The Motley Fool is on the road in Seattle! Recently, we visited Coinstar -- now officially renamed Outerwall -- to speak with CFO-turned-CEO Scott Di Valerio about the 22-year-old company's well-known coin-cashing machines, as well as its more recent acquisition of Redbox, and future initiatives to expand into other aspects of the automated retail market.
In this video segment Scott describes Coinstar's structure and rationale when making decisions about cash flow, investment, share buyback and return to shareholders. The full version of the interview can be watched here.
A full transcript follows the video.
The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.
Eric Bleeker: You talk about the company being very strong and cash flow positive. You had talked about this, again, a little with [Fool analyst] Austin [Smith] but you're at eight times free cash flow, relative to where your guidance is for this year.
How do you strike the right balance between "We want to be able to return capital to shareholders when we're cheap, but we've got growth opportunities." You can't box yourselves in a corner by getting too aggressive with this. How have you approached that problem? What are the compromises you're making here?
I know that may be not the right word there, but I know that you guys had restructured some of your capital structure recently. How are you approaching this problem, as "We have a market that's obviously, right now, trading at very high levels," and you're a cheap company; but at the same time, again growth opportunities you want to be able to exploit.
Scott Di Valerio: Yeah. We go through a very structured process to be able to do that, about how much do we want to invest in our current businesses, our core businesses, and innovations in those businesses, obviously within their growth patterns and what we want to bring from the bottom line?
For our new businesses, we do allocate a certain amount of money that we believe is going to invest in the business from a long-term perspective and bring long-term returns. We layer that into our analysis, and then certainly share buyback is another piece of that.
When we lay those all up, we actually look at both the short-, mid-, and long-term returns to shareholders off of that, so that it is a very structured way to do it.
We're not always 100% right, but we've been quite aggressive in the market and buying shares back over the last 18 months, and we've made a $100-million-a-year commitment that we're going to buy at least $100 million of stock back a year at our shareholders, at our analyst day.
We'll look to be opportunistic if we think we have to ratchet that up as we go through the years, if we think that's the best return of the cash for us. We certainly are a very strong cash flow business. We're a very strong profitable business.
I'm not one that thinks that you have to buy shares back in order to support the stock. You buy shares back to get the right return for shareholders, and we look at that both from an intrinsic, but also from, "What are we returning to shareholders?" -- from a savings in the business -- a pure return to the shareholders -- as well. We try to balance it that way.
The article A Profitable Business Looks at Investment Decisions originally appeared on Fool.com.Eric Bleeker, CFA, has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.