NOTEBOOK: Fresh Wind In Its 'Sales,' Print Industry Courses Ahead

Is the printing industry nearing the end of years of neglect—even derision—by an indifferent investment community and its obtuse analysts? Let's hope so. As a long-time participant in this field, my attention was drawn to some recent reports:

Fears of widening credit problems that felled Dow Jones averages, and news of faltering housing lenders, have markets skittish. In the light of the sub-prime mortgage crisis, Longbow Research pegs the commercial printing industry as a safe sector that will insulate investments, while the rest of the market remains volatile. Analyst Piyush Sharma said broader commercial print shipments seem less connected to the general economic environment than previously perceived. (In 1997, print sector results ceased tracking the GDP—a fact that now, apparently, is an advantage.)

“Commercial printing shipment growth is largely stable, making the group a strong contender for inclusion in a defensive and moderate-risk portfolio,” Sharma said in finance-speak. Translation: Print is good. The commercial printing sector is “relatively attractive during a lean economic environment,” he says, noting it outperformed the broader market during the last two recessions.

His top picks: RR Donnelley and specialty printer American Reprographics Co., which he rates “Buy” due to their stability and value.

Also newly partial to print is Fitch Ratings. Issuing its assessment of Donnelley, the analysts expect more commercial printers' credit profiles to deteriorate over the next several years. However, Fitch says it “recognizes the size and stability of the commercial print market and expects positive organic growth from the larger players,” as modest increases in customer spending and market share gains at the expense of smaller players should support expansion among the biggest printers.

Print also registered, unusually, in national U.S. retail sales results. In July, these were visibly buoyed by demand for the final volume of the Harry Potter book, rising above forecasts, say economists. Publisher's Weekly (a sister title to GAM) reports that online sales of printed books have boosted results at book publishers: Both Penguin and Simon & Schuster's sales through online channels rose more than 20%, showing sales of printed products will grow when it's easier for customers to get them. Beyond single copies, the purchase of print services is an online phenomenon, with perhaps 40 firms selling applications for it; hundreds more printers have built their own systems. Last year print jobs that moved through the Internet made up 12.5% of the U.S. printing market, according to InfoTrends/CAP Ventures.

Fitch's assessment notes the obvious—“the commercial printing industry is highly competitive with significant excess capacity; the industry is fragmented, with hundreds of local or niche market operators despite recent consolidation activity, and as such there is significant pressure on prices”—and the more obvious: “A downturn would accelerate the departure of printers from the industry, providing advantages for the next upswing.” Given the growing globalization of print providers, it's unlikely “capacity” concerns will be restricted for long to competition within the continental boundaries of the U.S.

We laud the conviction and guts shown by print industry suppliers, especially press manufacturers, who spend years developing capital equipment. If they wavered, as investors do, with every fleeting shift of sentiment, we would not be seeing the debuts of five major offset press platforms at Graph Expo, and the consumables and peripherals that serve them. Despite the frequently negative and usually desultory attentions of the investment community, the faith our suppliers hold in print as a keeper is laudable—and the key for an epoch of 21st-century ink-on-paper success.

bill.esler@reedbusiness.com