Mail-Well--The "Mail Man" Speaks
Gerald F. Mahoney, chairman and CEO of Mail-Well, is particularly pleased with the margin improvements in each of the company's businesses so far this fiscal year. Mail-Well's 1999 second quarter showed a sales increase of 25 percent—to $439 million—from the same period a year ago. Second quarter net income of $15 million increased 33 percent from the same quarter last year. No doubt, Mail-Well is having a strong year.
"We are particularly pleased with the margin improvements in each of our businesses," Mahoney said at the time the news of Mail-Well's second quarter was announced.
"The second quarter demonstrates the continued success we have had in improving profitability; second quarter operating margins increased to 8.9 percent from 7.1 percent last year. In particular, the envelope restructuring initiatives continue as planned and are delivering the results we anticipated."
A bullish second quarter was not the only factor pleasing Mahoney. A new accounts receivable securitization facility was successfully syndicated in the second quarter, which increased the company's borrowing capacity by another $50 million. The company also successfully completed four acquisitions in the second quarter, which included three commercial printers:
Direct Graphics, Sidney, OH; Forman Lithograph, San Francisco; and Avon Behren Printing, San Antonio. The label manufacturer acquired was Design Mark Industries, located in Wareham, MA.
Recently, Mahoney, who was gracious and accommodating despite his overwhelming schedule, addressed topics ranging from Quebecor's recent acquisition of World Color to Mail-Well's embrace of digital technologies, including a recent investment in Hagen's HagenOA open architecture management software, to the giant's thoughts on future acquisitions.
PI: Describe Mail-Well today.
Mahoney: Mail-Well has a revenue run rate of almost $2 billion from operations in four different segments of the printing industry, nearly double what it was just two years ago. The first and fastest growing segment is general commercial printing. We believe that we are the largest commercial printer in North America, with more than $800 million in sales.
Our second segment is envelopes. We are the largest envelope manufacturer in the world, with sales of almost $800 million. Our third product line is labels for the food, beverage and spirits industries. These labels include both glue-applied and pressure-sensitive labels. We believe we are the second largest supplier to this market, with sales in excess of $200 million. Our final segment is what we call printing for distributors. This $200 million business includes forms, pressure-sensitive labels, envelopes, printing and many other printed documents sold through a distributor network. We are the largest supplier to this $4.5 billion market.
PI: How will Mail-Well respond to the recent acquisition of World Color by Quebecor Printing?
Mahoney: We were pleased to see Quebecor acquiring World Color because it significantly increased the shareholder value of World Color, demonstrating what we already believed—that the market has been undervaluing most publicly traded printers, including Mail-Well.
From a competitor point of view, there is not much overlap with our products and those of World Color or Quebecor. We expect very little, if any, change in printing vendors by customers due to the World Color acquisition. Other than a potential increase in Mail-Well's valuation, I do not see much effect on Mail-Well. We will continue to go to market using the same strategy that we have been following.
PI: With industry overcapacity still a nagging problem, does Mail-Well management see a point in the future where many of the companies being acquired by consolidators will be closed or merged into existing operations, rather than preserved as separate companies?
Mahoney: The most important strategy for Mail-Well in making acquisitions has been, and will always be, to keep the former management in place. In a couple of cases, where the former manager or managers did not stay and continue to run the company, we have run into problems.
There have been exceptions when economics indicate better results through consolidation with another plant. For example, there were a couple of cases where it made sense to consolidate two plants located in the same city. Even when this happens, most employees keep their jobs.
As good business people, we have and will continue to do what is right for our customers and shareholders. Today, we have more than 110 plants in operation. All are profitable, with only one exception. We will continue to make acquisitions and will almost always continue to run the plants after they have been acquired. Where plants have been consolidated, former owners are generally aware of those plans before the acquisition.
PI: Mail-Well recently scored its 13th consecutive quarter of record sales and earnings. What are the most notable points of pride for Mail-Well at present?
Mahoney: We are delighted and proud of our performance since the company went public in 1995, and are particularly pleased with our performance over the last 13 quarters. We continue to grow our sales, profits and earnings per share at a healthy rate. We expect this trend to continue into the future.
We are most proud of the fact that we have been able to make so many successful acquisitions. In almost all cases, we have been able to improve the profits of acquired companies through better purchasing and by sharing best practices. We are also proud of the fact that we are not just growing through acquisitions, but are growing internally. Growth will continue to be an important part of our strategy.
PI: What is the importance of computer management systems such as your recent investment in Hagen's HagenOA system?
Mahoney: Each of our product lines has its own computer system to help run and manage the company. In light of the coming of the Y2K challenge, we have been leaving each of our acquired company's computer systems in place before putting new companies on any one of our computer platforms. After the new year, we will get back on track to equip each of our companies with a uniform hardware and software platform.
In terms of the Hagen system, several of the companies we acquired use Hagen. It is an excellent system, providing the flexibility we need to manage our multiple locations. Again, until we get into the new year, our primary focus right now is to make sure that all of our systems are Y2K compliant. Going forward, we believe that well-designed information systems are critical to our growth and profitability.
PI: Direct mail printer Direct Graphics and commercial printers Forman Lithograph and Avon Behren were recent acquisitions for Mail-Well. What's Mail-Well's big picture?
Mahoney: Each of these acquisitions, as with all of our acquisitions, fits into our overall strategy. Mail-Well wants to expand its presence in direct mail, so Direct Graphics, which is a fast growing direct mail printer, supports that strategy. We would like them to help us grow even faster in this niche. Almost one-third of our customer direct envelope business (manufacturing to a customer's specifications) goes to support the direct mail industry. We see a number of cross-selling opportunities between our envelope division and Direct Graphics.
As for the commercial printers, both Forman Lithograph and Avon Behren Printing are well respected and growing printers in their respective locations. We already have commercial printing plants in both of their cities—Forman in San Francisco, Avon Behren Printing in San Antonio—and each acquisition strengthens our presence in those markets. In addition, each acquisition significantly improves our management talent in those locations. The general managers of each company have already been given additional responsibilities. All of our acquisitions are acquired for a specific reason, and the companies mentioned are good examples of acquisitions made for specific reasons, within our strategy.
In terms of the big picture, Mail-Well will continue growing both internally and through acquisitions within each of its four primary product lines. I am sure no one will be surprised to know that we expect commercial printing, which is a market that could be as large as $80 billion, to be our fastest growing product line. We plan to continue growing each product line and expect commercial printing to end up as our largest segment.
PI: Speaking of technological investments, what are your thoughts on digital prepress technologies? Is it critical that all Mail-Well companies be proficient regarding digital prepress technologies?
Mahoney: We have embraced digital prepress technology aggressively. We are active users of digital prepress in all of our plants, particularly in our high-quality commercial printing plants. The use of these technologies has been important to us.
Today, almost all of the copy sent to us by a customer for printing comes in a digital format. We seldom receive hard copy or film. We have also found that more and more of our customers are using Mail-Well to do their digital prepress work. We expect this trend to continue and to grow. It is important that we are a full-service provider to our customers.
How Hagen Fits into Mail-Well's Multi-company Strategy
Q: Why did Mail-Well recently invest in HagenOA as its open architecture solution?
A: "Multi-company corporations like Mail-Well are an ideal fit for the flexibility and power of HagenOA," proposes David Janke, vice president of strategic accounts at Hagen Systems.
"Individual locations have the flexibility to set up their estimating, production and accounting systems to fit their unique needs; and the parent company has the ability to consolidate or separate operations as deemed necessary by corporate directive."
HagenOA allows the user to design an account structure suited to the way the corporation does business. General ledger accounts, for example, can be shared between companies, tracking and reviewing the financial progress of the individual companies as well as the corporate position.
The OA product also allows the user to designate individual or shared customer and supplier tables. Likewise, accounts payable invoices can be entered and paid locally or at a centralized location. Either way, the payables for each company can be tracked and reviewed at the local level.
From a systems point of view, OA has been designed from the ground up to meet the needs of the multi-company user. OA utilizes the PROGRESS RDBMS, a high-performance, relational database that can handle up to 10,000 concurrent users for databases in excess of 80 million terabytes. These features, combined with support for 64-bit operating systems, provide exceptional capacity for large-scale, high performance computing.
Keeping Track
"The reliability and security of the data is paramount to multi-location, multi-company corporations," Janke adds. "Features like on-line backup and restore, two-phase commit, roll-back, roll-forward and point-in-time recovery capabilities and automatic crash recovery protect your system."
"Most important," he continues, "OA offers a suite of reports and reporting tools, allowing the corporation to review critical production and financial data on a local or corporate level. Production reports, for example, can be developed to look at product mixes and production dollars across the corporation—financials can be developed in summary and detail format for each division with consolidated reports for corporate."