Outlook: Outerwall Plans to Reduce Costs By $22 Million, Mostly Workforce

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Outerwall (NASDAQ:OUTR) will report Q4:13 (December) results after market close on Thursday, February 6, and will host a call at 2:00 p.m. PT (dial-in: 888-895-5271, passcode: 3641 5281#, webcast: ir.outerwall.com).

We expect Outerwall to report Q4 results at the high end of its revised guidance. The company expects Q4 revenue of $583 – $608 million, compared to our estimate of $608 million and consensus of $595 million, core adjusted EBITDA of $120 – $130 million compared to our estimate of $127 million, and core diluted EPS of $1.18 – $1.33, compared to our estimate of $1.33 and consensus of $1.22. Given the company’s late December announcements, we see little risk to results.

In December, Outerwall announced that it will discontinue three New Ventures. The wind-down process for Rubi, Crisp Market, and Star Studio is expected to be substantially completed by the end of Q1:14, and these ventures will be reported as discontinued operations beginning in Q4:13.

Outerwall is likely to be upbeat in its Q1 and FY:14 guidance given the strong performance of the Q4:13 box office. Q4:13 domestic box office ended up 0.8 percent year-over-year from a crowded release slate in December. At the end of November, we were expecting the quarter to be down slightly due to weak showings in the first two months of the quarter. Most Q4 films arrive at Redbox in late Q1 or early Q2.

The company guided to repurchasing $195 million of common stock in 2013, with $100 million in Q4:13, and an additional $50 million by January 31, 2014. The company expects to return 75 – 100 percent of free cash flow to shareholders, initially through share repurchases.

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