Surviving a Bad Year, Hopeful About 2002

Fourth-quarter and full-year financial reports coming in from big, publicly held printing companies describe in fairly straightforward language the crummiest business period in an entire decade and the lingering after-effects of our historical tragedies. The poor performances look even worse when compared to 2000, which for many of the big companies was a record or near-record year.

It's no surprise that the quarter was a financial and operational disaster for most; what's pleasantly surprising is that, when it is combined with the results of the previous nine months, performances for the full calendar year look bad, but not so bad.

In the reports, everything you'd expect to be off is way off, frequently by double digits; for some, net income in the quarter was battered, off by triple digits, in one case by 152% and in another by 245% (the latter involved a gain-to-loss net swing of a quarter-billion dollars!). Nearly everyone recorded drops in earnings per share, total revenue, annualized earnings, receivables, staffing levels, net number of facilities, capital investment levels, inventory levels, and so on. (There were interesting insights, too: one company attributed 40% of its sales decline of 6% from 2000 to 2001 to paper price reductions.)

And everything you'd expect to be up is up, namely, the pace of cost reductions, write-offs, and restructuring measures and charges. The ominous term "restructuring and impairment charges" popped up on a lot of reports, signaling the cutbacks, staff shedding, and plant closings that went on last year. Indeed, some companies obviously used 2001 to shed—and to write off, for sums in the hundreds of millions of dollars—poor-performing and/or poor-prospect departments or initiatives.

Which brings up a really tragic aspect: these sorry figures represent net performance after taking into account the effects of merciless cost cutting, destaffing, and restructuring that most companies undertook very early in the year and then stepped up in the fall. It's heartbreaking to consider the toll on people's livelihoods and careers.

In their details, the reports paint a harsh picture. In 2001, advertising spending—on which much of the industry relies, whether from publishing or retail markets—already was falling steadily month to month in almost every category, but it plunged after September 11. For publication printers in particular, the dropoff came at the worst time.

As Quebecor World Inc. reports, the precipitous drop in the final four months of the year is when the company traditionally earns 40% of its annual operating income. "We reduce costs on an ongoing basis but we can't restructure our business overnight when hit with a catastrophic event," explains Charles G. Cavell, president and chief executive.

Hard hit across the industry were magazines, catalogs, and advertising inserts, as well as collateral material. Also, with capital markets paralyzed, financial printing slumped badly; for R.R. Donnelley & Sons, for example, net sales in this sector fell 31.8% for the quarter and 22.7% for the year, compared to previous periods.

Despite all the bad news, the people who prepare the reports found a bright spot or two: a surprisingly strong operating margin of nearly 10% at Quebecor World, plus business growth in Latin America; "significant customer wins" at Donnelley; high debt paydown at Consolidated Graphics, Inc. and Mail-Well, Inc.; and accrual of benefits of a major repositioning program at Standard Register.

Counter to some speculation, companies like Standard Register say they're still looking at acquisitions, albeit on a much smaller scale. Also, Donnelley still expects its capital spending to range between $250 million and $300 million this year; says chairman, president, and chief executive William L. Davis, "When the recovery starts, we'll be ready."