Cramer: Donnelley Thriving in Tough Environment

NEW YORK—RR Donnelley has made a believer out of Jim Cramer. The host of CNBC’s “Mad Money” cable financial show took a viewer’s tip and looked into why the Chicago-based printer’s stock has rallied 45 percent year to date. Among his findings:

• Print publishing is still a $110 billion industry in the United States. And while the Web is making print less necessary, Corporate America “still generates a massive amount of paper, and packaging and pamphlets and labels.”
• Donnelley serves 100 percent of the Fortune 100.
• The printer has been “aggressively trying to grow the number of products it sells to each customer—growing this figure from 6 to 10 products per client.”
• Donnelley has reduced costs significantly, outsourcing and moving operations overseas, including seven plants in China, where it’s cheaper to do business. The company also suspended 401(k) match to employees and other post-retirement plan contributions.
• The company has embraced paperless options with an e-book processing and distribution business.

Cramer concluded that RR Donnelley has transformed itself into a company with slow growth potential, one worth owning stock for its dividend yield of about 8 percent.

"Normally, when you see a stock with an 8 percent yield, that's a red flag indicating you need to stay away because the dividend could be cut,” Cramer said. “With RR Donnelley, though, I think it's actually a sign that you have a terrific opportunity because people no longer believe in this business, but they should, because the numbers are there and management has been executing like crazy."