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RR Donnelley Q2 Net Profit Slips

Thursday, July 31, 2014

Press release from the issuing company

CHICAGO - R.R. Donnelley & Sons Company (Nasdaq:RRD) today reported financial results for the second quarter of 2014:

Highlights:

  • Second-quarter net sales of $2.9 billion grew 12.9% from the second quarter of 2013; organic net sales grew 0.8% from the second quarter of 2013
  • Second-quarter GAAP net earnings attributable to common shareholders of $64.7 million, or $0.32 per diluted share, compared to GAAP net earnings attributable to common shareholders in the second quarter of 2013 of $65.4 million, or $0.36 per diluted share
  • Second-quarter non-GAAP net earnings attributable to common shareholders of $84.4 million, or $0.42 per diluted share, compared to non-GAAP net earnings attributable to common shareholders in the second quarter of 2013 of $82.5 million, or $0.45 per diluted share
  • Non-GAAP adjusted EBITDA in the quarter of $325.6 million increased by $21.5 million, or 7.1%, from the second quarter of 2013
  • Company reiterates full-year 2014 guidance for net sales, non-GAAP adjusted EBITDA margin and free cash flow

"The positive momentum we experienced late in the first quarter carried through into the second quarter, where we returned to positive year-over-year organic revenue growth, generated higher EBITDA and reduced our total debt in the quarter by approximately $70 million," saidThomas J. Quinlan III, RR Donnelley's President and Chief Executive Officer. "As we begin the second half of the year, our year-to-date performance, including the on-boarding and integration of our acquisitions that closed in the first quarter, keeps us on track to deliver our full-year guidance. Our expectation for free cash flow, in the range of $400 million to $500 million, allows us to continue to migrate toward our targeted gross leverage range of 2.25x to 2.75x on a long-term sustainable basis."

Net Sales

Net sales in the quarter were $2.9 billion, up $330.9 million, or 12.9%, from the second quarter of 2013, largely due to the acquisitions of Consolidated Graphics and the North American operations of Esselte. After adjusting for the positive impact of acquisitions and pass-through paper sales, and the negative impact of dispositions, organic sales increased 0.8% from the second quarter of 2013, as volume increases in the Strategic Services and Variable Print segments were partially offset by price erosion in each segment and volume declines in the Publishing and Retail Services segment.

GAAP Earnings

Second-quarter 2014 net earnings attributable to common shareholders was $64.7 million, or $0.32 per diluted share, compared to net earnings attributable to common shareholders of $65.4 million, or $0.36 per diluted share, in the second quarter of 2013. The second-quarter 2014 diluted share count increased by 18.2 million shares from the second quarter of 2013, primarily related to shares issued in connection with the acquisitions of Consolidated Graphics and the North American operations of Esselte. The second-quarter net earnings attributable to common shareholders included pre-tax charges of $28.3 million and $25.4 million in 2014 and 2013, respectively, 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

Second-quarter 2014 non-GAAP adjusted EBITDA was $325.6 million, or 11.2% of net sales, compared to non-GAAP adjusted EBITDA of$304.1 million, or 11.8% of net sales, in the second quarter of 2013. The increase in non-GAAP adjusted EBITDA was due to the acquisitions of Consolidated Graphics and the North American operations of Esselte, as well as higher volume. These increases were partially offset by price pressure in each segment and wage and other cost inflation, all of which also negatively impacted margin. 

Non-GAAP net earnings attributable to common shareholders totaled $84.4 million, or $0.42 per diluted share, in the second quarter of 2014 compared to $82.5 million, or $0.45 per diluted share, in the second quarter of 2013. The second-quarter 2014 diluted share count increased by 18.2 million shares from the second quarter of 2013, primarily related to shares issued in connection with the acquisitions of Consolidated Graphics and the North American operations of Esselte. Second-quarter non-GAAP net earnings attributable to common shareholders excluded pre-tax charges and other adjustments of $28.3 million and $25.4 million in 2014 and 2013, respectively. 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.

2014 Guidance

The Company provides the following updated full-year guidance for 2014:

 
  Current Guidance Previous Guidance
Net sales $11.5 to $11.8 billion $11.5 to $11.8 billion
Non-GAAP adjusted EBITDA margin 10.5% to 11.0% 10.5% to 11.0%
Depreciation and amortization $480 to $490 million $485 to $495 million
Interest expense $275 to $285 million $275 to $285 million
Non-GAAP effective tax rate 34% to 36% 33% to 35%
Diluted share count Approximately 200 million Approximately 200 million
Capital expenditures $225 to $250 million $225 to $250 million
Free cash flow(1) $400 to $500 million $400 to $500 million
(1)  Defined as operating cash flow less capital expenditures

 

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