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Commentary & Analysis

FREE: Soon to be Cenveo: Mail-Well changes its name to become One Company: Summary of Q1 Earnings Call


By WhatTheyThink Staff
Published: May 7, 2004

Mail-Well, Inc. (NYSE: MWL) today announced a first quarter 2004 loss of $16.5 million or $0.35 per share. For the same period last year, Mail-Well reported net income of $2.7 million or $0.06 per share. Sales for the quarter fell to $424 million from $427 million from the same quarter last year. EBITDA for the first quarter was $31.4 million compared to EBTIDA of $31 million for the first quarter of 2003.

Topics of this summary:

  • Commercial Segment Results
  • Resale Segment Results
  • Strategy Implementation
  • Guidance

Commercial Segment Results

Commercial Segment sales increased to $323.8 million, a year over year improvement driven by higher sales in commercial printing. Growth was reported in high impact printing to national customers along with stronger sales in annual reports during the first quarter. Commercial envelopes still suffer from market over capacity and Mail-Well consciously chose not to reduce selling prices and did not take on non-profitable work. As a result, sales were down $5.2 Million, or 5.7% in the domestic market. EBITDA in the Commercial Segment increased almost 3% from last year to $22.2 million.

Resale Segment Results

Retail Segment sales declined 3.3 % to $99.9 million. Business label sales were up 14%, or $3.5 million. Due to lower volumes and pricing, retail envelope sales showed a decline. Mail-Well reported securing two customer agreements that are expected to improve this segment's results in the second and third quarters of 2004. The customers are office product distributors and have signed three-year multi-million dollar contracts. EBITDA was down slightly to $13.8 million.

Mail-Well Strategy

Chairman, President and CEO Paul Reilly, in explaining print buyers shifting demands, outlined Mail-Well's change strategy to meet customer demands. Shifting demands included expanded services, one-stop shopping, the use and leveraging of new technologies and a buying shift that maintains an 80/20 approach - doing 80% of business with 20% of suppliers. In meeting customer's demands, Reilly maintained Mail-Well, along with other printers, must be solutions-oriented and reposition itself. In meeting new demands, Mail-Well has reorganized along a customer-centric basis, has positioned itself as a solutions provider to customers offering a suite of services and now, most recently, has re-branded itself under the name of Cenveo . The first two strategies were completed by the end of the fourth quarter of 2003. Mail-Well will begin trading under the Cenveo ( NYSE: CVO) name on May 17 th , 2004. The new brand will encompass the current 40 trade names currently in operation and, according to Reilly, operating as one company will make it easier for Mail-Well/Cenveo to do business with customers.


Mail-Well expects full year EBITDA in the range of $135-142 million that will be driven by an increase in sales and market share. Although the first quarter is typically soft, it was in line with the company's expectations. Most of the year's improvement will occur in the second and third quarters of 2004.

Q & A

  1. In developing guidance for the year, Mail-Well considers its pipeline of sales, contracts signed, current trends of order input and estimates, etc. Guidance is based on what the company expects to occur throughout the year as well as customer commitments.
  2. Mail-well has made investments in its sales force with high caliber people, from both inside and outside of the organization, capable of making C-level presentations. C-level presentations are those reserved for CEO, CIO, CFO, etc. Mail-Well does not expect staffing in the total customer solution group to increase from where it is today.
  3. The Cenveo conversion is expected to cost up to $2 million in 2004, with 500K already expended during the first quarter. The cost has been included in 2004 guidance.
  4. Further refining guidance, CEO Reilly stated that given the company's current knowledge of the market, Mail-Well expects full year EBITDA on the lower end of the range given in today's call in the press release.
  5. Mail-Well anticipates a firming of paper prices mainly due to fewer imports, particularly in Europe and the Far East , and a strengthening of the U.S. dollar abroad. There has not been a demonstrable increase in demand.
  6. Mail-Well's transactional envelope market grew slightly during the first quarter at 1-2%. The company has seen weakness in the direct mail envelope market. Two trends affecting the volume of the direct mail market were cited 1) a use of flats or postcards, and 2) the customization of direct mail pieces. The second trend will have a positive impact on Mail-Well's printing business, but negatively impact the envelope business.
  7. Gross margin was up 120 basis points due mainly to manufacturing efficiencies impacting the bottom line, not pricing.
  8. Mail-Well expects to maintain current margin levels in Commercial Segment; however, margins will be impacted by changes in paper prices.
  9. The two major new customers mentioned on today's call will have a $20M impact on an annual basis.
  10. Any future acquisitions by Mail-Well will be targeted, will help expand product offerings, expand market share, and produce returns of 10-12%. They will happen infrequently and not in a general way to increase sales.
  11. Debt level for 2004 compared to 2003 will be about $20 million less.
  12. Mail-well has not experienced any reduction in supply or demand with the RR Donnelly/Moore/Wallace merger. CEO Reilly stated Wallace is the only division that provides services in the same space as Mail-Well. Other companies providing the same scope of service and thus are Mail-Well's competitors are Standard Register, Consolidated Graphics, Taylor Publications and, at times, Banta. Reilly predicts all of these companies, including Mail-Well, will have higher than average profits due to customer demands of one-stop shopping or total solutions.



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