It's the season for annual reports to come out, which offers a glimpse at how individual companies and industries are faring financially. The ink industry is not particularly easy to examine, as few companies are publicly owned. Most of the publicly-held companies that do manufacture ink - DuPont, CR/T (part of Quad/Graphics) and EFI come to mind – don’t break out their ink sales.
However, many of the leading printers are publicly owned, and we can take a look at how these companies performed in 2013. Rather than try to do this in one big project, and trying to compare publication and packaging printers, as well as paper and board manufacturers, it would probably be more informative to look at one category at a time. I’ll start with the publication printing market.
The publication printing market is largely dominated by two multi-billion-dollar printers: R.R. Donnelley and Sons and Quad/Graphics.
According to Printing Impressions, there were a total of nine billion-dollar printers; one of these, Consolidated Graphics, was acquired by R.R. Donnelley this past year. Among the other nine companies, Valassis (3rd with more than $2 billion in sales) is largely indirect mail and inserts; Cenveo (4th, also with more than $2 billion in sales) is in labels and envelopes; and TC Transcontinental (5th, more than $1.9 billion) is in a wide range of printing. The other three companies in the billion dollar sales range are Deluxe, which largely prints checks; Vistaprint, which focuses on printing services for small businesses, and Visant, a privately held company in yearbooks, marketing and other areas.
This brings us back to R.R. Donnelley and Quad/Graphics. In 2013, R.R. Donnelley reported sales of $10.48 billion, while Quad came in with $4.325 billion. Let’s look closer at these numbers.
R.R. Donnelley & Sons Company’s full year net sales were $10.48 billion. Its non-GAAP adjusted EBITDA margin was 11.0%, and free cash flow was $478.2 million.
“We are pleased with the fourth-quarter organic revenue growth of 2.3%, driven by strong revenue performance across many of our offerings” said Thomas J. Quinlan III, R.R. Donnelley’s president and CEO. “For the year, we realized reported revenue growth of 2.5% and organic growth of 0.6%, our best organic revenue growth performance since 2010, and continued to deliver strong free cash flow, at the upper end of our guidance for the year.
“The continuing development of our market segment solutions, combined with our recent acquisition of Consolidated Graphics, will allow us to build upon the positive trend realized in 2013,” Quinlan added. “We continue to target gross leverage on a long-term sustainable basis to be in the range of 2.25x to 2.75x.”
The acquisition of Consolidated Graphics closed on Jan. 31, 2014. Including 11 months of Consolidated Graphics’ sales, R.R. Donnelley predicts 2014 net sales of $11.5 billion to $11.7 billion, with a non-GAAP adjusted EBITDA margin of 10.5% to 11.0%.
For Quad/Graphics, 2013 was a growth year in terms of sales, increasing to $4.8 billion compared to $4.1 billion for 2012. This was primarily driven by the January 2013 acquisition of Vertis, Inc., a company that recorded $1.1 billion salees in 2012. Vertis specialized in retail advertising inserts, direct marketing and in-store marketing solutions, which aren’t high-margin segments; as a result, full-year 2013 adjusted EBITDA was $577 million, compared to $566 million for 2012, not much of a gain considering the increase in sales. Adjusted EBITDA margin was 12.0% compared to 13.8% for 2012, again reflecting the impact of Vertis. Quad/Graphics’ recurring free cash flow was $380 million, slightly up from $375 million in 2012.
Joel Quadracci, Quad/Graphics chairman, president and CEO, said that Quad/Graphics’ fourth quarter and full-year 2013 results met expectations.
“We were especially pleased with our continued strong cash flow generation,” said Quadracci. “Our ability to generate significant cash flow and maintain a strong balance sheet while simultaneously reducing our pension and debt obligations has allowed us to remain flexible with how we deploy capital.”
David Honan, Quad/Graphics’ incoming vice president and CFO, added that the company anticipates 2014 net sales will be in the range of $4.6 billion to $4.8 billion, adjusted EBITDA for 2014 will be between $520 million to $550 million, and 2014 free cash flow to be between $155 million and $165 million.
These results show that there is some profitbility even in the publication market, a fact that ink manufacturers should take note.