December 10, 2002 -- (by Chuck Surprise via special arrangement with WhatTheyThink.com) - Manufacturing in the U.S. is still declining and will NEVER come back. - Valuation of printing companies has tumbled from 2000 to 2001. - The most valuable companies are run by CEOs who LISTEN! - Consolidation has not proven to be an effective solution to the profit squeeze. - Advertising revenues are edging up, but are spread among competing media. - What should the United States do to combat our economic malaise? The opening day of PRINT OUTLOOK 2003, when the "Guru Team" - Bill Lamparter, PrintCom Consulting; Charlie Pesko, Cap Ventures; Prof. Frank Romano, RIT; Vince Naselli, TrendWatch, and Andrew Paparozzi, NAPL presented their views of the industry, was a hard act to follow. But Day 2 proved equally interesting. On this day’s program: Michael K. Evans, Ph.D, NPES Chief Consulting Economist and President, The Evans Group; Harris DeWese, Chairman and Principal, Compass Capital Partners, Ltd.; David Peeler, Media Analyst/Investor and former President and CEO of CMR, LLC, a division of TNS Media Intelligence, and Dr. Ron Davis, Ph.D, Chief Economist, Printing Industries of America. As you would expect from such a strong lineup, a great deal of useful information was dispensed regarding the relative health of the ailing print industry, and that of the overall economy. Michael Evans opened the Friday program with "The Outlook for the Economy and International Markets in 2003." Evans noted that there is some concern the U.S. economy will undergo a lengthy period of stagnation, much as the Japanese and German economies are doing. As evidence, the NPES economist pointed out that even though third quarter US GDP is up, it is well below what normally occurs in the first year of recovery from a recession. Tax cuts and ever lower interest rates appear to have had little impact, although consumer refinancing and buying of new housing has helped keep the economy relatively strong. U.S. net exports have continued to decline as well, due, in part, to the sagging economies of many of our trading partners. Comparing the Bush tax cut, Phase I, to the Reagan tax cuts of the 80s, Evans noted that 80-90% of the Reagan cuts were spent by the recipients. The cuts triggered federal budget deficits, but also caused the economy to surge. But only 20-25% of last year’s Bush tax cuts were spent. Some apparently saved the rebates, others may have bought stock, or paid down debt. Dr. Evans forecasts 3% growth for the 2003 economy, with sluggish spending by consumers and businesses alike. Capital spending will be weak, and net exports will continue to decline. Surprisingly, when addressing the subject of government spending, Dr. Evans pointed out that the only national leader in the past 100 years to actually lower federal spending (after inflation) was William Jefferson Clinton. Federal budgets rose at a 3.2% rate during his two terms - slightly less than the rate of inflation. Both "Bush I" and "Bush II," Evans said, have run increases of 10-10.2%; well above the rate of inflation. The NPES economist also sees little relief from the stock markets. The NASDAQ, down 75%, is not expected to rise significantly short term. The Dow, Evans feels, is still overvalued on a price-to-earnings basis, and the dollar, he adds, is overvalued by at least 10%. Consumer spending, he added, won’t be as big a help as it has the past two years. Unemployment is rising, and manufacturing jobs are being lost permanently. What should the U.S. do? Dr. Evans proposes that we: 1. Reduce the value of the dollar 10-15% to stimulate exports. 2. Issue tax credits for firms that invest in plants and add jobs for U.S. workers. 3. Insist on lower tariffs on American exports to Japan and China. 4. Retrain workers who lose their jobs. What will the U.S. do? Evans predicts -"nothing." Harris DeWese followed with his humorous but sobering account: "Mergers, Acquisitions and Venture Capital - Has the Smart Money Abandoned Print?" In Mr. DeWese’s view, the answer would be "yes, largely." And he should know, since he closely and accurately tracks sales, mergers and acquisitions. Acquisitions have been down in the past year, with activity estimated at about $500 million. Many of the companies sold were distressed, and prices paid for existing print businesses fell, according to Harris‚ numbers by 25-60% from the levels of 2000. In general, both sales of print companies and their prices have dropped drastically from 1998-99 levels. Mr. DeWese also had bad news about most consolidators, who have not been able to effect the economies of scale and other cost-cutting measures upon which consolidation was premised. Consolidated Graphics, he added, was bucking this trend and operating profitably. Its stock, he noted was undervalued at about $20.00/share (CGX). Consolidated now has 66 locations. Nationwide, with 12 companies is also doing well. Nationwide contractually manages the former Master Graphics companies. "There are many motivated sellers in the market," DeWese notes, and he expects the pace of bankruptcies to pick up in 2003. Some of the bankrupt companies, he says, will be swallowed up by healthier competitors. He also expects another consolidation cycle. "It’s Darwinian - fragmented industries such as printing inevitably consolidate for economic reasons." In closing, DeWese tossed out a "handful" of recommendations: 1. The most valuable companies are run by CEOs who listen - not those who have all of the answers. 2. Seek to grow sales by 10% annually. 3. Seek to reduce cost of goods sold by 5%. 4. You are also an investor. It’s your money, stupid! Run the company as an investor. 5. Run the company as a professional manager. 6. Run the company as a professional marketer. 7. Motivate people - share the wealth and the information. No more paranoia. 8. Get out there and SELL SOMETHING! David Peeler gave the conferees his take on "The Outlook for Advertising in 2003." Noting that 3rd Quarter 2002 ad revenues (for all media) were up 3.4 to 3.8%, Peeler felt that was good movement in what had been a stagnant industry. Reverting to nautical terms, Peeler said "rising ad tides lift all media boats." Broadcast media ads generate printed media revenues, and pull printing up a bit as well. Areas of strength cited by Peeler include: Automotive advertising, which is running at a very high level. Entertainment ads - studios are releasing films weekly now, and heavily promoting them. Packaging materials. (Proctor & Gamble up 22%) Spanish language media. Also, spot ads for politics, network radio, Sunday magazines, local newspapers (+6.12%) and network TV (+7.07%). What Peeler could not predict was the likely impact of revenue growth in the above areas on traditional sheetfed offset. Media hit hardest on the downside were: Internet ads (-18%), business to business magazines (-17%), Syndicated TV (-12%), outdoor ads (-3.8%), national newspapers, (-3.2%), and consumer magazines (-1.4%). Mr. Peeler added that the strong trend toward localization and personalization of messages in all media could be a big plus for print - although it is initially likely to benefit publications. The outlook for 2003? (Barring war): a 3 to 3.5% increase for advertising overall, with a larger increase in 2004 - fueled in part by the national political campaigns. During the audience Q & A, Peeler also said he sees a likely alliance between local cable TV systems and local print publications, and much more accurate targeting of consumer magazines. Closing the economics portion of the conference, Dr. Ronnie Davis, PIA Economist, gave attendees his view of "The Prospects for Print in 2003." Dr. Davis agreed that there is a possibility of a further weakening of the U.S. economy resulting in the dreaded "Double Dip Recession," but he sees GDP growth of 2.5-3% in 2003 with continued low interest rates and low inflation. He also sees labor markets tightening a bit in 2003. As had other PRINT OUTLOOK 03 speakers, Davis pointed out that a number of printing companies are running profitably and some are showing 10-15% per year growth. But far more plants are doing poorly and he estimates that one-third are losing money. The current 2001-2002 period, said Dr. Davis, is the "worst year for printing since 1970 - perhaps since 1932." For printers, Davis predicts a 3% uptick in 2003 to total sales of $167 billion. (PIA includes all pre- and post-press operations in their totals.) Discussing industry trends, Davis sees a rapidly maturing industry transitioning from a growth industry to one that lags the overall economy. PIA figures show a decline in printing businesses in the U.S. from 54,000 in 1993 to 48,000 today - a 15% decline. Average number of employees per shop has risen from 17 to 26. These changes are expected to continue and to accelerate. Dr. Davis advises printers who wish to prosper to add value through differentiation (niche marketing), and focus on increasing efficiency and lowering costs. Marketing strategies he suggests: 1. Prune product and service lines 2. Place more emphasis on product innovation 3. Stronger focus on cost reduction 4. Increase sales to present customers 5. Look to mergers, partnerships and alliances with rivals 6. Focus on those niche areas which are still growing and have opportunities 7. Emphasize ancillary services and new services 8. Expand internationally. So there we have it. Another session packed with interesting information and statistics and, we hope good advice for our audience. (by Chuck Surprise, via special arrangement with PrintOnDemand.com)