R.R. Donnelley Lays Out Earnings, Expanded Vision
R.R. Donnelley, the largest commercial printer in the U.S., yesterday reported first-quarter 2011 earnings of $33.9 million, down from $52.6 million in the same period the year before, and a share repurchase plan of up to $1 billion of the company's common stock.
The earnings drop was expected and partially due to the absence of a multi-year, $49.7 million U.S. Census contract with the federal government, which wrapped up last year.
In an earnings call, newly promoted CFO Daniel N. Leib said the loss of census revenue was "nearly offset ... through organic growth"—in business services such as logistics and financial services, which now constitute 12% of total revenue, and increased overseas production. (Net international sales grew 11%, primarily from increased volume in Asia, Europe and Latin America.)
Much of the increase in international and financial services revenue derived from last year's purchase of Bowne & Co. The company also recently acquired online publishing services provider Journalism Online and multichannel marketer Nimblefish.
Net sales in the U.S. for print and related services increased 5.7% compared to the first quarter of 2010, largely due to the acquisition of Bowne. Not counting sales from acquisitions, domestic net sales decreased 1.9%. Operating income decreased to $141.9 million compared to $163.8 million in the first quarter of 2010.
"Increased volume in our logistics, financial print, commercial print and pre-media offerings were more than offset by the absence of the 2010 Census revenue, continued price pressure and lower volume in our variable-print office products and book-and-directory product offerings," Leib said. "Pass-through paper sales did not have a material impact in the quarter."
Company President and CEO Thomas J. Quinlan cited new multiyear printing agreements with L.L.Bean and Bauer Publishing Group as "significant new customer relationships" formed during the quarter.
As part of the One RR Donnelley strategy, Quinlan said the company will open a new, large-scale integrated products and services center he called "the facility of the future," offering complete digital, on-demand and fulfillment services under one roof.
The stock buy-back plan caused jitters in the credit markets. Perceptions of the company's decreased flexibility in servicing its debt lead to a Standard & Poor's Ratings Services downgrade to BBB- from BBB. Quinlan and Leib told analysts the move was designed to serve long-term strategic goals.
"We are not here for 90 days. We want to be around for the next 100 years, and run the business that way," Leib said. "We make sure we are ... not scrambling around to [the point] where we do not have access to capital markets."