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Commercial Printing--Slowdown Slated for '99?

December 1998

The economy stood at 51⁄2 percent growth in the first quarter of this year, and around that time Asia stepped in with a bucket of ice cold, recessional-temperature water. The growth dipped to 1.6 percent in the second quarter, according to Andrew Paparozzi, chief economist for the National Association of Printers and Lithographers (NAPL), and the performance of the economy indicated our industry wasn't insulated from the ripple effects caused by Asia's economic turmoil.

"Around May, things started to change. We started to notice that some key indicators we follow, such as work-in-process, began to decline," Paparozzi notes. "They started to slip, and that wasn't surprising because that's when we started to see the economy and business activity overall start to slow.

"About that time, we started to see some significant slowing in important measures of real printing industry activity, particularly hours worked," he adds.

While sales figures as a whole for 1998 will check in around 61⁄2 to 7 percent, according to Paparozzi, it won't be an accurate indicator of the direction the commercial printing industry will take in 1999.

"What we've seen is the start of a slowdown, which we think will continue through 1999," Paparozzi declares. "That's not showing up quite as much in sales figures, because right now sales figures are being supported by price increases, but it is showing up clearly in things like hours worked."

Paparozzi feels the industry is closely tied to the economy, thus it behooves commercial printers to follow consumer spending. He wonders if a proper policy decision can be implemented to arrest the international economic crises. Should the economy slow in the 2 to 21⁄2 percent range in 1999, as is predicted, Paparozzi believes print sales will register about 31⁄2 to 41⁄2 percent growth.

Ronnie Davis, chief economist for the Printing Industries of America (PIA), has gotten the impression that some print markets have become less predictable in their traditional, seasonal patterns. In the end, he believes 1998 will be remembered by commercial printers as a year where they were busy, but the heavy workload didn't necessarily build their bottom lines.

"However, due to the fact that most consumables prices have been stable or even declining, printers certainly couldn't have sustained the pressure on their prices that they've had to endure," he says.

Maurice Bushroe, vice president of sales and marketing at Cheverly, MD-based Peake Printers, saw customer understanding grow this year in terms of technology's effect on the print production process, particularly scheduling. As for 1999, he expects a sound performance from the Baltimore-Washington corridor, but the global economy is not as certain.

"If companies continue to feel a negative impact from overseas operations, they will cut down on U.S. advertising, which affects commercial printers," Bushroe says.

"When the dollar flow is strong, people invest in quality and that bodes well for us."

Ralph Strong, controller for Los Angeles-based ColorGraphics, counted 1998 as a surprisingly good year for his web offset and sheetfed company. ColorGraphics added new plants in Irvine, CA, and Seattle, along with three full-web presses. It also completed the printing of Microsoft's annual report.

Fortifying its 1998 acquisitions will be the main focus for ColorGraphics in 1999, not more deals.

"We're hoping for continued growth. We've actually doubled our number of plants; we want to first make sure we have everything under control," Strong remarks. "But you never know what the opportunities are."

Warning Label
Some have expressed caution, although not merely bottom line-driven caveats. Al Dutcher, vice president of sales development for Carlson Craft, in North Mankato, MN, doesn't believe that technology is benefitting printers presently.

"Emerging technologies, like receiving orders on disk and working with digital presses, aren't paying off for printers yet," he says. "They're on the back side of the learning curve. I don't know that everyone has learned to harness the new technologies."

Dutcher is also concerned about the rippling effect the Asian economy will have on U.S. printers."It will be a belt-tightening year from the perspective of suppliers," Dutcher remarks. "We'll have to get the most out of our machinery and people—just reaching productivity on all sides. I really don't think companies will be as aggressive as they have been in the past. They'll take the conservative approach."

Likewise, Brad Schreier, president and COO of Taylor Corp., also in North Mankato, MN, is not 100 percent sold on the value of some technologies.

"All printers are facing the challenges of keeping pace with technology," Schreier says. "At the same time, printers must exercise common sense and good judgment to determine which of the technology advances really provide added value to the customer and to the production process—and which are really just bells and whistles."

Price pressure on printers from customers will continue to be a factor in 1999, according to Schreier. "Innovative printers will find new ways to serve their current customer base, as well as open up new markets/customers," he notes. "This has always been a highly competitive business and I don't see that changing one way or another."

The way the PIA's chief economist sees it, 1999 will be a pause from the economic growth the country has enjoyed the past four years. Davis already has a catch phrase for the economic condition next year: "Slowing but Growing."

Davis believes print markets will grow in terms of volume, but he thinks printers will need to test their creativity and financial prowess in controlling costs and maintaining viable profitability.

"Printers really have to watch what's going on with the total economic output in the United States," he advises. "If it gets to the point where it stops growing or slows down, that's certainly a sign that the U.S. economy can't weather the storm. But, in my opinion, it will.

"I think we're going to continue to see very low inflation, which is both good and bad," he adds. "Good in terms of what printers are paying for their consumables. Maybe there will also be a little pressure off of labor markets as the economy slows down."

Faith in Economy
Peter Forster, vice president of marketing at Tanagraphics, says that his company had a strong year in terms of client development and retention. As a full-service commercial printer based in Manhattan, the financial industry plays a large role in Tanagraphics' fortunes. He notes that with the volatility and uncertainty that marked the second half of 1998, financial industry clients are talking about cutting expenses.

Still, Forster has faith in the domestic economy. "The U.S. still has a basically strong economy and I think it's going to continue to propel us," he remarks. "We're also pursuing other services for our clients, such as new media services and more back-end services in terms of mailing and fulfillment, to be able to bring more services to existing clientele."

The industry is definitely changing, according to the NAPL's Paparozzi. Clients are asking for more of their printers—from facilities management to multimedia services to investments in technological advancements. Consolidation, particularly at the lower spectrum of the industry, is the result of those pressures.

"Printers are looking at the pressures they're facing to diversify into electronic and different types of fulfillment services. Many are still convinced that they have to do that all in-house," Paparozzi says. "However, a growing number are saying, 'Well, these services carry some very steep learning curves. Given that our goal is to diversify and to diversify profitably, maybe we should hook up with somebody on the outside that has already climbed some of these learning curves.'"

There have been consolidation trends among printers before, he adds. "What's interesting now is that it's much, much deeper into the industry than ever before, because the industry is more complex than it's ever been—in terms of complexity of jobs, services, production processes and the skills printers have to bring to the table."

Current M&A activity is an indication of how the industry is changing and companies recognize that, Paparozzi says.

"We're not in the ink-on-paper business anymore," he says. "That requires some substantial decisions to be made. Companies are recognizing now that going outside to get support for profitable diversification is gaining acceptance."


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