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

R.R. Donnelley & Sons Co (RRD) has acquired privately-held outbound mailing services provider Express Postal Options International. The financial terms of the deal were not announced.  

The acquisition of Express Postal Options International or XPO will not only strengthen Donnelley’s logistics business segment but also expand its operations in more than 150 countries.

The California-based XPO has a strong global logistics network. XPO’s customers include companies from various sectors such as pharmaceutical, e-commerce, financial services and information technology to name a few. Leveraging XPO’s strong logistics network Donnelley will now be able to provide better and more efficient service to its customers.

Donnelley has been experiencing strong growth in the logistics segment. In the last concluded quarter, this segment reported an 11.3% jump in revenue. Strong growth in the logistics space along with volume increase in certain office products restricted the decline in revenues to 3.6% on a year-over-year basis.

The company’s logistics division has made it possible for its customers to deliver finished goods in a cost effective way. Moreover, the company has taken significant initiatives to expand its third-party logistics business, which will further gain from the XPO acquisition.

Donnelley is focusing on acquisitions to expand and enhance its offering to its current customers, as well as to expand the customer base. The company’s continued focus on acquisitions will also spur its already dominant market position and drive long-term growth.

However, we expect Donnelley to remain under pressure due to weak macroeconomic conditions prevailing in most of its current as well as prospective markets. Higher pension expenses, continuing pricing pressure, volatility in raw material prices and a highly leveraged balance sheet are other headwinds going forward.

Additionally, publishers are increasingly coming out with digital versions of books and sophisticated e-book readers from Amazon.com Inc. (AMZN) and Barnes & Noble Inc. (BKS) are becoming increasingly available. Thus, the interest in commercially printed paperbacks and hard covers is waning.

We remain Neutral over the long term. Currently, Donnelley has a Zacks #2 Rank, which implies a Buy rating in the short term.

 
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