Donnelley's 1Q Earnings Beat Estimate - Analyst Blog
April 26 2013 - 7:40AM
Zacks
R.R. Donnelley & Sons
Co. (RRD) reported first quarter 2013 non-GAAP earnings of
37 cents per share, comfortably exceeding the Zacks Consensus
Estimate by 4 cents. However, earnings per share (“EPS”) declined
15.9% year over year, primarily due to margin contractions.
Quarter
Details
Revenues for the quarter were up
0.5% year over year to $2.54 billion. Donnelley’s product revenues
during the quarter were down 3% year over year to $2.13 billion
while service revenues increased 24.5% from the year-ago quarter to
$408.8 million.
U.S. Print and related services
revenues inched down 0.5% from the year-ago quarter to $1.9 billion
due to significant lower volumes along with continued pricing
pressure across the segment offerings. Donnelley’s logistics
business recorded robust revenue growth of 46.3% on a
year-over-year basis, primarily driven by higher volumes.
International sales increased 3.5%
year over year to $666.0 million in the quarter. The year-over-year
growth was primarily driven by increase in volume in Asia and
Global Turnkey. Moreover, Donnelley also witnessed higher volume in
Europe. However, pricing pressure and low volumes in Canada were
the headwinds during the quarter.
Donnelley’s gross margin for the
quarter contracted 100 basis points on a year-over-year basis to
22% on certain customer rebate adjustments in 2012 and impact of
pass-through postage revenue.
During the quarter, selling,
general & administrative expenses were down 0.7% year over year
and was attributed to the decline in employee-related costs.
Non-GAAP operating margin also
declined 40 bps on a year-over-year basis to 6.8% due to certain
customer rebate adjustment, price pressure and unfavorable product
mix. Donnelley reported non-GAAP net income of $68.1 million versus
$78.8 million in the year-ago quarter.
Balance Sheet and Cash
Flow
Donnelley exited the quarter with
$302.9 million in cash versus $430.7 million in the previous
quarter. Long-term debt was $3.51 billion versus $3.42 at the end
of previous quarter. Donnelley had $95.8 million in cash used in
operations during the quarter.
Guidance
Donnelley reiterated its fiscal
2013 guidance. For fiscal 2013, Donnelley expects revenues to be in
the range of $10.1 billion to $10.3 billion. The guidance assumes
approximately $100.0 million negative impact from foreign exchange
rates and lower paper sales.
Adjusted earnings before interest,
tax, depreciation and amortization (“EBITDA”) are expected to be in
the range of 11.2% to 11.4% for fiscal 2013. Depreciation and
amortization is expected to be in the range of $450.0 to $460.0
million, while interest expense is likely to be in the range of
$250.0 to $255.0 million.
Capital expenditure is expected to
be in the range of $200 million to $225 million and free cash flow
in the range of $400 million to $500 million. Long-term gross
leverage is projected to be in the range of 2.25X to 2.75X.
Recommendation
We believe that Donnelley will
achieve growth in fiscal 2013 due to its strong product pipeline.
Donnelley’s near field communication (“NFC”) capability will boost
its top-line growth going forward. Moreover, an improving
macro-economic condition in the domestic market and cost cutting
initiatives will boost profitability in the near term. Donnelley’s
improving liquidity position is also a positive catalyst in our
view.
Moreover, Donnelley’s continued
focus on acquisitions will extend its offerings beyond the
traditional market. Donnelley’s multi-million dollar contract wins
from various companies such as Metro Inc., Chrysler and
Office Depot Inc. (ODP) are the other positive
catalysts.
However, we expect Donnelley to
remain under pressure in the near term due to continuing pricing
pressure, volatility in raw material prices, and increasing
competition from Quad/Graphics, Inc. (QUAD) and
Dai Nippon Printing Co. Ltd. Moreover the increasing adoption of
the e-book reader from the likes of Amazon (AMZN)
is a major concern for its legacy printing business.
Currently, Donnelley has a Zacks
Rank #4 (Sell).
AMAZON.COM INC (AMZN): Free Stock Analysis Report
OFFICE DEPOT (ODP): Free Stock Analysis Report
QUAD GRAPHICS (QUAD): Free Stock Analysis Report
DONNELLEY (RR) (RRD): Free Stock Analysis Report
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