Press release from the issuing company
"We are pleased by our strong performance in the second quarter," said Thomas J. Quinlan III, RR Donnelley's President and Chief Executive Officer. "Sales growth on our legacy platform was in-line with real GDP growth and while the companies we acquired in 2007, in aggregate, carried a lower operating margin historically, we made great progress in integrating them as well as beginning to utilize their open capacity and close the margin gap. Our recently announced re-branding under the one RR Donnelley brand reflects our ability to provide fully integrated single-source solutions that span a complete range of printing and service capabilities. By managing our sales and manufacturing as one platform, we have platform flexibility, utilize our capacity efficiently and drive productivity to be the lowest cost provider."
Quinlan added, "We are also pleased with our strong generation of cash from continuing operations of $437 million during the first half of 2007. Our share repurchases and the replenishment of our share repurchase authorization demonstrate the confidence we have in our ability to generate strong cash flow that will provide us with the flexibility to execute on all aspects of our growth and capital deployment strategy, while very comfortably paying our dividend and servicing our debt."
Business Review (Continuing Operations)
The company reports its results in two reportable segments, 1) Global Print Solutions and 2) Global Services, and Corporate.
Summary
During 2007, we acquired Banta Corporation, Perry Judd's and Von Hoffmann, which in aggregate carried a lower operating margin historically. Our proven financial discipline and approach to achieving productivity increases already have had a positive margin impact in these operations, and we see opportunities for continued improvement.
Net sales in the quarter were $2.8 billion, up 23.0% from the second quarter of 2006. The increase was due to acquisitions and favorable foreign exchange comparisons as well as new customer wins and increased volume with existing customers, offset in part by continued price pressure. The gross margin rate decreased to 27.1% in the second quarter of 2007 from 27.5% in the second quarter of 2006 reflecting the inclusion of the acquired companies that more than offset the benefits from higher sales volume and our productivity efforts. SG&A expense as a percentage of net sales decreased to 11.9% in the second quarter of 2007 from 12.1% in the second quarter of 2006, reflecting the benefits of our integration and productivity efforts. Operating margin, which was negatively impacted by charges for impairment and restructuring totaling $330.5 million in the second quarter of 2007 and $14.6 million in the second quarter of 2006, was -1.9% in the second quarter of 2007 compared to 9.8% in the second quarter of 2006.
Excluding charges for restructuring and impairment, non-GAAP operating income increased 16.8% to $276.1 million in the second quarter of 2007 compared to the second quarter of 2006. Non-GAAP operating margin in the second quarter of 2007 was 9.9% compared to 10.4% in the second quarter of 2006 reflecting the inclusion of the acquired companies that collectively carried a lower margin historically that more than offset the benefits from higher sales volume and our productivity efforts. Reconciliations of GAAP operating income and margin to non-GAAP operating income and margin are presented in the attached tables.
Segments
Net sales for the Global Print Solutions segment increased 33.1% to $1.8 billion from the second quarter of 2006 due to the Banta, Perry Judd's and Von Hoffmann acquisitions as well as sales increases in our Asian operations, logistics and book offerings and favorable foreign exchange comparisons. The segment's operating margin, which was negatively impacted by charges for impairment ($53.4 million) and restructuring ($4.7 million) totaling $58.1 million in the second quarter of 2007 and a restructuring charge of $2.3 million in the second quarter of 2006, decreased to 9.6% in the second quarter of 2007 from 14.6% in the second quarter of 2006. Excluding impairment and restructuring charges, the segment's non-GAAP operating income increased 15.6% to $231.4 million. Non-GAAP operating margin in the second quarter of 2007 decreased to 12.8% from 14.8% in the second quarter of 2006 reflecting the inclusion of the acquired companies that collectively carried a lower margin historically as well as incremental non-cash purchase accounting-related amortization expenses that more than offset the benefits of our productivity initiatives.
Net sales for the Global Services segment increased 8.0% to $990.0 million from the second quarter of 2006 due to the acquisitions of Banta, Von Hoffmann and OfficeTiger; sales growth in our financial print, global document solutions and forms and labels offerings; and favorable foreign exchange comparisons, offset in part by lower sales of statement printing. The segment's operating margin, which was negatively impacted by charges for restructuring ($7.5 million) and impairment ($263.3 million) totaling $270.8 million in the second quarter of 2007 and by charges for restructuring ($9.7 million) and impairment ($1.9 million) totaling $11.6 million in the second quarter of 2006, decreased to -18.6% in the second quarter of 2007 from 8.5% in the second quarter of 2006. Non-GAAP operating margin decreased to 8.8% in the second quarter of 2007 from 9.7% in the second quarter of 2006 due to continued price pressure and the performance of statement printing.
Corporate operating expenses decreased to $43.6 million in the second quarter of 2007 from $53.8 million in the second quarter of 2006. Excluding restructuring charges of $1.6 million in the second quarter of 2007 and $0.7 million in the second quarter of 2006, corporate operating expenses decreased $11.1 million from the second quarter of 2006 to $42.0 million reflecting lower employee benefit and compensation expenses.
Outlook - 2007 Full-Year Non-GAAP EPS from Continuing Operations
For the full year of 2007, RR Donnelley is projecting non-GAAP net earnings per diluted share from continuing operations to be in the range of $2.70 to $2.75, but trending toward the high end of the range. This guidance assumes no additional shares repurchased under the authorization available to the company. The non-GAAP effective tax rate for 2007 is expected to be approximately 33.0%.
GAAP net earnings per diluted share from continuing operations in 2007 may include restructuring, impairment and integration charges, the resolution of certain tax items and other items that are not currently determinable, but may be significant. For that reason, the company is unable to provide full-year GAAP net earnings estimates at this time.
© 2024 WhatTheyThink. All Rights Reserved.