Log In | Become a Member | Contact Us


Leading printing executives into the future

Connect on Twitter | Facebook | LinkedIn

Featured:     European Coverage     Production Inkjet Analysis

R.R. Donnelley Reports Q3, Earnings of $165 million on Sales of $2.3 billion

Wednesday, November 08, 2006

Press release from the issuing company

Nov 07, 2006 -- R.R. Donnelley today reported third-quarter 2006 net earnings from continuing operations of $165.1 million or $0.75 per diluted share on net sales of $2.3 billion compared to net earnings from continuing operations of $127.3 million or $0.59 per diluted share on net sales of $2.2 billion in the third quarter of 2005. The third-quarter 2006 net earnings from continuing operations included pre-tax restructuring charges of $6.6 million, substantially all of which were associated with the reorganization of certain operations and the exiting of certain business activities. Net earnings from continuing operations in the third quarter of 2005 included pre-tax charges for restructuring ($3.2 million), impairment ($2.3 million) and integration ($1.3 million) totaling $6.8 million, primarily related to the integration of the 2004 acquisition of Moore Wallace. The company's effective tax rate decreased to 27.2% in the third quarter of 2006 from 35.2% in the third quarter of 2005, primarily reflecting the tax benefit from the realization of a deferred tax asset. Loss from discontinued operations was $0.4 million in the third quarter of 2006 and $25.2 million, primarily reflecting the results of Peak Technologies, in the third quarter of 2005. Including discontinued operations, net earnings were $164.7 million or $0.75 per diluted share in the third quarter of 2006 compared to net earnings of $102.1 million or $0.47 per diluted share in the third quarter of 2005. 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 net earnings from continuing operations totaled $146.2 million or $0.67 per diluted share in the third quarter of 2006 compared to $134.1 million or $0.62 per diluted share in the third quarter of 2005. Non-GAAP net earnings from continuing operations exclude restructuring charges and the tax benefit from the realization of a deferred tax asset in the third quarter of 2006 and exclude charges for restructuring, impairment and integration in the third quarter of 2005. A reconciliation of GAAP net earnings to non-GAAP net earnings for these adjustments is presented in the attached tables. "We are pleased with our third-quarter results," said Mark A. Angelson, RR Donnelley's Chief Executive Officer. "Sales leverage coupled with strong cost control expanded margins in the quarter. Our Publishing and Retail Services segment delivered strong operating margin expansion and solid revenue growth." Angelson added, "Our planned combination with Banta Corporation will benefit customers, employees and investors. The considerable overlap between the two companies creates immediate opportunities for cross-selling, procurement, manufacturing, premedia and logistics synergies. Importantly, our strong balance sheet and liquidity position enabled us to be opportune in the highly fragmented print market." Business Review (Continuing Operations) Following are the results for the company and each reportable segment. Summary Net sales in the quarter were $2.3 billion, up 5.7% from the third quarter of 2005. The increase was primarily due to new customer wins and increased volume with existing customers, favorable foreign exchange comparisons and acquisitions, offset in part by continued price pressure. The gross margin rate decreased to 28.2% in the third quarter of 2006 from 28.4% in the third quarter of 2005, reflecting price pressure, business mix shift and higher energy prices that more than offset the benefits from higher sales volume and our productivity efforts. SG&A expense as a percentage of net sales decreased to 11.6% in the third quarter of 2006 from 12.2% in the third quarter of 2005 reflecting the benefits of our cost reduction efforts and lower integration expenses in the third quarter of 2006. Operating margin, which was negatively impacted by restructuring charges of $6.6 million in the third quarter of 2006 and by charges for restructuring, impairment and integration totaling $6.8 million in the third quarter of 2005, was 11.3% in the third quarter of 2006 compared to 10.8% in the third quarter of 2005. Excluding charges for restructuring, impairment and integration, the non- GAAP operating margin in the third quarter of 2006 was 11.6% compared to 11.1% in the third quarter of 2005. The benefits of our productivity efforts and increased volume more than offset price pressure. 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) European, 5) Asian, 6) logistics and 7) premedia businesses. Net sales for the Publishing and Retail Services segment increased 7.2% to $1.2 billion from the third quarter of 2005 primarily due to the acquisitions in 2005 of Spencer Press, Poligrafia, the Charlestown, Indiana print operations of Adplex-Rhodes and the book business of the Asia Printers Group, and sales increases in our international operations. The segment's operating margin, which was negatively impacted by restructuring charges of $0.9 million in the third quarter of 2006 and by charges for restructuring and impairment totaling $1.1 million in the third quarter of 2005, was 17.3% in the third quarter of 2006 compared to 16.3% in the third quarter of 2005. Excluding restructuring and impairment charges, the segment's non-GAAP operating margin in the third quarter of 2006 was 17.4% compared to 16.4% in the third quarter of 2005, primarily resulting from increased sales volume and the benefits of our productivity initiatives that more than offset the impact of price pressure. The Integrated Print Communications segment includes: our 1) direct mail and business communications services, 2) financial print, 3) short-run commercial print and 4) business process outsourcing (The Astron Group and OfficeTiger) businesses. Net sales for the Integrated Print Communications segment increased 4.5% to $689.0 million from the third quarter of 2005, primarily due to sales growth in our short-run commercial print and financial print businesses as well as the acquisition of OfficeTiger, offset in part by lower sales in our business communications services business. The segment's operating margin, which was negatively impacted by restructuring charges of $2.8 million in the third quarter of 2006 and by charges for restructuring and impairment totaling $2.0 million in the third quarter of 2005, decreased to 7.8% in the third quarter of 2006 from 10.2% in the third quarter of 2005. Excluding restructuring and impairment charges, the segment's non-GAAP operating margin decreased to 8.2% in the third quarter of 2006 from 10.5% in the third quarter of 2005. This decrease was due to mix shift to lower margin businesses, continued price pressure, the performance of Astron's print-based businesses and volume declines in business communications services. The Forms and Labels segment includes: our 1) forms, 2) labels, 3) office products, 4) Latin American and 5) Canadian businesses. Net sales for the segment increased 3.7% to $422.3 million in the third quarter of 2006 from the third quarter of 2005, primarily due to favorable foreign exchange rates and increased volume in our Latin American and U.S. labels businesses. The segment's operating margin, which was negatively impacted by restructuring charges of $0.6 million in the third quarter of 2006 and by charges for restructuring and integration totaling $1.5 million in the third quarter of 2005, increased to 10.0% in the third quarter of 2006 from 9.7% in the third quarter of 2005. Excluding restructuring, impairment and integration charges, non-GAAP operating margin was 10.1% in the third quarter of both 2006 and 2005, as continued price pressure offset the impact of increased sales volume and the benefits of our productivity efforts. Corporate operating expenses decreased to $42.8 million in the third quarter of 2006 from $52.4 million in the third quarter of 2005. Excluding charges for restructuring of $2.3 million in the third quarter of 2006 and restructuring and integration totaling $2.2 million in the third quarter of 2005, corporate operating expenses decreased $9.7 million to $40.5 million from the third quarter of the prior year primarily reflecting the benefit of our productivity efforts. Outlook -- 2006 Full-Year Non-GAAP EPS from Continuing Operations Reaffirmed For the full year of 2006, RR Donnelley is projecting non-GAAP net earnings per diluted share from continuing operations to be in the range of $2.45 to $2.50, but trending toward the high end of the range. This guidance includes the expected dilutive impact from both the acquisition of OfficeTiger and the adoption, in the first quarter of 2006, of SFAS No. 123(R) -- Share- Based Payment, and assumes no shares repurchased under the authorization available to the company. The non-GAAP effective tax rate for 2006 is expected to be approximately 35.2%. GAAP net earnings per diluted share from continuing operations in 2006 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 full-year GAAP net 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