Log In | Become a Member | Contact Us


Leading printing executives into the future

Connect on Twitter | Facebook | LinkedIn

Featured:     European Coverage     Production Inkjet Analysis

RR Donnelley Reports Q2 Results Top Forecast, Guidance Increased

Friday, August 05, 2005

Press release from the issuing company

CHICAGO, Aug. 4 -- R.R. Donnelley & Sons Company today reported second-quarter 2005 earnings from continuing operations of $95.3 million or $0.44 per diluted share on net sales of $1.9 billion compared to earnings from continuing operations of $40.7 million or $0.19 per share on net sales of $1.8 billion in the second quarter of 2004. The second-quarter 2005 results from continuing operations include charges for restructuring ($22.2 million), impairment ($2.2 million) and integration ($2.6 million) totaling $27.0 million, primarily related to the ongoing integration of the February 27, 2004 acquisition of Moore Wallace. Results from continuing operations in the second quarter of 2004 included charges for restructuring ($40.2 million), impairment ($0.1 million) and integration ($2.6 million) totaling $42.9 million. Also, the company announced on December 16, 2004 its intention to sell its Peak Technologies business. Accordingly, Peak Technologies is reported as a discontinued operation in the second quarter of both 2005 and 2004. Momentum Logistics, Inc., which was shut down during the third quarter of 2004 and the package logistics business, which was sold during the fourth quarter of 2004 are also reported as discontinued operations in the second quarter of 2004. The company recorded a net loss from discontinued operations of $4.6 million in the second quarter of 2005 and $53.2 million in the second quarter of 2004. The reported net loss from discontinued operations in the second quarter of 2004 included pre-tax impairment charges of $89.1 million ($53.5 million net of tax). Net earnings, which include discontinued operations, were $90.7 million or $0.42 per diluted share in the second quarter of 2005 compared to a loss of $12.5 million or $0.06 per share in the second quarter of 2004. The effective tax rate in the second quarter of 2005 was 35.8% versus 40.3% in the second quarter of 2004. The lower rate in the second quarter of 2005 is reflective of a higher proportion of earnings being generated from foreign tax jurisdictions. The company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP (Generally Accepted Accounting Principles) measures, are useful because that information is an appropriate measure for evaluating the company's operating performance. Internally, the company uses this non-GAAP information as an indicator of business performance, and evaluates management's effectiveness with specific reference to these indicators. These measures should be considered in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Non-GAAP earnings from continuing operations totaled $110.6 million or $0.51 per diluted share in the second quarter of 2005 compared to $68.5 million or $0.31 per diluted share in the second quarter of 2004. Non-GAAP earnings from continuing operations exclude restructuring, impairment and integration charges in the second quarters of both 2005 and 2004. For purposes of the non-GAAP information, the company used an effective tax rate of 37.0% in the second quarter of 2005 and 38.3% in the second quarter 2004. A reconciliation of GAAP earnings to non-GAAP earnings for these adjustments is presented in the attached tables. "Our strong second quarter results exceeded our expectations and reflect our continued sales success and focus on productivity," said Mark A. Angelson, RR Donnelley's Chief Executive Officer. "During the second quarter, our Publishing and Retail Services and Integrated Print Communications businesses delivered solid year-over-year sales growth, expanded operating margins and announced a number of significant customer wins and renewals. Based upon our strong second-quarter performance, we are raising our non-GAAP full-year EPS guidance to $2.17, an increase of $0.10 from our previous guidance." Business Review (Continuing Operations) Following are the results for the company and each reportable segment. Summary Net sales in the quarter were $1.9 billion, up 4.8% from the second quarter of 2004, due primarily to new customer wins and increased volume with existing customers in the Publishing and Retail Services and Integrated Print Communications segments. The gross margin (exclusive of depreciation and amortization) in the quarter increased to 27.6% in the second quarter of 2005 from 26.7% in the second quarter of 2004, reflecting, in part, the benefits from cost reduction actions and procurement savings. Selling, general and administrative expense, as a percentage of net sales, decreased to 12.1% in the second quarter of 2005 from 13.5% in the second quarter of 2004 reflecting the benefit of our cost reduction actions as well as sales leverage. Operating margin increased to 9.1% in the second quarter of 2005 from 5.3% in the second quarter a year earlier. Excluding restructuring, integration and impairment charges in the second quarter of both years, non-GAAP operating margin for the second quarter of 2005 increased to 10.5% from 7.6% with operating income increasing nearly 45 percent due to revenue growth and the benefit of cost reduction actions. Reconciliations of GAAP operating income and margin to non-GAAP operating income and margin are presented in the attached tables. Segments The company reports its results in four reportable segments, 1) Publishing and Retail Services, 2) Integrated Print Communications, 3) Forms and Labels and 4) Corporate. The Publishing and Retail Services segment includes our 1) magazine, catalog and retail, 2) directories, 3) book, 4) logistics, 5) premedia, 6) European and 7) Asian businesses. Net sales for the Publishing and Retail Services segment increased 7.9% to $979.8 million due primarily to sales increases within the catalog, magazine and retail, book, and European and Asian businesses. The segment's operating margin, which was negatively impacted by restructuring and impairment charges of $7.3 million and $21.3 million in the second quarters of 2005 and 2004, respectively, was 13.8% in the second quarter of 2005 compared to 8.8% in the second quarter of 2004. Excluding restructuring and impairment charges, the segment's non-GAAP operating margin increased to 14.5% in the second quarter of 2005 from 11.2% in the second quarter of 2004. This increase was attributable to strong sales growth and the benefit of previous cost reduction and procurement initiatives. The Integrated Print Communications segment includes our 1) direct mail, 2) global capital markets, 3) dynamic communication solutions, 4) short-run commercial print, and 5) Astron Group businesses. Net sales for the Integrated Print Communications segment increased 5.2% to $544.1 million from the second quarter of 2004, primarily due to sales growth in the dynamic communication services and direct mail businesses as well as the inclusion of Astron for the final 11 days of the quarter. The segment's operating margin, which was negatively impacted by restructuring, integration and impairment charges of $3.2 million and $6.6 million in the second quarters of 2005 and 2004, respectively, increased to 13.1% in the second quarter of 2005 from 11.0% in the second quarter of 2004. Excluding restructuring, impairment and integration charges, non-GAAP operating margin increased to 13.7% in the second quarter of 2005 from 12.3% in the second quarter of 2004, primarily as a result of increased sales volume and the benefit of cost reduction actions. The Forms and Labels segment includes our 1) forms, 2) labels 3) office products and 4) Latin American businesses. Certain businesses within the Forms and Labels market continue to be in secular decline. Net sales for the segment decreased 2.2% to $408.2 million in the second quarter of 2005 from $417.4 million in the second quarter of 2004. The 2.2% decrease in the year- over-year revenue in the period represents an improvement in trend for the segment overall from the prior periods. The segment's operating margin, which was negatively impacted by restructuring, integration and impairment charges of $1.9 million and $4.2 million in the second quarters of 2005 and 2004, respectively was 7.4% in the second quarter of 2005 compared to 7.1% in the second quarter a year earlier. Excluding restructuring, impairment and integration charges, non-GAAP operating margin decreased to 7.9% in the second quarter of 2005 from 8.1% in the second quarter of 2004 as a lack of sales leverage and continued price pressure more than offset productivity gains across the segment. Corporate operating expenses decreased to $60.8 million in the second quarter of 2005 from $69.1 million in the second quarter of 2004. Excluding restructuring and integration charges of $14.6 million and $10.8 million in the second quarters of 2005 and 2004, respectively, corporate operating expenses totaled $46.2 million in the second quarter of 2005 versus $58.3 million the second quarter the prior year. This decrease is primarily attributable to our cost reduction initiatives. Outlook - 2005 Full-Year Non-GAAP EPS Increased For the full year of 2005, RR Donnelley is projecting non-GAAP earnings per diluted share from continuing operations of $2.17, an increase of $0.10 per diluted share from previous guidance. Non-GAAP earnings per diluted share from continuing operations exclude certain items that management believes are unrelated to the ongoing operations of the business. In 2005, these items may include restructuring, impairment and integration charges, the resolution of certain tax items and other items that are not currently determinable, but may be significant. For that reason, the company is unable to provide GAAP earnings estimates at this time.

 

 

SHARE

Email Icon Email

Print Icon Print

Become a Member

Join the thousands of printing executives who are already part of the WhatTheyThink Community.

Copyright © 2016 WhatTheyThink. All Rights Reserved