RR Donnelley Reports Sales Growth, Earnings Improvement
CHICAGO—Feb. 22, 2011—R.R. Donnelley & Sons reported fourth-quarter net earnings attributable to common shareholders of $27 million on net sales of $2.7 billion, compared to a net loss attributable to common shareholders of $79.5 million on net sales of $2.6 billion in the fourth quarter of 2009.
The fourth-quarter net earnings (loss) attributable to common shareholders included pre-tax charges for restructuring ($21.5 million) and impairment ($61.5 million, non-cash) and acquisition-related costs ($5.6 million) totaling $88.6 million in 2010 compared to charges for restructuring ($17.5 million) and impairment ($131.1 million, non-cash) and acquisition-related costs ($0.1 million) totaling $148.7 million in 2009. Additional details regarding the nature of these charges are included in the attached schedules.
Non-GAAP net earnings attributable to common shareholders totaled $107.2 million in the fourth quarter of 2010, compared to $95.4 million in the fourth quarter of 2009. Fourth-quarter non-GAAP net earnings attributable to common shareholders exclude restructuring and impairment charges, acquisition expenses and the write-down of affordable housing investments for both years, as well as income tax expense related to the reorganization of entities within the International segment in 2009.
“We are pleased with our fourth-quarter results and the momentum that we built throughout the year,” said Thomas J. Quinlan III, RR Donnelley’s president and CEO. “During 2010, we saw a significant increase in the number of customers purchasing multiple products and services from us, taking advantage of the breadth and scale that our unique platform offers. As we begin 2011, we continue to focus on achieving top-line growth through our One RR Donnelley global print management strategy, and expect the positive trends achieved in 2010 to continue throughout 2011.”
Summary
Net sales in the quarter were $2.7 billion, up 4.8 percent from the fourth quarter of 2009, including $61.2 million related to the acquisition of Bowne and an unfavorable impact of changes in foreign exchange rates and lower pass-through paper sales of $22.7 million.
Gross margin decreased to 23.1 percent in the fourth quarter of 2010 from 23.3 percent in the fourth quarter of 2009 due to continued price pressure and higher pension and other benefits-related expenses, partially offset by a higher recovery on print-related by-products, increased volume and lower incentive compensation expense. SG&A expense as a percentage of net sales in the fourth quarter of 2010 increased to 11.8 percent from 10.9 percent in the fourth quarter of 2009 primarily due to the acquisition of Bowne, higher acquisition-related expenses and a higher provision for bad debt expense, partially offset by lower incentive compensation expense.
Operating earnings were negatively impacted by restructuring and impairment charges and acquisition expenses of $88.6 million in the fourth quarter of 2010 and $148.7 million in the fourth quarter of 2009, resulting in operating income of $85.7 million in 2010 and $28.5 million in 2009.
Excluding restructuring and impairment charges and acquisition expenses, our non-GAAP operating margin declined to 6.4 percent in the fourth quarter of 2010 from 6.9 percent in the fourth quarter of 2009, as higher unallocated Corporate expenses, primarily related to pension and other benefits-related expenses and a higher provision for bad debt, more than offset operating margin improvements in both of our operating segments.
Segments
Net sales for the U.S. Print and Related Services segment in the quarter increased 5.3 percent from the fourth quarter of 2009 to $2.0 billion primarily due to volume increases in logistics, financial print and commercial print as well as $48.1 million related to the acquisition of Bowne, partially offset by price declines across most products and services and lower pass-through paper sales.
The segment’s operating income, which was negatively impacted by charges for restructuring and impairment of $66.1 million in the fourth quarter of 2010 and $101.5 million in the fourth quarter of 2009, increased to $127.3 million in the fourth quarter of 2010 from $71.4 million in the fourth quarter of 2009.
Excluding the restructuring and impairment charges, the segment's non-GAAP operating margin increased to 9.6 percent in the fourth quarter of 2010 from 9.0 percent in the fourth quarter of 2009, due to lower incentive compensation expense, increased volume 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 3.5 percent from the fourth quarter of 2009 to $682.4 million, including $13.1 million (199 basis points) related to the acquisition of Bowne and inclusive of an $11.6 million (176 basis points) unfavorable impact of changes in foreign exchange rates. The improvement in net sales was a result of increased volume, primarily in Asia and Latin America, partially offset by continued price pressure.
The segment’s operating income, which was negatively impacted by charges for restructuring and impairment of $5.0 million in the fourth quarter of 2010 and $44.2 million in the fourth quarter of 2009, improved to $49.6 million in the fourth quarter of 2010 from a loss of $3.1 million in the fourth quarter of 2009.
Excluding the restructuring and impairment charges, the segment's non-GAAP operating margin increased to 8.0 percent in the fourth quarter of 2010 from 6.2 percent in the fourth quarter of 2009 due to increased volume, partially offset by the impact of continued price erosion.
Unallocated Corporate operating expenses increased to $91.2 million in the fourth quarter of 2010 as compared to $39.8 million in the fourth quarter of 2009. Excluding restructuring charges of $11.9 million and acquisition expenses of $5.6 million in the fourth quarter of 2010 and restructuring charges of $2.9 million and acquisition expenses of $0.1 million in the fourth quarter of 2009, unallocated Corporate operating expenses increased by $36.9 million to $73.7 million in the fourth quarter of 2010. Higher pension and other benefits-related expenses and a higher provision for bad debt were the primary factors contributing to the increase.
About RR Donnelley
RR Donnelley (Nasdaq:RRD) is a global provider of integrated communications. Founded more than 146 years ago, the Company 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 web site at www.rrdonnelley.com.
Source: Financial release.