Heidelberger Druckmaschinen Not Reaching Forecast Numbers

Printing-press maker Heidelberger Druckmaschinen AG does not expect to reach annual forecast due to declining orders:

Heidelberger Druckmaschinen AG may drop after the world's largest maker of printing machines said it won't reach its own, already previously cut, annual forecast because of declining incoming orders.

The shares climbed 1.7 percent to 17.01 euros in Frankfurt yesterday. The stock has plummeted 50 percent in the past year.

Sales likely fell 3 percent for the year ended March 31, 2008, from the prior year's 3.8 billion euros ($6 billion), the Heidelberg, Germany-based company said in a statement late yesterday. In February, Heidelberger Druckmaschinen said it expects annual sales to probably meet the prior-year level.

Earnings before interest and taxes were also affected yet won't fall below 260 million euros, the company said yesterday. Net profit will also decrease, it said. Heidelberger Druckmaschinen in February cut its own forecast for annual earnings before interest and tax to about 300 million euros, down from the previously targeted maximum of 345 million euros.

Discussion

By Dr Joe Webb on Apr 03, 2008

This is a real problem, much of it self-inflicted. They made a stock buyback which averaged 33 Euros per share (if I am remembering correctly) and now the stock price is just under half of that. Imagine buying your own stock and losing money on it. That money could be put to much better use right now.

Stock buybacks are, to be rather blunt, that a company has run out of ideas where to invest its capital. It claims to be doing it to return cash to the stockholders, but a special dividend does a better job, or just raising the general dividend may even be better than that in the long term.

When I wrote about how badly stock buybacks have done, I got a note from the company about how wrong I was. The entire story is very disappointing on so many fronts. Because of the strategic stumbles, one of the industry's most important and critical suppliers is unable to provide the leadership which it once did. The buyback was a serious misallocation of resources that could have been more effectively deployed for more aggressive downsizing. What was very disappointing at the time was that the buyback was announced at the same time layoffs were implemented. Pitney Bowes has done the same thing. Xerox also had a buyback at prices that have turned out to be executed at higher levels than market prices. Xerox is such an incredible turnaround story that in some ways they could almost be forgiven (well... not really... if i was a long-term stockholder of XRX I'd still be disappointed since accounting "issues" misled investors in the 1990s).

I still find it disturbing that the company is blaming a downturn in advertising for its misfortune. Advertising employment and in other creative industries like graphic design and public relations is up in the US. Dollars are just going elsewhere in a media shift that has been going on for years and has been blatantly evident, and is not a "sudden" cause of problems.

By Jan Eskildsen on Apr 03, 2008

Thank you Dr. Webb for this - it would be interesting to see a comparison with the sheetfed operations at KBA, MAN Roland and Komori - how well did they perform in the same period?

best regards
Jan E

By Patrick Henry on Apr 03, 2008

Having been briefed, as have other journalists, on what Heidelberg intends to present at drupa, I'm not inclined to agree that the company is no longer able to provide leadership. Technological leadership, not financial strategy, is the basis on which most printers will judge Heidelberg and its competitors. I would be very sorry to learn that buying back stock had harmed Heidelberg's ability to invest in product development, but that didn't appear to be the outcome of its last buyback, and it doesn't have to be the case with this one.