Quebecor Cuts Investment

As reported in the WTT Raine Radar on Thursday, Quebecor’s "capital expenditures are expected to remain low (about 3% of revenue), since the company is on solid ground technically." This was a report about the company’s analyst call with outgoing CEO Charles Cavell. It was also said that "the company doesn’t expect to adopt any new technology in the immediate future."

To put this comment in perspective, for a company of this size average industry investment is usually 6% of sales, and this can run as high as 10% in some years. Quebecor’s lack of interest in acquisition of new technology in part reflects the industry’s -- and especially the computer industry’s -- "newness crisis," with many companies still digesting investments made through 2000. It seems that there is no compelling new technology or approach that can revolutionize operations in these companies’ minds: they already have what they need. They look to the market, and they don’t see anything worth buying. They don’t even window shop. This is, of course, quite disappointing to hear, but of even more concern, it’s not just Quebecor that I’ve heard this message from, it’s many others as well. It sounds like the company will use any funds that would typically have been used for investment to further clean up its balance sheet.

I still look for mergers among printers in the top 10 companies over the next 12-24 months. Maybe it’s because I like some of the potentially funny names, like "R.R. Quebelly QuadVert." (Gee, no one liked it when instead of Creo-Scitex I suggested "Screotix"!). But I have to think that one of the reasons Quebecor is cutting back is because equipment is even cheaper when you can buy whole companies – including their equipment, customer base, and employees -- all at the same time. They will probably be mulling over acquisitions rather than technology investments. Tough economies can create strange bedfellows, so I’m sure some of the acquisitions will be rather surprising.

It just goes to prove that low product prices and rock-bottom financing costs are just part of the overall picture. Technology has never been cheaper or had a better payback. The industry needs to revolutionize its operating philosophy and the tools it uses, but with everyone so skittish about the future, it’s hard to convince people to aggressively pursue those goals. There has rarely been a better time to do so.


PIA Economic Assessment

This week’s PIA Flash report, released primarily to members, discussed the disconnect represented by the general economy’s growth and the decline in the print business. It further demonstrates the divergent nature of the decline, as about the same percentage of printers are doing well as doing poorly. But it must be noted that 39% of firms in the survey had increasing sales, with 17% of them up more than 10%.

This kind of economy really separates well-run from poorly-run businesses. The former don’t let the economy stop them, and the latter sometimes wait for things to get better before they act. Well-run firms use these times to focus and improve their operations, and as a result, they feel the benefits of an economic upturn sooner and more substantially than companies that play the waiting game. It’s time to act.


ISM Report on Manufacturing

The Institute for Supply Management released data showing some decline in the growth rate in manufacturing activity (expected in light of government data released last week). Employee data in the same report showed job cuts in manufacturing, but the optimism for hiring is better than the October and November readings, which may indicate we've hit bottom. More good news: exports and imports are up, indicating more overall business activity. Inventories were down, and an uptick in that would indicate more optimism that the positives in this report were considered permanent. Not a great report, but certainly not bad. Read on for non-manufacturing results ...

See This ISM Report by Clicking Here


ISM Report on Non-Manufacturing

The Institute for Supply Management’s report on non-manufacturing sectors was more positive than its recent manufacturing report, showing 12 months of growth. Expanding sectors were public administration (government, public schools, etc.), entertainment, construction (driven by the strong housing sector), finance & banking (benefiting from mortgage and credit card activities), and health services. The industries reporting the highest rates of contraction of new orders in January were: agriculture, mining, utilities, retail trade, and transportation. For the declining business sectors, a slower than desired holiday season and reluctance to travel, especially business travel, most likely weighed things down.

Another positive was factor in the report was the decline in company inventories, meaning that orders for goods are increasing.

See This ISM Report by Clicking Here


Bureau of Labor Statistics Productivity Report

Much press was given to the fourth quarter decline in productivity of -0.7%, but the annual rate for 2002 was a robust 4.7%. Buried in the report, though, is some very discouraging data – a 2.5% decline in productivity in the nondurable manufacturing sector, where the printing industry resides. Productivity for the year was only 2.8%. Unit labor costs for the quarter were up 7%, but for the year, they were up just 0.6%.

I’m now getting concerned that productivity gains are starting to lose steam. Eventually, companies realize that they can’t squeeze costs out of processes anymore and finally start looking at new investments to stimulate growth. Remember that conceptually, productivity is the ratio of output divided by effort. Companies reduce effort with new technologies, skilled workforces, and so on. In my mind, the ability to improve the denominator of this ratio has run its course. If the economy doesn’t get going again (which would increase the numerator of the ratio) in the manufacturing sectors, companies may have to take yet more drastic cost-cutting actions. At this stage, the only way to change the denominator is to take drastic actions like closing plants, eliminating equipment, and other things people don’t like to hear.

Overall, the economy’s productivity is quite good, which eases fears of inflation. But when I look at the economy as a whole, I am reminded of the old saying "your head is in the oven and your feet are in the freezer, so on average, you should feel normal." This bipolar economy, and particularly nondurable manufacturing, of which printing is an important sector, needs some medicine. The lack of productivity will be a primary driver to yet more print business consolidation.

See this PDF report from the Bureau of Labor Statistics: Click Here


What Do This Week's Economic Reports Mean For You?

While this week’s reports show some positive signs, the unevenness of the economy is very discouraging. We are dealing with harsh realities and must have a commitment to purpose. We know from the PIA report that there are companies doing quite well in this environment. Look for the sectors that reports such as the ISM survey indicate are stronger than others and work from there. And keep taking a hard look at the productivity formul;: which part of it can you make innovative changes to: the output or the effort side? It’s your choice how you deal with these realities.


Fill-In the Name of Your Favorite Time Warner Property That You May Want to Acquire Here_____________; the Auctioneer Will Contact You Soon!
Media Post reported " that CNNSi.com will drop the CNN moniker will be repeated in various forms over the next few weeks until AOL/T-W drops the big one -- that being the removal of AOL from AOL/TimeWarner. This will confirm what media planners and buyers have known all along. The parts are much more valuable than the whole."

One of the reasons the cross media strategy was doomed at AOL/T-W is that the brands under their umbrella were already so well established. As Trout and Ries taught us in their various marketing books, a "brand" occupies a place in the mind, and when you want to make a change in your company or to offer a new product, it is better in the long run to start a new brand rather than to fall into the brand extension trap, where you corrupt and erode your brand equity. Starting a new brand usually costs less in the long run. There is no better sports magazine franchise than Sports Illustrated, and the failure of CNNSi just goes to prove it. Adding CNN to the name took away value, and with CNN’s declining ratings, it wasn’t like the CNN name could add value to the process.

Now that AOL/T-W has decreased the value of so many of its properties and is in such desperate need for cash, the fire sale is about to begin. Watch for Time Warner itself to drop all of its hyphenated brands and re-establish brand individuality in the marketplace.