September 26, 2008 / 12:14 PM / in 10 years

UPDATE 2-American Greetings profit misses view; shares fall

(Adds share activity, comments from conference call, byline)

By Martinne Geller

NEW YORK, Sept 26 (Reuters) - American Greetings Corp (AM.N) posted a smaller-than-expected quarterly profit as costs increased and warned that full-year earnings could come in at the low end of its prior forecast, sending its shares down as much as 13 percent.

The second-largest U.S. greeting card maker behind privately held Hallmark also said on Friday that the recent turmoil on Wall Street could delay its plan to sell its Strawberry Shortcake and Care Bear properties for $195 million.

The deal with Canada’s Cookie Jar Entertainment was scheduled to close on Sept. 30. That is now unlikely, according to Chief Executive Zev Weiss, who said he still expected to complete the transaction by the end of the year.

American Greetings said net income tumbled to $2.3 million, or 5 cents per share, in the second quarter ended on Aug. 29 from $8.4 million, or 15 cents per share, a year earlier.

The average forecast from two analysts was 9 cents per share, according to Reuters Estimates.

Revenue rose 2 percent to $385.8 million, helped by higher North American card sales. But profit margins were depressed as the company sold more cards with music, lights or other embellishments, which cost more to make.

American Greetings said it still expected fiscal 2009 earnings of $1.60 to $1.85 per share from continuing operations, with cash flow from operations at $60 million to $80 million, minus capital expenditures.

However, Weiss said the company could finish the year near the lower end of its earnings forecast because of the weak economy and the risk inherent in its seasonal business.

American Greetings shares, which through Thursday had gained 18 percent over the past two months, were down 95 cents, or 5.7 percent, at $15.69 in morning New York Stock Exchange trade after falling to $14.50 earlier in the session. (Reporting by Martinne Geller, editing by Gerald E. McCormick and Lisa Von Ahn)

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