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2005 Market outlook Printers in Full Court Press

December 2004
By far, the biggest development in the publication and catalog printing sectors has been the dramatic upswing in capital investment. In some cases the same equipment is slated to serve both markets, while other machines are going into plants dedicated to one or the other application.

The ranks of multiple web press purchasers includes the likes of Perry Judd's and Trend Offset Printing, but vying for the title of biggest spender are Quebecor World (22 presses) and Quad/Graphics ($200+ million for a range of equipment). Dave Boles, COO, North America, at Quebecor World, and Thomas Quadracci, president and CEO of Quad/Graphics, were kind enough to share some insights on these business moves.

PI: Why are the catalog and publication printing industry sectors experiencing an equipment buying spree? Is the answer different in any way for the two markets?

BOLES: We find it interesting that most of our competitors tend to lump 'mag/cat' together, as we refer to it. We still maintain that having market-focused factories is important. There are subtle things that make each of our divisions successful, and having scale in each is very important in today's printing environment.

We ordered 64-page presses because we live in a highly versioned world, no matter what segment of printing we're talking about. Increased pagination is going to give us much more favorable splits. For some time, we've had a real focus as a company on creating short-run mentalities and core competencies within longer run environments.

The time was right (to invest in new presses) in the sense that we'd pretty much completed the integration of World Color Press and Quebecor Printing. We had to instill a better sense of operating discipline and have sound strategic plans in place for each component of our business before we felt it was time to invest money in our platform.

The presses are just one part of the answer. I look at printing press technology as kind of a me-too thing, if you have the financial resources to make the type of investment we are making. It is the other things that ultimately win out in the market, such as having sound operating practices, financial discipline and cost control.

QUADRACCI: Quad/Graphics' approach to equipment purchases is, and always has been, strikingly simple: Continually upgrade to the newest, most efficient equipment when it becomes available. We have a long-standing practice of replacing equipment once it has served its useful, economic—vs. mechanical—life.

This approach enables us to put the most advanced capabilities in the industry at our clients' disposal, while providing high-quality printing at a low unit cost—a must in today's marketplace. To that end, Quad/Graphics' recent purchases—we're spending more than $200 million on 10 new 64-page presses, six perfect binders, four saddlestitchers and five polywrappers—will be used to replace a large number of older, less-efficient pieces of equipment.

Without a doubt, print remains one of the strongest mediums that marketers can use to reach their target audiences, so it's not surprising that catalog and publication printers are seeing an increase in demand for their services. These recent equipment purchases further underscore our commitment to print and our belief that the industry will remain strong and viable for the long term.

PI: Most press buyers seem to be saying that their purchases were not about adding capacity, but rather to gain efficiency. Do you agree?

QUADRACCI: I would characterize Quad/Graphics' recent equipment purchases as an effort to expand our efficient capacity...or, having the right mix of equipment to promote high-quality printing at a low unit cost.

Certainly, the 64-page presses we've started installing are ultra-efficient and will change the competitive landscape. Printers—Quad/Graphics included—that have the means to print up to 64 pages per impression (in four unique 16-page signatures, no less) will be able to far outpace those that don't.

While installing efficient capacity is key to keeping competitive, it has many additional benefits. For one thing, the more efficient our equipment is, the more we can focus on reducing labor costs while improving career advancement opportunities and earnings potential for employees. Additionally, efficient equipment ultimately improves the quality, cost and immediacy of ink on paper, enhancing its long-term viability in the marketplace.

BOLES: This investment is not a reaction to any changes on the demand side, per se. These presses have been largely justified on the basis of efficiency. As printers, we're at a critical juncture. If a company is going to make this type of investment, it had better do the responsible thing and take capacity off-line. To be a leader in this business, you have to drive costs out of your operations. Capital expenditures are just one way to do that.

We have noticed an up-tick very recently in the magazine arena, though, pretty much across the board. In some cases we've seen year-over-year page growth of 15, 20 or even 30 percent. I suspect this will continue into 2005.

Printers also see opportunities arising from investments on a less grand scale. Brown Printing, for example, has elected to focus on distribution and put the infrastructure in place for offering co-palletization services for smaller volume titles. Rob Helms, director of Brown Logistics Services, is responsible for this effort.

PI: Why was the time right for Brown Printing to get into co-palletizing?

HELMS: It was only about a year ago that the U.S. Postal Service made an offering to the industry for additional work sharing discounts if printers co-palletize publications. This initially was set up as a two-year test. Based on the level of interest already seen, the postal service extended the test period. Now it appears those rates are going to become part of a future rate case in a formal way.

PI: What's in it for the printer, since publishers will expect to receive the mailing cost savings?

HELMS: Sacking mail, in general, is more process-intensive. There is some work involved in co-palletization, so printers need to ensure that process costs are covered by the customer.

PI: Is this service applicable to catalog mailings?

HELMS: The postal service has talked a lot about expanding co-pal to the catalog side. While nothing has been formally announced as yet, the expectation is that this option will be extended to catalog mail to gain the same benefits.

There is nothing that would impede catalogers from exploiting this opportunity. Generally speaking, the delivery time for going through the process and getting catalogs to the home will be at least as fast or quicker than the current method of sacking mail.


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