RRD.WI Donnelley (R.R.) & Sons Co.

R.R. Donnelley & Sons Company (RRD) won a multi-year print management contract from Herbalife, a nutrition and weight management company.

According to the contract, the company would produce and manage Herbalife’s wide range of products, including catalogs, magazines, commercial and digital printing, forms, labels and event marketing materials. For this purpose, R.R. Donnelley will be providing an onsite team as well as its Print Management system, which is expected to cut down on Herbalife’s current outflows.  

The print management system reduces printing costs through consolidating, standardizing and converting to the print- and fulfillment-on-demand model, thus improving operational efficiencies, as well as the return on investments (ROI).

The agreement with Herbalife will likely boost R.R. Donnelley’s international sales and related services platform. R.R. Donnelley has recently announced its second quarter 2011 results, where international sales increased 17.2% year over year and accounted for 26.8% of the total sales. The year-over-year growth was driven by increased sales related to the acquisition of Bowne.

Moreover, U.S. Print and Related Services revenue (73.2% of total sales) increased 6.2% year over year to $1.92 billion. The increase was primarily due to the acquisition of Bowne and volume increases in commercial, logistics and financial print, partially offset by volume declines in books and directories and continued pricing pressure across the segment.

R.R. Donnelley is witnessing stabilization in demand, increase in volumes and new customer wins. We believe that strong alliances and customer wins including AT&T Inc. (T) and Verizon Communications Inc. (VZ) will create value for the company over the long term. We also remain positive about the Journalism Online LLC acquisition.

However, higher pension expenses, continuing pricing pressure and a highly leveraged balance sheet are expected to create significant headwinds going forward.

We maintain our Neutral rating on a long-term basis (6-12 months). Currently, R.R. Donnelley has a Zacks #3 Rank, which implies a Hold rating on a short-term basis (1-3 months).

 
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