RR Donnelley Reports Q3 2021 Results, Right After Announcing $2.1B Deal to Be Acquired
- Net sales increased 6% over prior year.
- GAAP and Non-GAAP income from operations and margins improved from prior year.
- GAAP EPS from continuing operations in the third quarter increased $0.51 from prior year; non-GAAP adjusted EPS from continuing operations increased $0.25
- Total debt down $508 million from a year ago
- Separately announced an agreement to be acquired by Atlas for $8.52 per share in an all-cash transaction
Q3 Key messages
- GAAP net sales, including the impact of foreign exchange, increased 6.4%; Non-GAAP organic net sales increased 5.5%; largely driven by strengthening demand for many of the Company’s products and services
- GAAP and Non-GAAP income from operations exceeded prior year; both benefitted from higher sales and strong cost management despite supply chain challenges and inflation
- GAAP operating margin improved 450 bps while Non-GAAP improved by 20 bps
- GAAP earnings per share from continuing operations of $0.38 and Non-GAAP adjusted earnings per share from continuing operations of $0.57, both improved significantly from prior year
- Cash used in operating activities during the nine months ended September 30, 2021 was $29 million compared to cash provided by operating activities of $25 million in the prior year period; current year results reflect working capital investments due to increased volume and inflation in addition to $33 million paid earlier this year to settle LSC bankruptcy-related claims and terminate certain interest rate swap agreements
- Gross leverage ratio of 3.7x improved 1.0x from September 30, 2020; net leverage ratio of 3.2x
improved 0.5x from the same period last year
“RRD delivered a very strong quarter through the continued execution of our well-defined strategic initiatives,” said Dan Knotts, RRD President and Chief Executive Officer. “We reported our second consecutive quarter of organic sales growth driven by strengthening client demand and higher volumes in our strategic product categories. Our Q3 adjusted income from operations was higher than our 2019 pre-pandemic earnings for the second consecutive quarter. Through the combination of organic sales growth and the ongoing successful management of our cost structure, we also delivered improved operating margins despite supply chain challenges and inflation. We further enhanced our financial flexibility with our debt level at the end of the quarter being down significantly from the prior year and representing the lowest debt level for any third quarter reported since the spin. Looking forward, the RRD team remains highly focused on driving sales growth, aggressively managing our cost structure to combat the challenges created by the global pandemic, inflationary pressures and supply chain disruptions, and further improving our financial flexibility.”
The following table provides an overview of RRD’s financial performance:
Net sales in the third quarter were $1.27 billion, up $76.5 million or 6.4% from the same period in 2020. Third quarter net sales benefitted $10.8 million due to changes in foreign exchange rates. The increase also includes higher volume reflecting strengthening demand for many of the Company’s products and services due to the continued recovery from the COVID-19 pandemic. Notably, net sales of Commercial Print products were up significantly due to strong demand for domestic trading cards as well as other printed products produced in China. In addition, higher demand for e-commerce sales have contributed to five consecutive quarters of net sales growth in the Company’s Labels and Packaging products.
Organic net sales increased 5.5%. The Business Services segment was up 7.1% on a GAAP basis and 5.9% on a non-GAAP organic basis while the Marketing Solutions segment was up 3.8% both on a GAAP and non-GAAP organic basis from the third quarter of 2020. The Business Services segment experienced continued growth in our strategic growth focus areas of Labels and Packaging in addition to continued growth from the pandemic recovery, which was partially offset by large one-time COVID-related projects in Supply Chain Management in the 2020 quarter. Net sales in Marketing Solutions experienced growth, led by higher volumes in Direct Marketing and Digital Print and Fulfillment.
Income from operations was $73.1 million in the third quarter of 2021 compared to income from operations of $15.9 million in the third quarter of 2020. The third quarter of 2021 included net restructuring, impairment and other charges of $4.0 million, a decrease from $54.2 million in the prior year period which included charges for LSC’s MEPP withdrawal obligations and higher employee termination costs.
Non-GAAP adjusted income from operations of $81.5 million increased $7.6 million from the prior year period. The increase was primarily due to the impact of higher net sales and ongoing cost control initiatives. This was partially offset by higher variable incentive compensation, unfavorable foreign exchange of approximately $7 million, which was driven by our operations in China, and continued inflation.
Earnings per share from continuing operations attributable to common stockholders was $0.38 in the third quarter of 2021 compared to loss per share of $0.13 reported in the third quarter of 2020. The 2021 results benefitted from higher income from operations, including lower net restructuring, impairment and other charges and lower interest expense, partially offset by higher income tax expense.
Non-GAAP adjusted earnings per share from continuing operations attributable to common stockholders of $0.57 in the third quarter of 2021 increased from $0.32 in the third quarter of 2020 primarily due to favorable income taxes, higher adjusted income from operations and lower interest expense.
Other highlights and information
Cash used in operating activities during the nine months ended September 30, 2021 was $29.0 million compared to cash provided by operating activities of $25.2 million in the prior year period. The increase in cash used from operations during 2021 is primarily driven by working capital due to increased volume and inflation, $23.9 million of LSC bankruptcy-related payments mostly associated with lump sum settlements for employee retirement obligations, higher tax and incentive compensation payments and a $9.2 million payment to terminate certain interest rate swap agreements. In addition, the prior year amount benefitted from payroll taxes being deferred as part of the CARES Act. These factors were partially offset by lower restructuring and interest payments in 2021 as compared to last year.
Capital expenditures in the nine months ended September 30, 2021 were $48.6 million compared to $54.4 million in the prior year period.
As of September 30, 2021, cash on hand was $223.5 million, down $65.3 million from December 31, 2020. Total debt outstanding at the end of the quarter was $1.51 billion, up $9.8 million from December 31, 2020 and down $508.4 million from September 30, 2020. Availability under the credit facility was $515.7 million at September 30, 2021. Total liquidity, including cash on hand, was $739.2 million, up from $542.6 million at September 30, 2020.
During 2020, the Company completed the sale of its DLS Worldwide, International Logistics and Courier Logistics businesses. The Company has reflected the Logistics businesses as discontinued operations, and the financial results of these businesses have been excluded from continuing operations and segment results for all periods presented unless otherwise noted.
Acquisition by Atlas
In a separate release issued today, RRD announced that it has entered into a definitive merger agreement to be acquired by affiliates of Atlas Holdings LLC (“Atlas”). Under the terms of the merger agreement, Atlas will acquire all of the outstanding shares of RRD common stock, and RRD stockholders will receive $8.52 per share in cash for each share of RRD common stock. The transaction is expected to close in the first half of 2022, subject to customary closing conditions, including approval by RRD stockholders and receipt of regulatory approvals. The foregoing description of the merger agreement and the transactions contemplated thereby is subject to, and is qualified in its entirety by reference to, the full terms of the merger agreement, which the Company will be filing on Form 8-K.
The Company is withdrawing its previous financial outlook for 2021 and has suspended any further updates as a result of the pending transaction.
The preceding press release was provided by a company unaffiliated with Printing Impressions. The views expressed within do not directly reflect the thoughts or opinions of Printing Impressions.