Harte-Hanks (NYSE: HHS) provides direct marketing services and advertising opportunities to consumer and business-to-business marketers. Its revenues are derived from two operating segments: direct marketing (which operates worldwide and accounts for 68% of revenues) and shoppers (which mainly operates in local markets in California and Florida and accounts for 32% of revenues). As a result, Harte-Hanks is largely dependent on economic conditions in California and Florida as most of its operations are based in those regions. In addition, increases in postage costs and removing Saturday deliveries would pressure HHS's profit margins and revenue, respectively.
HHS' shoppers business segment accounts for 32% of its revenues and this segment is mostly concentrated in California and Florida. This business consists of weekly advertising publications that are distributed for free to consumers' homes through mail, websites, newspapers, etc. Therefore, revenue is based on local advertising expenditures in these areas. Economies in California and Florida still continue to suffer from effects of the 2007 Credit Crunch, especially in terms of weaknesses in the real estate markets. Therefore, consumer spending has remained low despite growth throughout the country. In addition, natural or manmade disasters in these areas could negatively affect businesses and consumer expenditures. California is especially known for its earthquakes, such as the 7.2 magnitude earthquake in April 2010. In turn, such events negatively impact HHS' ability to earn revenue from this operating segment. Such losses were reflected in 2010's first quarter performance where a 9.8% decline in revenue was mainly attributed to California and Florida's poor economies and HHS' shoppers business.
The U.S. Postal Service has been pressuring regulators for two new items: increasing postage costs and removing Saturday delivery. Increasing postage costs would increase operating costs for HHS's Shoppers segment, as it provides print advertising to consumers. Removing Saturday delivery may cause the Shoppers segment to lose clients, as Saturday is a popular shopping day, so consumers receiving advertising in the mail on Saturday mornings is important for weekend shopping.