RR Donnelley results hit by $1bn impairment charge


Despite a massive $849m Q4 loss - arising from more than $1bn of impairment charges, including a write-down of the value of its European business -- Chicago-based RR Donnelley still managed to sound an upbeat note, touting improving revenues and margins, as it beat adjusted Wall Street estimates.

Excluding the one-time charges, RRD would have reported profits of $78.1m for the three months to 31 December 2012 on $2.7bn in sales. Both numbers that ended up being better than many analyst had expected. For the full year, RRD posted a $640m pre-tax loss on net sales of $10.2bn, down 4%.

Most of the Q4 and full year losses were down to "impairment of goodwill" charges, RRD said, clarifying, "Non-case charges related to the impairment of goodwill of $461.7 million, $318.7 million and $68.0 million in the magazines, catalogs and retail inserts, books and directories and Europe reporting units, respectively, for the year ended December 31, 2012".

During a conference call with analysts to discuss the results, RRD chief executive and president Thomas Quinlan noted there were a number of macro-economic reasons to be optimistic about 2013, including the improving financial health of corporations and a good low-interest climate for business investment.

"But for us, the most optimistic reason for '13 is our plan and how we're continuing to transform RR Donnelley," he added. "We're selling more of the products and services in our portfolio to our customers, but we also are creating sound solutions to our customers that draw in more of the products and services in our portfolio."

Quinlan even managed to present the proposed move by the US Postal Service to eliminate Saturday deliveries as a potential opportunity for RR Donnelley. "When you consider the actions that's going to be taken over the next two years by the USPS, coupled with all the communication material and packaging we have running through our facilities, our logistics business even becomes more important to RR Donnelley and our investors," he explained.

"We are well positioned to assist the USPS in their transformation and, at the same time, help our customers. If the USPS gives all of our industry time to go ahead and figure out six to five days, we're all going to figure it out. But if not, then we think our platform is better situated if it does come upon us quicker than people might expect, which our competitors might not be in the same spot."

Chief financial officer Daniel Leib added that the company's Q4 results were up from Q3 in sectors like magazines and catalogs, as were short-run fulfillment, logistics and statement printing. "On the international side, we did see a very strong performance in China, up about 13%, which was off of a Q3 which was up about 1% or so, and Latin America, which is a bit of the timing influence, but was much stronger in Q4 as well.

"I think as it relates to the financial offering, the number of IPOs priced were flat in Q4 but certainly saw some progress coming towards the tail end of Q4 and also, obviously, into the first quarter of 2013," Leib said.

Asian revenues were up 8.9% for the full year to $685.9m, although Latin America and Europe both posted declining sales, down 8.7% to $476.9m and 15.3% to $400.9m respectively; Canadian sales fell 4.7% to $261m. In the company's two other international reporting units, Business Process Outsourcing revenues rose 3.8% to $596.4m while Global Turnkey Solutions revenues dropped 0.4% to $289.7m.

All told the company said international sales were up 1.9% to $729.3m during Q4 but down 1.9% to $2.7bn for the full year, while its US Print and Related Services segment decreased 3.7% in Q4, to $1.9bn due to volume declines in certain categories, lower pass-through paper sales and continued downward pricing pressure. Us revenues were also down for the full year, dropping 4.3% to $7.5bn.

RRD did manage to reduce its debt load by $220m in 2012 and Quinlan added, "We're also encouraged by the results we've seen in 2013 thus far, and expect another year of strong free cash flow, in the range of $400m to $500m."


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