What Can the Ratios Tell Us?
In 2010 industry sales rebounded from the lows of 2009, increasing by 2.79% to $144.6 billion. 2009 was the first time in the 89 years that Printing Industriesof America has been tracking industry profitability via the Ratios Survey that we calculated industry losses. Losses as a percent of sales averaged 1.4% for all printers in 2009 and profit leaders (the top 25% of respondents) profit as a percentage of sales declined from 9.4% in 2008 to 7.0% in 2009. Despite the Great Recession profit leaders still earned a significant profit before taxes.
How did profit leaders earn a profit in 2009 despite declining sales and the weak economy? Taking a look at the results from the 2010-2011 Ratios Survey (fiscal year 2009 results) the most impressive difference is the total Factory Cost of Product. As a percent of sales the average printer dedicated 80% of their sales on Total Factory Cost of Product expenses, which include Factory Payroll and Factory Expenses, while profit leaders only spent 73.8%. This more efficient use of both labor and capital explains 75% of the divide in profitability between the leaders and the industry average.
According to our quarterly survey of printers both sales and profitability improved in 2010. On average printers sales increased by 5% and earned a reported profit on sales of 4.1%*. Total industry sales increased by 2.79% after adjusting for those firms that closed their doors in 2010. The graph below is a diffusion index of industry sales and profits for 2010. It is calculated by taking the percent of printers reporting increasing sales/profits subtracted by those reporting declining sales/profits.
We are in the process of collecting data for the 2011 Ratios Survey. If you are interested in discovering how you are performing compared to industry profit leaders and learning where your company needs to focus its efforts to increase productivity and profitability go to www.printing.org/ratios to participate. Next time we’ll take an in depth look at the difference between the industry average and profit leaders Total Factory Cost of Product for a $3 million, $10 million and $18 million printer.
*Quarterly profit as a percent of sales collected in the Quarterly Print Market Survey tends to be higher than what is collected in the Ratios Survey. This is most likely the result of the QMS figure being based on between 200 to 300 responses and the Ratios figure having a significantly larger sample size of between 400 to 500 printers. The QMS figure is a good directional indicator but in terms of magnitude tends to be inflated.