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PERRY JUDD'S -- Standing Out From the Crowd

May 2002

* Economies of scale. Material cost savings and reductions in various services the company purchases along the supply chain provide greater leverage in maintaining competitive pricing.

* Greater variety of product offerings. Between the Strasburg, VA, Spencer, IA, and Waterloo, WI, facilities, Perry Judd's now enjoys three dedicated publication printing plants. The addition of the Spencer and Strasburg operations also brought increased special-interest magazine production capabilities.

* Location. In acquiring a mid-Atlantic company in Strasburg, VA, and another Midwestern facility in Spencer, IA, the company was better positioned to keep ever-increasing distribution costs in check and address issues of on-time delivery.

* Increased sales presence. While Perry Graphic Communications enjoyed good penetration in the Midwest and Southwest, Judd's brought customers located in New York and the mid-Atlantic states to the table.

The fruits of the merger were put through the blender last year as Perry Judd's and the entire U.S. economy faced its longest economic drought in 10 years. The magazine publishing industry absorbed a particularly tough stretch, including some of the field's biggest players, as declining ad pages led to thinner folios. Perry Judd's has endured the tough times by keeping a rein on all the factors in its control.

"When economic and marketplace factors turn negative, it means less volume and, obviously, more competition for the existing volume," Hutchison says. "The result across the industry is reduced revenues and, often times, reduced margins. That requires all printers to manage their costs in relation to their revenues, as well as manage their ongoing capital equipment investments.

"One of the hallmarks of our company is that we've worked really hard to maintain a streamlined cost structure. We've never allowed our costs to get bloated," he adds. "We've looked at our cost structure and adjusted it to our revenue expectations, without hurting any aspects of our business that touch the customer."

Additionally, Hutchison notes three other variables have increased Perry Judd's viability during the economic downturn: maintaining performance for the customer, improving efficiency in order to lower costs and investing in improved efficiencies.

According to David Glick, executive vice president of operations, "We've streamlined our cost structure, so we expect to have a good earnings year, albeit with less volume. We'll continue to invest capital to help reduce costs and maintain the level of service our customers have come to expect."

To underscore its objectives, Perry Judd's has invested in new equipment virtually across its entire network:

An eight-unit Heidelberg Sunday 2000 gapless web offset press was installed at the Waterloo, WI, plant recently, along with a high-speed Heidelberg SP-1000 stitcher.

A new short-run, quick make-ready Muller Martini stitcher is slated to commence operations this month at the Spencer, IA, facility. A cover press will also make its debut there in July, while two Creo thermal platesetters—one installed at the end of 2001, another coming this summer—have augmented the facility's computer-to-plate capabilities.

Another Heidelberg Sunday 2000 press, a 48-page gapless model, will be installed at the Strasburg plant in July, and a trio of new Creo platesetters should be active there by next month.

The Baraboo, WI, facility will reap a SP-1000 stitcher some time this fall, and an expansion has been completed at Perry Judd's new consolidation center in Baraboo. The new consolidation center is allowing the company to distribute its catalogs and magazines in a more cost-effective manner.

"We can consolidate newsstand and mail subscriptions simultaneously, which is a unique capability," Glick states. "It takes into account the overall volume of our organization and maximizes our ability to distribute to particular postal destinations, get maximum postal discounts, have more predictable delivery dates and a reduced cycle time. It's working extremely well for us."

Success Is Satisfying

Hutchison adds that the development and execution of Perry Judd's plan to consolidate and distribute both postal and newsstand products have been satisfying to watch unfold. "In 1998, we realized the need to develop a capability that would allow us to help our customers reach their customers consistently, on time and at a lower cost—especially in light of the run-up in postal costs that we've seen recently and will most likely see in the future," he says. "We knew our competition was ahead of us in regard to those capabilities, and that it was important for us to develop the capability to compete effectively."

To that end, Perry Judd's brought aboard people with extensive logistics experience to beef up its logistics management, IT and warehouse management resources. In 2000, the company was consolidating mail out of its Baraboo facility; both mail and newsstand freight at Baraboo and Waterloo followed suit last year. This year, a second consolidation facility has been opened near the company's Strasburg, VA, plant.

"We now offer a nice solution for publishers and direct marketers who are looking to distribute their mail and newsstand products effectively," Hutchison adds.

As the industry and the rest of the country looks longingly toward the prosperity that has been promised for the second half of 2002, it's easy to forget that better days weren't that long ago. In fact, Beth Lindsay, senior vice president of human resources at Perry Judd's, recalls a period from the not-too-distant past when rock-bottom unemployment figures made increased staffing during the company's peak periods a major challenge. While the country was enjoying unemployment rates of roughly 2.5 percent in the period between 1999 and 2001, some of the regions in which Perry Judd's operates were experiencing even lower levels. According to Lindsay, those figures checked in around the 1.7 percent range.

"Those were difficult odds to face when most of our facilities were looking at expanding their employment base," she recalls. "Fortunately, we were able to tap into our collective brainpower to solve the problem effectively. We came up with a number of creative solutions to enable our divisions to staff up."

In Baraboo, WI, the company utilized the J-1 student visa program to address its peak employment periods. During the summer, more than 80 foreign students were brought aboard from countries such as Bulgaria, Poland and Lithuania, providing temporary job opportunities for the students, as well as giving the company's current employees the chance to learn about Eastern Bloc nations. During the winter, students from Brazil, Peru, Guatemala and Ecuador proved helpful during the Christmas rush season.

At the company's Strasburg, VA, facility, slick recruiting ads were also developed that featured employee testimonials, which proved quite successful. In Spencer, IA, the company made its presence felt in this small community by volunteering with charitable organizations and being active with the Chamber of Commerce.

"We had to find some creative ways to stay ahead of the curve," Lindsay says.

Web Builds Profits

The company also found a little creativity and managed to add subsequent profits when it acquired the Strasburg facility as part of the merger with Judd's Inc. in 1997. A subdivision there within the prepress department—Hutchison terms it a "skunk works" operation—was enjoying modest success developing Websites for publishers. At the time of the merger, the operation reaped roughly $400,000 in revenues.

Following the acquisition, Perry broke it out as an individual business unit, procured an off-site location to house the business, invested in necessary hardware and software, and hired Web-savvy people to develop and market sites to customers. In 2000, the "boutique" business generated $61⁄2 million in revenues.

"That success was very satisfying, but the biggest challenge that we faced in growing that business was the different culture that the employees who did this work required and preferred in their working environment," Hutchison admits. "It was kind of a foreign concept for us and a real challenge to keep those employees happy."

Deciding it was better for Perry Judd's to concentrate on its core competencies, the company sold the spinoff to Susquehanna Media in late 2000.

Verne Schmidt, senior vice president of finance and CFO, believes that as Perry Judd's looks to the future, it will be best served by following the mantra it has established in the post-merger years in order to build upon its accomplishments.

"One of the things we need to emphasize is keeping control of our costs," he says. "We plan to continue making capital investments that will either enhance our productivity or improve our efficiency. We also need to increase the utilization that we have on our existing equipment—a fairly small increase in utilization pays a big dividend on margins and the bottom line."

Schmidt adds that future acquisitions are not out of the question, but underscores the requirement of annexing business that is both synergistic and capable of increasing stakeholder value. Any deal must be accretive to the company's overall financial standing.

During Schmidt's tenure with another commercial printer, a merger of two similarly large companies with vastly opposite cultures took place, and integration stood as a major challenge for several years. Internal culture, he says, is an aspect of M&A activity that is sometimes ignored.

"We do keep our ear to the ground for potential acquisitions that fit our strategic mold," Schmidt reveals. "The marketplace just isn't favorable right now; M&A activity has dropped off drastically from where it was in the late 1990s. There aren't enough willing buyers and sellers.

"To some extent, Wall Street has put a damper on how they look at printing companies," Schmidt adds. "Valuations just aren't what they were a couple of years ago. There are sellers looking for the kinds of multiples that they read about in the trade press a couple of years ago, so now they're unwilling to take a reduced price. As a result, transactions just aren't happening."

With indications that the recessionary clouds are yielding to a sunny second half of 2002, Hutchison believes the company's primary goals are to achieve growth in both size and value. If anything, Perry Judd's is emerging from the recession backed by even stronger relationships with its client base.

"We've really built our business around close, long-term relationships, and it's even more critical at a time such as this that we keep customers happy if we want them to stay with us," Hutchison states. "Efficiency is a vital focus, as are mix management and high productivity expectations throughout the entire company. The results of what we've done to adjust to market conditions over the last 12 to 18 months have shown in our financial performance, which we believe has been good despite the downturn.

"Our goals center around growth in size and value. Size is important to keep pace with the economics of the business and to remain competitive. Value is important in two respects: One, increasing value provided to customers in terms of breadth of service and capabilities and, secondly, increasing the value of our enterprise over time."
 

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