COMMERCIAL PRINTING -- Running Lean and Mean
Basis of Projection
Paparozzi's industry outlook is based on a Blue Chip Economic Indicators' consensus projection for the overall economy to grow 3.9 percent next year. That rate is up significantly from the projected 2.6 percent growth in 2003 and the actual numbers for 2002 (2.4 percent) and 2001 (0.3 percent).
"Economic recovery had been limited to the consumer and housing sectors, but now has expanded to business activity and exports," the NAPL exec says. "Every sector is contributing." Adding to this will be the boosts in spending associated with an Olympics year and the presidential/federal elections cycle.
Implicit in the numbers are lowered expectations for industry sales potential. "Five or seven years ago, given those positive business factors, we'd be predicting growth in print sales of 6, 7 or 8 percent," Paparozzi points out. "The fundamentals have changed dramatically. Declines in sales are not just cyclical anymore."
Coming out of this downturn, printers continue to experience pressure on pricing and margins "at a level beyond anything I've seen in all my years in the industry," he says. "My forecast for 2003 was too optimistic because I did not anticipate how long this severe pressure on pricing would persist."
According to PIA's Davis, printers' profits actually recovered slightly by the end of 2002, after being severely reduced in 2001 and early 2002. The typical printer participating in the GATF/PIA Ratios survey earned 1.6 percent before-tax profit on sales in their last completed fiscal year, he points out. Cost cutting has been a major factor.
Printers' financial performance should continue to improve markedly, the economist believes. PIA's projections for fiscal year 2003 call for before-tax profits to reach between 2.3 to 2.7 percent of sales. Industry profits as a percent of sales should return to their normal range of 3 to 3.5 percent in 2004, if the economy continues its performance trend, Davis predicts.