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Donnelley Revises Earnings Estimates, Slow Economy, Energy & Healthcare Cost to Blame

Tuesday, March 27, 2001

Press release from the issuing company

3/26/01 - Spurred by a widespread softening in the economy, R.R. Donnelley lowered its earnings per share expectations for 2001 to range from $1.95 to $2.10 before one-time items and restructuring charges. The company announced that it is lowering its earnings per share expectations for 2001. The company projects earnings per share for full-year 2001 to range from $1.95 to $2.10 before one-time items and restructuring charges, compared with prior guidance of $2.20 to $2.35 per share disclosed on January 31, 2001. Currently, the company is seeing first-half demand in its key markets-particularly Financial Services-running well below prior year. Therefore, R.R. Donnelley projects EPS for the first half of 2001 will fall below that of the year-earlier period. The new range of expectations for the year assumes market demand in the second half will return to 2000 levels. The company's logistics and direct-mail businesses have made a solid recovery from the operational issues they faced late last year. R.R. Donnelley Logistics has made operational improvements and repriced or exited unprofitable work, in addition to across-the-board price increases in January. RRD Direct is making substantial progress on resolving operational issues at one of its three manufacturing locations, while focusing on new market segments. Current full-year expectations include substantial year-over-year improvements in these businesses for the second half. The revised guidance results from a widespread softening in the economy, along with continuing pressures across R.R. Donnelley's businesses from national trends in energy and healthcare costs. Specifically, in the company's long-run printing unit, advertising insert and magazine customers have reduced page counts as advertising spending has declined, and catalogers have cut back on merchandising collateral as consumer orders have slowed. In the company's Book Publishing Services unit, reprint orders have dropped as publishers work through excess inventory resulting from a slow Christmas selling season. And a slowdown in U.S. capital markets activity, which lowered demand for printing in the company's Financial Services unit late in 2000, is continuing, and beginning to spread into the European capital markets. As business began to slow in the fourth quarter 2000, R.R. Donnelley had begun initiating cost-cutting measures to align spending with market conditions, including downsizing the company's Financial Services operations to reduce the unit's cost base, as well as cutting discretionary spending. "As an OEM for our customers, we are subject to the market forces that affect their businesses," noted Davis. "With this rapid slowdown, we've adjusted our spending dramatically. At the same time, we have the resources and strong cash flow to manage and execute through this environment while continuing to develop and deliver the broadest range of integrated communications solutions for our customers." As announced in January, the company is purchasing up to $300 million in shares under a program that expires on Jan. 31, 2002. Management expects to complete this program before year-end.




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