review of the other New Ventures to ensure they provide an appropriate risk-adjusted return. Management announced an additional $100 million of share repurchases in Q4, after having repurchased roughly $95 million YTD of its earlier $100 million target for 2013. We believe that the review and increased share repurchases are appropriate, and likely to be well-received by investors after recent disappointments.