The leaves are falling, the weather is chilling, and the season is turning here in Chicago. Among other things the seasonal change brings is the much-celebrated return of Charles Dickens’ A Christmas Carol...this time for its 36th year at the Goodman Theatre. It’s the timeless story of hope and redemption featuring the ghosts of Christmas Past, Present, and Future.
Well, another ghost reared its ugly head this week—the ghost of Vertis present. And the little appearance it made in Quad’s third quarter earnings leads us to believe that it might be around as long as a Christmas Carol has been at The Goodman. It just won’t die.
In fact, it seems to be acting like a cancer, eroding the adjusted EBITDA of a once great company from 14.9 percent to 12.8 percent in just one year. That may not sound like much to you, but to the green eyeshades crowd (another Dickensian reference) that's huge. This shot across the bow lets us know that the ghost of Vertis Future isn’t going anywhere anytime soon. It’s the kind of shot that reminds us of the pursuit of the Holy Grail in Indiana Jones and the Last Crusade. It’s the kind of shot that sends aftershocks into the halls of RRD headquarters, reminding them to avoid their own Vertis, the subject of my last blog
The Quad margin depression plunged its stock value by 19.4 percent on the day of earnings and another 10 percent the next day. Unfortunately, we’re all susceptible to contagion, and a company like Quad can start the contagion that extended to RRD's valuation. Quad’s deep dive was so substantial that RRD lost 4 percent of its value one day after its own reasonable earnings report. And it’s not just RRD that lost some of its value yesterday. The expected returns and subsequent valuation of our entire industry—including each and every privately-owned, ma and pa printer out there—was affected.
And for that, we STILL have Vertis to thank. So yes, I’ll kick it while it’s down because it just won’t die. Even after its third bankruptcy and subsequent takeover by Quad, Vertis continues as the model of margin compression and value destruction we all wish would go away. It has a ghost of the past, a ghost of the present, and it’s sure to have a ghost of the future. When reaching for that Holy Grail, there’s always that chance that we’ll turn ourselves into dust. What the Dickens!?