Donnelley Reports Sales Growth, Announces $1 Billion Share Repurchase
CHICAGO—May 4, 2011—R.R. Donnelley & Sons reported first-quarter net earnings attributable to common shareholders of $33.9 million on net sales of $2.6 billion compared to $52.6 million on net sales of $2.4 billion in the first quarter of 2010. The first-quarter net earnings attributable to common shareholders included pre-tax charges for restructuring ($42.7 million) and impairment ($8.1 million, non-cash) and acquisition-related costs ($0.4 million) totaling $51.2 million in 2011 compared to charges for restructuring ($14.5 million) and impairment ($1.0 million, non-cash) and acquisition-related costs ($2.0 million) totaling $17.5 million in 2010.
Non-GAAP net earnings attributable to common shareholders totaled $68.6 million in the first quarter of 2011 compared to $69.5 million in the first quarter of 2010. First-quarter non-GAAP net earnings attributable to common shareholders exclude restructuring and impairment charges and acquisition expenses for both years.
“First-quarter results were in line with our expectations. We overcame both the absence of last year’s U.S. Census project and this year’s incremental expenses associated with the acquisition of Bowne and begin the second quarter building positive momentum,” said Thomas J. Quinlan III, RR Donnelley’s president and CEO. “The integration of Bowne is progressing well and we expect the acquisition to be accretive in 2011. We remain on track to deliver full-year revenue, margin and cash flow consistent with our previous guidance.”
Summary
Net sales in the quarter were $2.6 billion, up 7.0 percent from the first quarter of 2010, including increased sales related to the acquisition of Bowne and a $15.4 million favorable impact of changes in foreign exchange rates. Pro forma for acquisitions, net sales decreased 0.4 percent, reflecting the non-recurring revenue related to the U.S. Census project, the majority of which was recognized in the first quarter of 2010, and continued pricing pressure, partially offset by volume growth.
Gross margin increased to 24.3 percent in the first quarter of 2011 from 23.7 percent in the first quarter of 2010 due to the acquisition of Bowne, a higher recovery on print-related by-products, higher volume and productivity improvements, partially offset by continued price pressure.
SG&A expense as a percentage of net sales in the first quarter of 2011 increased to 12.7 percent from 11.3 percent in the first quarter of 2010 primarily due to the acquisition of Bowne and higher pension and other benefits-related expenses.
Operating earnings were negatively impacted by restructuring and impairment charges and acquisition expenses of $51.2 million in the first quarter of 2011 and $17.5 million in the first quarter of 2010, resulting in operating income of $109.4 million in 2011 and $145.8 million in 2010.
Operating margin was 4.2 percent in 2011 and 6.0 percent in 2010.
Excluding restructuring and impairment charges and acquisition expenses, non-GAAP operating margin declined to 6.2 percent in the first quarter of 2011 from 6.8 percent in the first quarter of 2010.
Segments
Net sales for the U.S. Print and Related Services segment in the quarter increased 5.7 percent from the first quarter of 2010 to $1.9 billion, primarily due to the acquisition of Bowne and volume increases in logistics and financial print, partially offset by the non-recurring revenue from the U.S. Census in 2010 and continued pricing pressure. Pro forma for acquisitions, net sales in the US Print and Related Services segment decreased 1.9 percent.
The segment’s operating income, which was negatively impacted by charges for restructuring and impairment of $38.2 million in the first quarter of 2011 and $5.9 million in the first quarter of 2010, decreased to $141.9 million in the first quarter of 2011 from $163.8 million in the first quarter of 2010.
Excluding the restructuring and impairment charges, the segment’s non-GAAP operating margin increased to 9.3 percent in the first quarter of 2011 from 9.2 percent in the first quarter of 2010, due to productivity initiatives and a higher recovery on print-related by-products, which more than offset the impact of continued price erosion.
Net sales for the International segment in the quarter increased 11.1 percent from the first quarter of 2010 to $642.4 million, inclusive of a $15.2 million favorable impact of changes in foreign exchange rates. The improvement was driven by increased volume, primarily in Asia, Europe and Latin America and the acquisition of Bowne, partially offset by continued price pressure. Pro forma for the acquisition of Bowne, the International segment's net sales increased 4.5 percent.
The segment's operating income, which was negatively impacted by charges for restructuring and impairment of $9.2 million in the first quarter of 2011 and $9.5 million in the first quarter of 2010, improved to $44.1 million in the first quarter of 2011 from $33.7 million in the first quarter of 2010.
Excluding the restructuring and impairment charges, the segment's non-GAAP operating margin increased to 8.3 percent in the first quarter of 2011 from 7.5 percent in the first quarter of 2010 due to increased volume, partially offset by the impact of continued price erosion.
Share Repurchase Program
The board of directors also approved a program that authorizes the repurchase of up to $1 billion of the company’s common stock through December 31, 2012. RRD intends to maintain its current dividend, though the share repurchase program and dividend are both subject to economic and market conditions, among other factors.
Share repurchases may be made from time to time through a variety of methods, as determined by the company’s management. The repurchase authorizations do not obligate it to acquire any particular amount of common stock and may be modified, suspended or terminated at any time at the Company's discretion. In connection with the authorization, RRD intends to enter into an accelerated share repurchase (ASR) agreement with an investment bank under which it will repurchase $500 million of its common stock on terms to be negotiated, subject to adjustments. Following the ASR, the company’s intention is to complete the remaining amount under the authorization by December 31, 2012.
The purchases will be funded by, among other things, RRD’s available cash, cash flow and borrowings under its credit facilities.
“This new share repurchase authorization demonstrates RR Donnelley’s continued commitment to increase value to shareholders,” added Quinlan. “Based on RR Donnelley’s operational performance, financial strength and positive long-term outlook, we believe that share repurchases are an appropriate mechanism to return capital to shareholders.”
As of April 29, 2011, 207.5 million shares of RR Donnelley common stock were outstanding. RRD terminated the existing authorization to repurchase up to 10 million shares of the company’s common stock.
Management Change
Daniel N. Leib has been appointed executive vice president, CFO, effective immediately. He replaces Miles W. McHugh, who resigned from the company to pursue other opportunities.
“Dan brings a unique combination of corporate and operational finance experience, intricate knowledge of our operations and strong leadership skills to the Chief Financial Officer role,” stated Quinlan. “His promotion is a natural extension of the many vital positions he has held within RR Donnelley. I look forward to working even more closely with him to drive shareholder value. At the same time, I thank Miles for his contributions and wish him well in his future endeavors.”
Leib, 44, has been with RR Donnelley since 2004, serving in executive management positions in finance, including Group CFO and senior vice president - treasury, Mergers & Acquisitions and Investor Relations. Prior to joining RR Donnelley, he served in financial roles of increasing responsibility at The Interpublic Group of Companies and its predecessor companies, at Sears, Roebuck and Company and at The Dun & Bradstreet Corporation. Leib holds an MBA in Finance from New York University and a Bachelor of Science in Finance from the University of Illinois, Champaign-Urbana.
About RR Donnelley
RR Donnelley (Nasdaq:RRD) is a global provider of integrated communications. Founded more than 146 years ago, it works collaboratively with more than 60,000 customers worldwide to develop custom communications solutions that reduce costs, enhance ROI and ensure compliance. Drawing on a range of proprietary and commercially available digital and conventional technologies deployed across four continents, the Company employs a suite of leading Internet-based capabilities and other resources to provide premedia, printing, logistics and business process outsourcing products and services to leading clients in virtually every private and public sector.
For more information, and for RR Donnelley's Corporate Social Responsibility Report, visit the company's Website at www.rrdonnelley.com.
Source: financial release.
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