Checks and Balances

The stock market has rewarded the moves that Deluxe (NYSE: DLX) has made so far—the company’s price has risen from a low of $12.98 in July 2006 to $40.98 at the end of the June 28 trading day. (Before then, its 52-week high was $44.95, which it hit on June 4.) Like many Minnesota CEOs, Schram doesn’t want to take the lion’s share of the credit for Deluxe’s stronger position. And to be sure, it’s not quite a turnaround yet. But Deluxe is undergoing a transformation—from a company that mostly prints checks (though it will continue to print a lot of those) to a supplier of a much wider range of printed materials for financial institutions and small businesses.

Banks and small businesses are interested in such materials. That’s because they told Deluxe what they needed.

Checking Out New Options

It’s not as if Deluxe didn’t see what was coming. A 1962 in-house newsletter detailed industry research predicting the coming of the “checkless society.” Deluxe’s response was to create the New Products Division in 1964. Loan coupon books became the division’s top seller.

In 1965, a half-century after its founding in St. Paul, Deluxe went public; 23 years later, the company changed its name from Deluxe Check Printers to Deluxe Corporation. Through the 1990s, Deluxe continued to diversify, partly through acquisitions like the 1990 purchase of Electronic Transaction Corporation, at the time the nation’s largest check verification company. This unit would become part of eFunds, a technology company created by Deluxe that offered electronic banking and fraud protection for smaller banks. Deluxe shareholders voted to spin off eFunds in 2000. “Some shareholders wanted to invest in a technology company, but not a check company, and vice versa,” says Terry Peterson, Deluxe’s vice president of investor relations.

By 2003, checks once again accounted for a vast majority of Deluxe’s revenues—89 percent, to be exact. But the company’s revenues declined along with the number of checks being written. Meanwhile, Deluxe’s stock price was getting punished. After holding fairly steady in the upper $30s to lower $40s during much of the new millennium, it began a long slide in July 2005. A year later, at the end of June, Deluxe announced a big earnings shortfall due to a scrapped software project that had cost the company millions. The company would finish its second quarter at the end of June with a loss of $2 million, compared to a $42 million gain a year earlier. Deluxe’s stock price fell from $21.46 on June 30 to $15 at the end of the next trading day.