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Cenveo Lowers Guidance as Customers Hesitate Planned Spending

Monday, December 13, 2004

Press release from the issuing company

ENGLEWOOD, Colo., Dec. 10 -- Cenveo Inc., one of North America's leading providers of visual communications services, today announced it now expects its earnings before interest, tax, depreciation and amortization (EBITDA) to be between $126 million and $129 million for the full year. Previously provided guidance for full year EBITDA was approximately $135 million. According to Paul Reilly, Cenveo chairman, CEO and president, "The fourth quarter of 2004 will be the first quarter in ten that EBITDA will not be in line with guidance and will not represent year-over-year quarterly growth. As we are finalizing our business plans for 2005, we expect growth in both top and bottom line results in the upcoming year." The shortfall from the company's prior guidance is primarily driven by two events. One is the inability to pass through increases in envelope materials costs under certain customer contracts, and the other is the failure of new Resale customers to meet their purchase commitments. "We expect these material price increases to be passed through by the first half of 2005," Mr. Reilly continued, "and sales volume from new Resale customers, which we had planned to see impact Q4 very favorably, is now expected to deliver at anticipated rates in the first half of 2005. In addition to these two issues, certain Commercial segment customers chose to postpone or cancel significant planned projects for which we had reserved production capacity that could not be redeployed. Some of these orders may be rescheduled for the first part of 2005." The company's internal benchmarking efforts announced in Q3 are expected to increase profits in 2005 throughout its facilities by stimulating production, reducing fixed manufacturing costs, consolidating plants, selectively increasing prices, and reducing SG&A costs. In addition, the company is working to leverage its supplier relationships with a focus on mitigating increases in material costs. Both Commercial and Resale segments are positioned to deliver profitable growth in 2005 and beyond. Mr. Reilly stated, "Cenveo management has a notable track record of delivering on what it sets out to do. This past year, we completed the refinancing of our debt. During the past three years, we delivered over $130 million in cost reductions and produced gains in ROCE (Return on Capital Employed) and market share." "The integration of the commercial printing and envelope product lines is already working, with a visible growth in market share," continued Mr. Reilly. "Today, Cenveo's Commercial Segment's print product line is growing at a faster rate than the market with expected 2004 growth in sales of 4% and profits of 12% and, over the past two years, sales have grown by 4% per year and cumulative profits by 46%. In 2004, our Commercial segment grew organically through our strategic sales team selling our 'one-stop shopping' value proposition. Now, we're fine-tuning our strategy to achieve even greater organic growth via a combination of strategic sales and traditional local sales, the latter of which did not grow in 2004." The company's Resale segment continues to deliver strong profits and cash flow that exceeds Cenveo's cost of capital, with ROCE expected to increase to 12% in 2004. Mr. Reilly reported, "Cenveo is well positioned to deal with the significant pricing pressure felt during the second half of 2004 particularly with envelopes sold into the office products market and mass market channels. In addition, Resale sales through the Commercial segment continue to grow, which is proof that our One Company strategy is working." Resale sales to the Commercial segment are expected to reach 5 % of the Resale segment's annual revenue this year. Mr. Reilly said, "we believe our recent actions to reduce costs and increase profitable sales, as well as our previously announced benchmarking plans, will mitigate the impact of the pricing pressure in the Resale segment. As we have said, we believe that the company will return to the earnings growth that it has achieved in the previous nine quarters."




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