STATE OF THE INDUSTRY - Far from Dead
Equipment and software suppliers are promising new productivity breakthroughs that will lead to even greater speed, productivity and profitability.
The leading printers recognize the importance of electronics in their business. The larger commercial printers are either developing or buying digital capabilities. We track printing industry acquisitions in "The Compass Report." We note that, in 1998 and 1999, 11 acquisitions announced by printing companies were software companies. Three of Bowne's five announced acquisitions in 1998 were software companies.
So why all the industry pessimism? We believe that only Wall Street analysts and disappointed investors are reporting the demise of the printing industry. These "demise reporters" have said that:
- "Commercial printing is dying. It is a mature business that is being killed by either the Internet or digital printing." One analyst has been quoted as saying, "Commercial printing will be dead in four years."
- "Commercial printing is a no-growth business. It is growing slower than the GDP."
- "Commercial printing is intensely price-competitive and its companies experience poor margins."
Our analysis, set forth earlier, is that none of the statements quoted above are true. Then why are we hearing such negativism about the industry?
We believe that Wall Street's perception that commercial printing has a "black eye" has resulted entirely from the misadventures of a handful of public companies—the so-called consolidators. One company, Master Graphics, is in Chapter 11 bankruptcy. It acquired some 16 commercial printing companies between 1997 and 1999 before its losses led to loan defaults and forced lenders to seek relief. From the outset, the leadership of this company was consumed with building critical mass at any price and then failed to manage what had been acquired.
The two most active consolidators, Consolidated Graphics and Mail-Well, have been punished severely for missing earnings expectations and, consequently, carry price to earning (P/E) ratios well below those carried by the public printers, such as Wallace and Quebecor World, which are perceived by Wall Street as operators, not as consolidators. Whereas at the end of October 2000, Consolidated was trading at a P/E of 4.39 and Mail-Well at 4.24, Quebecor carried a P/E multiple of 27.79 and Wallace a P/E multiple of 27.61.