Dex One Posts Q2 Results

Dex One (the publisher formerly known as R.H. Donnelley) reported Q2 sales that were down 13% YOY.  Results were in line with what most other major publishers have been showing.  With major products in big markets hard hit by the economy such as Las Vegas, Orlando, and Chicago, the results would seem to offer some hope that we are close to the bottom.

Steven M. Blondy, Executive Vice President and CFO of Dex One Corporation noted in the company press release that “…although our strict credit policies may have negatively impacted ad sales results, particularly as economic conditions deteriorated last year, the benefits of our strong receivables portfolio are clearly evident in recent write-off trends.”

Blondy also commented that “…ad sales trends in the second quarter were better than the first quarter, as selling conditions slowly recovered. We now expect full year 2010 ad sales to decline near or slightly below the bottom end of our previous guidance range.”

On the more positive side the company increased guidance for both 2010 EBITDA and cash flow, mostly from the stricter credit policies which have reduced bad debt, and a continued “cost discipline”.

Of note is that no mention was made on the progress of the CEO search to replace “retired” former CEO Dave Swanson

Our Take:

There comes a point where you can only squeeze so much savings from cost controls to generate better bottom line results.  Eventually, the top line sales need to turn around to survive.  One way to grow the top line is to loosen credit policies.  But in this economy, that means a much higher bad debt, so it is really a double edge sword.

You don’t need public opinion polls or other fancy measurements to what’s going on in the economy.  The recent Yellow Page industry results are a direct indicator of how things are really doing on Main Street as it reflects the financial health and stability of small to midsized business in the US.  If this significant portion of the business sector is still struggling and fearful of spending money, it’s going to be reflected in lower advertising expenditures, plain and simple.

Despite all of the posturing and happy sunshine faces coming out the White House, it is clear the supposed economic stimulus has done nothing for the vast majority of small business or the economy in general.  These SMB’s are still having trouble getting credit.  They are holding on to their cash.  There are afraid to hire much if at all.  And hence they are going to carefully spend whatever advertising dollars they have.

Because Yellow Pages has a viable, trackable ROI, it should remain a primary advertising media for most small businesses.  Bundle in some online/IYP and mobile components and you have a very powerful, cost efficient media plan.  Businesses will see that if the industry continues to focus on the value it brings in its discussions with these businesses, and not just launch into Monty Hall let’s-make-a-deal type pricing that some publishers have gone to.  Then, maybe then, we’ll see that top line sales result start to turn the other way.