August 20, 2007 -- CHICAGO-- Fitch Ratings has published a credit analysis on R.R. Donnelley & Sons Company (RRD) and a report on the U.S. publishing industry titled 'Commercial Printing: Key Credit Trends and Outlook'. Fitch assigned RRD an Issuer Default Rating (IDR) of 'BBB' on Aug. 8, 2007.
Key Points from the Reports:
--The commercial printing industry is highly competitive with significant excess capacity. The industry is fragmented, with hundreds of local or niche market operators despite recent consolidation activity, and as such there is significant pressure on prices.
--Fitch expects industry growth to be challenged to keep pace with gross domestic product (GDP) growth and recognizes that certain industry participants will be negatively affected by a cyclical downturn.
--On an absolute basis Fitch expects more commercial printers' credit profiles to deteriorate than to improve over the next several years. However, Fitch recognizes the size and stability of the commercial printing market and expects positive organic growth from the larger players as modest increases in customer spending and market share gains at the expense of smaller players should support expansion in the top line.
--Fitch believes that a downturn would accelerate the departure of printers from the industry which should have a positive effect on capacity for those players that remain in the business going into the next upswing in the economy.
--On a debt-weighted basis Fitch has a stable industry outlook. Fitch believes the larger players, such as R.R. Donnelley, that enter an economic downturn with financial flexibility and access to capital could have the potential to acquire capacity at attractive values. Fitch also expects these companies will have the financial wherewithal to continue to invest in technology and more flexible equipment to improve efficiencies.
--Fitch believes RRD can drive revenue growth by selling across its entire platform and that full service printers may have the opportunity to stem some pricing erosion.
--RRD's credit profile benefits from its diversification which extends geographically and across more than 12 core print products. Fitch believes these factors provide some defense against seasonal, cyclical and secular volatility.
--The rating on RRD also incorporates the event risks associated with 1) potential leveraged acquisitions and 2) (consistent with other investment grade companies) a potential leveraged recapitalization or leveraged buyout. Fitch expects existing and expected financial policies will remain consistent with the 'BBB' rating level.
For more information please visit www.fitchratings.com for reports titled 'R.R. Donnelley & Son's Company' and 'Commercial Printers: Key Credit Trends and Outlook'.