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Donnelley Lowers Expectations Again

August 2001
CHICAGO—It seems R.R. Donnelley & Sons is hedging its earnings bets on the second half of 2001, and the Windy City printing giant also announced an additional round of layoffs and a plant closing.

The second warning this year dropped the projected earnings per share from $1.95 to $2.10 down to $1.60 to $1.75. The initial estimate in January called for earnings of $2.20 to $2.35 per share. Donnelley management cited weaker than anticipated demand in the second half of the year and short-term pricing pressures as the primary factors.

The ax is falling again in the Donnelley chain, but these cuts won't affect manufacturing assets. More than 250 positions from general and administrative departments—human resources, finance and information technology—will be eliminated across the company. With the action, the company expects to save $10 million in the second half of 2001. In all, the printer has reduced its workforce by 5 percent, or 1,700 jobs.

The company also announced that it would close its Old Saybrook, CT, plant and integrate its operations into its Lancaster, PA, facility, which is underoing an expansion. Four plant closings have been announced since the start of the year.

William L. Davis, chairman, president and CEO of R.R. Donnelley, believes the actions are the most prudent from a business standpoint, but regrets the toll it has taken on his employees.

"Despite these short-term financial issues, we remain focused on our long-term goal of revolutionizing communications effectiveness," Davis states. "We are continuing to invest in strategic initiatives vital to our transformation that will enable us to focus on the right customers and markets, to sell integrated communications instead of independent products and to change how we go to market."

Davis told the Chicago Tribune that the failure of the economy to recover as quickly as estimated has produced excess capacity and short-term pricing pressures.

"Many of our customers have reduced their print volumes in response to the economy, and some have just plain disappeared, like Wards and Bradlees," Davis told the newspaper. "That leaves us ...with more open capacity than we've seen in recent years."

Looking ahead, Davis says the company's focus will concentrate on three "go-to-market" strategies that will create more value for its shareholders, which he stated during a June 12 conference call:

* Strengthening the traditional print platform to be more responsive to customers' printing needs.

* Expanding the value of logistics.

* Directing investments in businesses dedicated to helping clients improve the effectiveness of their communications.


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