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RRD Reports Q3, Profit Beats Estimates

Wednesday, November 06, 2013

Press release from the issuing company

CHICAGO - R.R. Donnelley & Sons Company (Nasdaq:RRD) today reported financial results for the third quarter of 2013.

Third-quarter 2013 highlights:

  • Net sales of $2.6 billion grew 4.2% from the third quarter of 2012; organic revenue growth of 2.2% in the quarter
  • GAAP net earnings attributable to common shareholders of $14.7 million, or $0.08 per diluted share
  • Non-GAAP net earnings attributable to common shareholders of $69.3 million, or $0.38 per diluted share
  • Non-GAAP adjusted EBITDA of $280.1 million, or 10.7% of net sales
  • Free cash flow of $193.9 million exceeded the third quarter of 2012 by $100.6 million; on a year-to-date basis, free cash flow was better than last year by $158 million
  • Company updates revenue, margin and other guidance for full-year 2013; re-affirms free cash flow guidance

"As we communicated in our October 24th announcement, we are very pleased with our third-quarter performance. We have shown steady improvement over the past four quarters in our top-line performance, reflecting positive trends in a number of our offerings," said Thomas J. Quinlan III, R.R. Donnelley's President and Chief Executive Officer. "In addition, our free cash flow remained strong in the quarter, improving$101 million from the third quarter of 2012, contributing to a year-to-date free cash flow that exceeded the prior year by $158 million. Our third-quarter cash flow performance was in line with our expectations, and we are reiterating our full-year guidance in the range of $400 million to$500 million. This level of cash flow provides us the ability to migrate toward our targeted gross leverage range of 2.25x to 2.75x on a long-term sustainable basis." Quinlan continued, "We look forward to completing the acquisition of Consolidated Graphics, expected in the first quarter of 2014."

Net sales in the quarter were $2.6 billion, up $106.1 million, or 4.2%, from the third quarter of 2012. After adjusting for the impact of acquisitions, changes in foreign exchange rates, pass-through paper sales and the 2012 rebate adjustment, organic sales grew by 2.2% from the third quarter of 2012, driven by volume growth in many offerings, a timing shift of a project in Latin America and an increase in pass-through postage revenue.

GAAP Earnings

Third-quarter 2013 net earnings attributable to common shareholders were $14.7 million, or $0.08 per diluted share, compared to net earnings attributable to common shareholders of $71.4 million, or $0.39 per diluted share, in the third quarter of 2012. Third-quarter net earnings attributable to common shareholders included pre-tax charges and expenses, detailed in the attached schedules, of $85.5 million and $15.2 million in 2013 and 2012, respectively, as well as an $11.0 million income tax adjustment in 2012, all of which were excluded from the presentation of non-GAAP net earnings attributable to common shareholders. Additional details regarding the amount and nature of these and other items are included in the attached schedules.

Non-GAAP Earnings

Third-quarter 2013 non-GAAP adjusted EBITDA was $280.1 million or 10.7% of net sales. Compared to the third quarter of 2012, non-GAAP adjusted EBITDA and non-GAAP adjusted EBITDA margin were lower by $40.8 million and 210 basis points, respectively. The unfavorable variances were primarily due to the impact of non-comparable items totaling approximately $59 million, which included higher variable compensation expense, lower pension and other postretirement benefits income, and higher workers compensation expense and LIFO inventory provisions in 2013, as well as the office products rebate adjustment in 2012.

Non-GAAP net earnings attributable to common shareholders totaled $69.3 million, or $0.38 per diluted share, in the third quarter of 2013 compared to $92.9 million, or $0.51 per diluted share, in the third quarter of 2012. Third-quarter non-GAAP net earnings attributable to common shareholders exclude pre-tax charges and expenses of $85.5 million and $15.2 million in 2013 and 2012, respectively, as well as, in 2012, an $11.0 million income tax adjustment. A reconciliation of net earnings attributable to common shareholders to non-GAAP adjusted EBITDA and non-GAAP net earnings attributable to common shareholders is presented in the attached schedules.

Outlook

The Company has updated its full-year 2013 guidance, most notably with respect to revenue and non-GAAP adjusted EBITDA margin. While expectations for EBITDA in absolute dollars have not changed since the Company first provided 2013 guidance back in February, growth in pass-through postage revenue has exceeded expectations and is the primary driver of the increase in the range for full-year revenue guidance. The pass-through nature of this revenue has the effect of reducing non-GAAP adjusted EBITDA margin, and is reflected in the Company's updated guidance, as set forth below:

     
  Guidance Previous Guidance
Revenue $10.35 to $10.45 billion $10.1 to $10.3 billion
Non-GAAP adjusted EBITDA margin 11.0% to 11.2% 11.2% to 11.4%
Depreciation and amortization $435 to $440 million $450 to $460 million
Interest expense Approximately $260 million $250 to $255 million
Non-GAAP effective tax rate 33% to 35% 33% to 35%
Diluted share count 183 to 185 million 183 to 185 million
Capital expenditures $200 to $225 million $200 to $225 million
Free cash flow $400 to $500 million $400 to $500 million
     

Full Release

 

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