Although Wall Street mostly yawned when Quad/Graphics announced this week it is acquiring Brown Printing, the pending transaction is a big deal for many major publishers. And it provides some interesting insights into the U.S. printing and publishing industries and even into the U.S. Postal Service.
For publishers of major magazines and catalogs – those with a print order of at least, say, 200,000 copies – the country’s third largest magazine printer has been the chief supplier of Duopoly Insurance. When Quad acquired its larger rival Worldcolor in 2010, Brown’s business reportedly surged as the big publishers worried about being at the mercy of printing giants Quad and R.R. Donnelley.
“Brown prints titles like Elle, Esquire, Family Circle and glossy catalogs for Macy's, Lord and Taylor and Saks Fifth Avenue,” noted the Milwaukee Journal Sentinel’s John Schmid (the only mainstream U.S. reporter who regularly covers the printing and paper industries, as far as I can tell).
Few other U.S. printers have the equipment or capacity to handle such large print runs of publications. And as part of Gruner + Jahr, a huge German printing and publishing firm, there was little concern about Brown’s financial strength or its ability to stay current with technology.
An underdog run by German engineers
Brown seems to have performed admirably. I don’t recall hearing anything really negative about the company, perhaps reflecting Americans’ natural tendency to root for the underdog. German engineers have been in key management roles at Brown, and it shows – in precise procedures and practices as well as in a nearly obsessive focus on plant loading (that is, smooth, predictable workloads rather than peaks and valleys).
Rather than trying to squeeze more years out of ancient equipment, as some Worldcolor plants used to do, Brown kept pace with Quad and RRD when it came to investing in new presses and bindery lines.
But it wasn’t enough.
Installing the latest 64-page offset press was just table stakes when it came to competing with the Big Boys for prestigious publications. Brown’s investments kept it in the game but gave it no “sustainable source of competitive advantage,” as the MBA-types would say.
Brown may have had a true competitive advantage for awhile in the tabloid magazine market that was dominated by trade publications. Colleagues describe an unusual configuration of its press folders (there’s that German engineering at work) that enabled Brown to run magazine-formatted and tabloid-formatted pages on the same press.
Combined with Brown’s expertise in producing small-circulation weekly magazines (many of the tabloid trade magazines were weeklies) and its infrastructure for delivering them, Brown seemed to have a sizable market share in the niche.
A drooping niche
Then came the droop test. (See Viagra to the Rescue? Postal Regulations Are Taking the Life Out of Tabloid Magazines.) USPS instituted regulations in 2010 penalizing flat mail that wasn’t stiff enough to be handled efficiently by sorting machines. In advances of the new regulations, B2B publishers rushed to transform their tabloids to the shorter, less droop-prone magazine format.
Rising postage rates, a challenging advertising market, and improvements in browser-based magazine formats have meant continuing declines in B2B print orders. (Despite all the hype about iPads and fancy e-magazines, I suspect fewer Americans read magazine apps than read the more pedestrian browser-based page-flip magazines.)
Brown also has another distribution challenge: scale.
“In every printing-contract negotiation I’ve witnessed, distribution has been the tie breaker,” a publishing colleague tells me.
When every printer in a market has the same or similar presses and bindery lines, the ability to provide co-mailing, dropshipping, and other distribution options tends to become the chief differentiator. In fact, much of Quad’s growth in its early days came from focusing more on distribution than the competition did.
Brown has plenty of equipment and expertise devoted to distribution. But without the volume that Quad and RRD have, it struggles to provide the same kinds of postage discounts and shipping efficiencies that they offer.
Brown's spokesperson acknowledged the issue in a statement to the Waseca County News that "Customers will have a lot of opportunity to benefit from this acquisition" because of Quad's "robust distribution service."
Ultimately, what may have caused Brown to be labeled “non-core” by Gruner + Jahr and sold for “only” $100 million was the realization that the U.S. isn’t Europe.
Schmid notes that, as a printing company owned by a publishing firm, Brown is “an anomaly” in the U.S. But that’s standard practice in Germany, where G+J is both the largest publishing company and the largest printer. (I don't pretend to understand why vertical integration of printing and magazine publishing is so common in Europe but virtually non-existent in the U.S.)
G+J was once a major player in the U.S. magazine market as well, with titles like Family Circle and Fast Company, and did much of its printing at Brown. But after several big deals turned into disasters, it turned tail and exited the U.S. publishing market in 2005.
You would think Wall Street would view the removal of a competitor as a favorable event for Quad, but the company’s stock is actually down a bit since Monday’s announcement. Standard & Poor's downgraded Quad, focusing not on competitive gains from the Brown acquisition but rather on Quad’s increased indebtedness amid “lower industry capacity utilization and aggressive pricing tactics by market participants that have eroded profitability.”
Related articles:
Showing posts with label Worldcolor. Show all posts
Showing posts with label Worldcolor. Show all posts
Thursday, April 10, 2014
Thursday, March 8, 2012
Yankee Invasion: Quad/Graphics' Jonesboro Closing Marks End of an Era
Quad/Graphics cemented its status today as the General Sherman of the printing industry with the announced closing of its last big Mid-South plant, in Jonesboro, Arkansas.
Quad's rapid downsizing following its purchase of Worldcolor less than two years ago has done for the South's printing industry what the Union general did for Georgia agriculture.
"At one time, the former Quebecor’s Mid-South facilities employed more than 3,000 workers at plants in Memphis, Olive Branch, Miss., Corinth, Miss., Jonesboro, Covington, Tenn., and Dyersburg, Tenn.," Memphis Business Journal noted today. Employees say the Wisconsin company recently shut down the bindery at another former Quebecor/Worldcolor plant, in Franklin, Kentucky.
"So, ALL the Tennessee plants will be closed, ALL the Mississippi plants will be closed, They are starting on ALL the Kentucky plants now........ Looks like a pattern to me," one Tennessean commented on a Topix.com forum.
"Looks like the Second War of Northern aggression if you ask me, to arms," responded a Kentuckian.
Quad's rapid downsizing following its purchase of Worldcolor less than two years ago has done for the South's printing industry what the Union general did for Georgia agriculture.
"At one time, the former Quebecor’s Mid-South facilities employed more than 3,000 workers at plants in Memphis, Olive Branch, Miss., Corinth, Miss., Jonesboro, Covington, Tenn., and Dyersburg, Tenn.," Memphis Business Journal noted today. Employees say the Wisconsin company recently shut down the bindery at another former Quebecor/Worldcolor plant, in Franklin, Kentucky.
"So, ALL the Tennessee plants will be closed, ALL the Mississippi plants will be closed, They are starting on ALL the Kentucky plants now........ Looks like a pattern to me," one Tennessean commented on a Topix.com forum.
"Looks like the Second War of Northern aggression if you ask me, to arms," responded a Kentuckian.
Thursday, January 19, 2012
Which of These 4 Print-Related Giants Is Headed for Bankruptcy? Cast Your Vote
It was one thing when weak companies like Borders and NewPage went Chapter 11 last year. But now the bankruptcy talk has spread to four print-related companies that once seemed invincible or eternal: the U.S. Postal Service, Barnes & Noble, Quad/Graphics, and Verso Paper.
Are things really so bad for print media that the companies we thought were victors of the competitive wars have now become victims? Dead Tree Edition isn't so sure, so we're turning to our readers to help us understand.
We have initiated a poll (in the right column, just below the first ad and above the "Popular Posts" listing), asking which, if any, of these four companies will end up in bankruptcy court during 2012. You may vote for more than one, or for "None of the above." In the early balloting, only 30% of the voters thought none of the four would face bankruptcy this year, while Verso and USPS were in a tight battle for the title of most likely to succumb.
Update: Final poll results are at A Major Print-Media Bankruptcy Is Likely in 2012, Voters Say. Additional commentary: A Surprise Leader in the Print-Media Bankruptcy Sweepstakes.
Here's a quick rundown of the candidates:
Are things really so bad for print media that the companies we thought were victors of the competitive wars have now become victims? Dead Tree Edition isn't so sure, so we're turning to our readers to help us understand.
We have initiated a poll (in the right column, just below the first ad and above the "Popular Posts" listing), asking which, if any, of these four companies will end up in bankruptcy court during 2012. You may vote for more than one, or for "None of the above." In the early balloting, only 30% of the voters thought none of the four would face bankruptcy this year, while Verso and USPS were in a tight battle for the title of most likely to succumb.
Update: Final poll results are at A Major Print-Media Bankruptcy Is Likely in 2012, Voters Say. Additional commentary: A Surprise Leader in the Print-Media Bankruptcy Sweepstakes.
Here's a quick rundown of the candidates:
Sunday, September 19, 2010
Quad/Graphics Is Trying to "Fix" Worldcolor's Publication Printing Business
Quad/Graphics bought Worldcolor partly because it thought it could repair the rival printer's "underperforming" catalog and magazine printing business, according to Quad's CEO.
Worldcolor's publication business was the worst performing part of the company, "had been underinvested in and needed fixing," Joel Quadracci said in an interview published Friday by printing-industry site WhatTheyThink. "We felt we could fix the magazine and catalog business with a combination of upgrading plants and closing plants."
Cary Sherburne's entire interview with Quadracci, whose company bought Worldcolor in July, is worth a read. But here are a few highlights:
Quad/Graphics’ Joel Quadracci Speaks about Worldcolor Acquisition: The entire WhatTheyThink interview with Quadracci
In Closing 5 Locations, Quad/Graphics Sticks With Its 'Mega-Plant' Strategy: A reminder that Quad's success has come mostly from innovation, not acquisitions
The New Quad/Graphics Still Has The Blues -- and Soul, Too: Quadracci's announcement, wearing a Quad uniform, of the Worldcolor acquisition
Does the Air in Printing Plants Make Employees Sick?: Another recent WhatTheyThink article about Quad -- this one on the printer's environmental innovations -- contained an interesting statement.
Worldcolor's publication business was the worst performing part of the company, "had been underinvested in and needed fixing," Joel Quadracci said in an interview published Friday by printing-industry site WhatTheyThink. "We felt we could fix the magazine and catalog business with a combination of upgrading plants and closing plants."
Cary Sherburne's entire interview with Quadracci, whose company bought Worldcolor in July, is worth a read. But here are a few highlights:
- The adjustment of former Worldcolor employees: "What is interesting is that Worldcolor as a corporation didn't really have a defined corporate culture. They had a good culture at the plant level, but not across the entire organization. Quad culture is very production-employee-centric. It has been easy for the Worldcolor folks to understand our culture; they were looking for something to tie them together and connect them."
- Industry rightsizing: "When you look at the industry, you have to look at it from the perspective of good capacity and inefficient capacity, and the industry has way too much of the latter."Also: "You can't simply continue down the same path when an industry experiences a 20%-25% reduction in volume because of a deep recession.There has to be a rightsizing."
- Downsized employees: "We have been doing internal recruiting at all of the plants that will be closed . . . because we have transfer opportunities at other Quad/Graphics locations for customer service reps, press operators, finishing operators and more. We have a pretty sizable list of people interested in other geographic locations."
- Becoming a public company: "My family has the largest equity block with 33% of the company and 80% of the voting control. That voting control is important, because we don't want to be pushed to decisions that don't make sense for the company."
- His work uniform: "It is pretty unusual to see a CEO wearing the same uniform as the production staff, which is what happens here at Quad. When I am here, I am wearing a blue uniform just like everyone on the floor."
Quad/Graphics’ Joel Quadracci Speaks about Worldcolor Acquisition: The entire WhatTheyThink interview with Quadracci
In Closing 5 Locations, Quad/Graphics Sticks With Its 'Mega-Plant' Strategy: A reminder that Quad's success has come mostly from innovation, not acquisitions
The New Quad/Graphics Still Has The Blues -- and Soul, Too: Quadracci's announcement, wearing a Quad uniform, of the Worldcolor acquisition
Does the Air in Printing Plants Make Employees Sick?: Another recent WhatTheyThink article about Quad -- this one on the printer's environmental innovations -- contained an interesting statement.
Saturday, August 7, 2010
In Closing 5 Locations, Quad/Graphics Sticks With Its 'Mega-Plant' Strategy
Quad/Graphics’ announcement of five plant closings this week provided reminders that its success has relied mostly on innovation and huge printing plants -- but not on acquisitions.
Quad bought one of the five plants, in Reno, NV, barely four years ago, fulfilling the company’s years-long dream to have a West Coast presence. It tried to "Quadracize" Reno by replacing most of the equipment with newer presses and binding lines moved from other Quad plants, but then seemed to struggle selling business into Reno.
With the Quad purchase, the plant lost a major source of business – doing bindery and offset-press work for the Reno rotogravure plant owned by Quad’s rival, R.R. Donnelley. Reno is too far from Quad’s co-mail operation in Wisconsin to produce catalogs and monthly magazines efficiently and too small to develop its own co-mail pool.
Although the plant is close to California, customers with time-sensitive products were nervous about serving that huge market from Reno because of frequent highway closings in the infamous Donner Pass. Quad can now serve that business from the former Worldcolor plant in Merced, CA, and has also picked up Worldcolor’s rotogravure plant in Fernley, Nevada, leaving no place for the little Reno operation.
Hurt by a Quad invention
The announced shutdown of the Corinth, Mississippi plant, however, results partly from Quad’s success as an innovator. For years, that plant seemed impervious to the ups and downs of the printing business because its key customer was National Geographic; no other rotogravure operation was configured to meet the magazine’s exacting demands.
Then Quad developed its patented triple-former folders, which gives a roto press the flexibility of an offset press, such as the ability to produce gatefolds and signatures with small page counts. The printing of National Geographic moved in 2002 to Quad’s Martinsburg, West Virginia plant, where the presses were specially designed to produce the magazine.
The Thursday announcement included the shutdown of two plants -- in Clarksville (not Covington, as I originally wrote -- thanks, "Anonymous"), Tennessee and Lebanon, Ohio -- that, like Corinth, Quad acquired last month in its merger with Worldcolor. Quad also announced it would accelerate the closing of the Dyersburg, Tennessee plant that Worldcolor had already started.
One publishing executive noted that his company had become accustomed to the closure of printing plants in Tennessee. Work that it did in the now-closed Covington plant was shifted to Dyersburg last year and then a few months ago to Clarksville.
Another publishing executive noted that the operations being closed do not fit the Quad profile of an ideal printing plant.
“Quad/Graphics likes plants that are a minimum of one million square feet and can be expanded,” he said. Until the Worldcolor deal, Quad had built those mega-plants from scratch in stages, usually with heavy helpings of Quad-invented technology.
The five closed plants, the executive noted, average barely half a million square feet “and are either not expandable, are in overlapping geographic areas or in regions that don’t support the current business level.”
Other recent articles on the Quad/Wordcolor deal include:
Quad bought one of the five plants, in Reno, NV, barely four years ago, fulfilling the company’s years-long dream to have a West Coast presence. It tried to "Quadracize" Reno by replacing most of the equipment with newer presses and binding lines moved from other Quad plants, but then seemed to struggle selling business into Reno.
With the Quad purchase, the plant lost a major source of business – doing bindery and offset-press work for the Reno rotogravure plant owned by Quad’s rival, R.R. Donnelley. Reno is too far from Quad’s co-mail operation in Wisconsin to produce catalogs and monthly magazines efficiently and too small to develop its own co-mail pool.
Although the plant is close to California, customers with time-sensitive products were nervous about serving that huge market from Reno because of frequent highway closings in the infamous Donner Pass. Quad can now serve that business from the former Worldcolor plant in Merced, CA, and has also picked up Worldcolor’s rotogravure plant in Fernley, Nevada, leaving no place for the little Reno operation.
Hurt by a Quad invention
The announced shutdown of the Corinth, Mississippi plant, however, results partly from Quad’s success as an innovator. For years, that plant seemed impervious to the ups and downs of the printing business because its key customer was National Geographic; no other rotogravure operation was configured to meet the magazine’s exacting demands.
Then Quad developed its patented triple-former folders, which gives a roto press the flexibility of an offset press, such as the ability to produce gatefolds and signatures with small page counts. The printing of National Geographic moved in 2002 to Quad’s Martinsburg, West Virginia plant, where the presses were specially designed to produce the magazine.
The Thursday announcement included the shutdown of two plants -- in Clarksville (not Covington, as I originally wrote -- thanks, "Anonymous"), Tennessee and Lebanon, Ohio -- that, like Corinth, Quad acquired last month in its merger with Worldcolor. Quad also announced it would accelerate the closing of the Dyersburg, Tennessee plant that Worldcolor had already started.
One publishing executive noted that his company had become accustomed to the closure of printing plants in Tennessee. Work that it did in the now-closed Covington plant was shifted to Dyersburg last year and then a few months ago to Clarksville.
Another publishing executive noted that the operations being closed do not fit the Quad profile of an ideal printing plant.
“Quad/Graphics likes plants that are a minimum of one million square feet and can be expanded,” he said. Until the Worldcolor deal, Quad had built those mega-plants from scratch in stages, usually with heavy helpings of Quad-invented technology.
The five closed plants, the executive noted, average barely half a million square feet “and are either not expandable, are in overlapping geographic areas or in regions that don’t support the current business level.”
Other recent articles on the Quad/Wordcolor deal include:
Wednesday, July 7, 2010
No Quad Blues, But Quadracci Upholds Another Tradition
Joel Quadracci went white-collar today to ring the opening bell at the New York Stock Exchange, but he still managed to pay tribute to his company's history and culture.
Quadracci, the head of printing giant Quad/Graphics, was joined by family members and key executives on the floor of the stock exchange in celebrating Quad's new status as a publicly traded company. You can see them in the video above, though you'll want to skip past the first 49 seconds.
But Quadracci apparently left his "Quad blues" uniform -- the one he wore to announce the "new Quad" on Friday as discussed in The New Quad/Graphics Still Has The Blues -- and Soul, Too -- back in Wisconsin. He did pay homage to his late father, company's founder Harry V. Quadracci, by wearing a bow tie, as his father often did (but, I'm told, as Joel Quadracci rarely if ever does).
Nice try, Joel, but I'll bet your dad would have worn a bow tie and a Quad uniform. Then again, your dad never gobbled up a company that was much larger than Quad or led a multimillion-dollar IPO.
Meanwhile, there were sporadic reports of layoffs this week among corporate, sales, and office employees who came both from Worldcolor and from "old Quad". But there's no news yet about any plant closings or cutbacks.
Friday, July 2, 2010
The New Quad/Graphics Still Has The Blues -- and Soul, Too
For those who wondered whether going Wall Street would change Quad/Graphics' unique culture, company chairman Joel Quadracci made an historic statement today in announcing the acquisition of Worldcolor.
It wasn't what he said that was so significant, it was what he wore. Has the head of a publicly traded multibillion-dollar company ever before worn a company uniform with his name stitched on it while making such a major announcement?
Quadracci's donning of "Quad blues" rather than corporate pinstripes for the video announcement demonstrated his intent to continue the rah-rah, employee-friendly culture that has led to Quad being featured in management texts. Having everyone from top executives to front-line workers wear nearly identical uniforms in Quad's plants is a long-standing tradition at the company, which Quadracci's father founded. (Commentator Brian Sheehan notes that postal executives battling an "us vs. them mentality" could learn from Quad's example.)
Let's see if Quadracci and his family members wear Quad blues when they ring the opening bell of the New York Stock Exchange this coming Wednesday. (Update: Nope. See No Quad Blues, But Quadracci Upholds Another Tradition.)
Quadracci's spoken message was consistent with his visual one.
"As we undergo this transition, we're not going to change who we are," the chairman, president, and CEO said. The company will continue to be known for its commitment to its customers, employees, and the environment, he said.
"We're a company with a soul," he added, which is an interesting statement given widespread speculation that the merged company will soon close plants and reduce its 28,000-employee workforce.
Though Quad has dabbled in creating digital editions and apps, manufacturing equipment, and delivering parcels, Quadracci emphasized that the company's major focus would not change, using the new tagline "innovative people redefining print".
"We believe in the power of print," he said. Print after all is a powerful foundation for every communication strategy." (Tell that to Google.)
"The company will realize significant mailing and distribution efficiencies and offer clients improved speed-to-market and product integrity for USPS-delivered products as well as volume-driven postage savings through programs such as co-mailing," Quadracci said in a news release.
Quad stock will start trading on the NYSE Tuesday, unfortunate timing. That's the day postal officials are slated to announce proposed "exigent" rate increases for most mail, with the biggest blows aimed at the magazine and catalog customers who have been central to Quad's and Worldcolor's business.
Other articles about the Quad-Worldcolor merger include:
Monday, May 24, 2010
Quad/Graphics Has Quarterly Loss, Eyes Plant Shutdowns
Quad/Graphics’ 1st Quarter 2010 was slightly worse than last year’s, and it expects to close some high-cost U.S. printing plants when it merges with Worldcolor this summer.
Those are among the revelations in a document the big Wisconsin-based printing company filed with the Securities and Exchange Commission Friday.
The document is being sent to Worldcolor shareholders in advance of their special meeting on June 25 to vote on a merger with Quad that would create the continent’s second largest printing company. A June 28 court hearing in Montreal could be the final step in consummating the deal now that all anti-trust hurdles have been cleared.
Quad/Graphics’ sales in the quarter ended March 31 were down 3% from the previous year, while its losses doubled to $8.5 million. The loss equaled about 2% of total sales, which is not bad considering the recession and the usual post-Christmas slowdown in printing. Worldcolor’s $59 million quarterly loss, after all, was more than 8% of its total revenue.
The “continued but somewhat lessened decline in demand for commercial printing due to the global economic recession” was the main reason for the sales decrease, Quad said. “Product sales also declined due to continued pricing pressures related to increased competition and industry overcapacity. These decreases were partially offset by an increase in recycling sales due to increased prices received on recycled paper.”
Some of the estimated $225 million in annual cost savings that Quad expects the merger to produce will come “from commercial printing capacity consolidation into lower cost, more modern and efficient printing facilities from certain high cost facilities (primarily in the United States).”
Other sources of savings it cites are increased purchasing volume, “elimination of redundant administrative costs (including the consolidation of the corporate headquarters),” and “better utilization of shipping, distribution and warehousing logistics" as a result of the plant consolidations.
Worldcolor projects the savings will be even higher -- $285 million – apparently because it “estimated greater procurement synergies than Quad/Graphics” did.
Privately held Quad has historically been tight-lipped about its financial status and results, but the process of acquiring Worldcolor and going public is forcing it to reveal more. Still, the First Quarter data are less detailed than what a public company usually releases and were not accompanied by a press release, which is why Quad’s quarterly results have not appeared in newspapers or the trade press.
(“No news release, no news coverage,” a journalist friend told me in explaining the impact of the news media’s budget cuts on business-news coverage. But because Dead Tree Edition is published by a somewhat obsessive hobbyist rather than a real journalist, we continue to read and report on actual source documents. How quaint!)
For related articles, please see:
Those are among the revelations in a document the big Wisconsin-based printing company filed with the Securities and Exchange Commission Friday.
The document is being sent to Worldcolor shareholders in advance of their special meeting on June 25 to vote on a merger with Quad that would create the continent’s second largest printing company. A June 28 court hearing in Montreal could be the final step in consummating the deal now that all anti-trust hurdles have been cleared.
Quad/Graphics’ sales in the quarter ended March 31 were down 3% from the previous year, while its losses doubled to $8.5 million. The loss equaled about 2% of total sales, which is not bad considering the recession and the usual post-Christmas slowdown in printing. Worldcolor’s $59 million quarterly loss, after all, was more than 8% of its total revenue.
The “continued but somewhat lessened decline in demand for commercial printing due to the global economic recession” was the main reason for the sales decrease, Quad said. “Product sales also declined due to continued pricing pressures related to increased competition and industry overcapacity. These decreases were partially offset by an increase in recycling sales due to increased prices received on recycled paper.”
Some of the estimated $225 million in annual cost savings that Quad expects the merger to produce will come “from commercial printing capacity consolidation into lower cost, more modern and efficient printing facilities from certain high cost facilities (primarily in the United States).”
Other sources of savings it cites are increased purchasing volume, “elimination of redundant administrative costs (including the consolidation of the corporate headquarters),” and “better utilization of shipping, distribution and warehousing logistics" as a result of the plant consolidations.
Worldcolor projects the savings will be even higher -- $285 million – apparently because it “estimated greater procurement synergies than Quad/Graphics” did.
Privately held Quad has historically been tight-lipped about its financial status and results, but the process of acquiring Worldcolor and going public is forcing it to reveal more. Still, the First Quarter data are less detailed than what a public company usually releases and were not accompanied by a press release, which is why Quad’s quarterly results have not appeared in newspapers or the trade press.
(“No news release, no news coverage,” a journalist friend told me in explaining the impact of the news media’s budget cuts on business-news coverage. But because Dead Tree Edition is published by a somewhat obsessive hobbyist rather than a real journalist, we continue to read and report on actual source documents. How quaint!)
For related articles, please see:
Saturday, March 6, 2010
Quad/Graphics Was Profitable in 2009 Despite Big Sales Decrease
Quad/Graphics eked out a profit last year despite a 21% drop in revenue, the privately held printing company revealed in the first public disclosure of its finances.
The company had net income of $52.8 million in 2009 on sales of $1.788 billion, a 3% margin, according to a report filed late Friday with the Securities and Exchange Commission.
Quad provided a peak at its finances as part of its effort to become publicly traded and buy rival Worldcolor, a transaction it hopes will occur this summer. The document reveals that Quad employees own nearly half of the company's stock via the company's "Personal Enrichment Plan", a 401(k) and profit-sharing program.
In contrast to Quad, larger and more diversified rival R.R. Donnelley suffered only a 15% drop in revenue last year but had its third straight unprofitable year in 2009. Quad has been profitable the past five years, though its profit has shrunk the past two years.
Quad, however, is more heavily leveraged, with a debt-to-sales ratio of 0.44, versus 0.30 for Donnelley. That is apparently a result of Quad's tendency to invest heavily in new equipment and technologies, which the company brags about in its SEC filing:
"Over the last 15 years, Quad/Graphics has made substantial, yet disciplined, investments in its manufacturing platform, creating what Quad/Graphics believes is the most efficient and modern manufacturing platform in the commercial printing industry. Quad/Graphics also has made substantial investments in research and development and other technological innovations. These investments have led to the development of various manufacturing process improvements, including innovative press and finishing control systems and material-handling equipment for use in Quad/Graphics’ own operations as well as for sale to other printers worldwide. Quad/Graphics believes that this ongoing innovation focus positions it on the leading edge of technology in the industry. Quad/Graphics believes that this continual investment and innovation and its modern manufacturing platform, together with its focus on customer service and its distribution capabilities, have resulted in Quad/Graphics being one of the most profitable commercial printing companies in the industry, as measured by EBITDA (net earnings attributable to common shareholders plus interest expense, income tax expense, depreciation and amortization) as a percentage of net sales. This profitability, in turn, allows Quad/Graphics to continue to invest in equipment, research and development and other technological innovations to benefit its customers."
The company had net income of $52.8 million in 2009 on sales of $1.788 billion, a 3% margin, according to a report filed late Friday with the Securities and Exchange Commission.
Quad provided a peak at its finances as part of its effort to become publicly traded and buy rival Worldcolor, a transaction it hopes will occur this summer. The document reveals that Quad employees own nearly half of the company's stock via the company's "Personal Enrichment Plan", a 401(k) and profit-sharing program.
In contrast to Quad, larger and more diversified rival R.R. Donnelley suffered only a 15% drop in revenue last year but had its third straight unprofitable year in 2009. Quad has been profitable the past five years, though its profit has shrunk the past two years.
Quad, however, is more heavily leveraged, with a debt-to-sales ratio of 0.44, versus 0.30 for Donnelley. That is apparently a result of Quad's tendency to invest heavily in new equipment and technologies, which the company brags about in its SEC filing:
"Over the last 15 years, Quad/Graphics has made substantial, yet disciplined, investments in its manufacturing platform, creating what Quad/Graphics believes is the most efficient and modern manufacturing platform in the commercial printing industry. Quad/Graphics also has made substantial investments in research and development and other technological innovations. These investments have led to the development of various manufacturing process improvements, including innovative press and finishing control systems and material-handling equipment for use in Quad/Graphics’ own operations as well as for sale to other printers worldwide. Quad/Graphics believes that this ongoing innovation focus positions it on the leading edge of technology in the industry. Quad/Graphics believes that this continual investment and innovation and its modern manufacturing platform, together with its focus on customer service and its distribution capabilities, have resulted in Quad/Graphics being one of the most profitable commercial printing companies in the industry, as measured by EBITDA (net earnings attributable to common shareholders plus interest expense, income tax expense, depreciation and amortization) as a percentage of net sales. This profitability, in turn, allows Quad/Graphics to continue to invest in equipment, research and development and other technological innovations to benefit its customers."
Saturday, January 30, 2010
Donnelley May Come Calling, But Will Worldcolor Answer?
The proposed deal for Quad/Graphics to buy rival printer Worldcolor makes it difficult for another bidder to step in, though stock analysts predict R.R. Donnelley will try.
The Quad-Worldcolor agreement says neither company can encourage a competing proposal or “knowingly participate in any way in discussions or negotiations with, or furnish or disclose any information . . . in connection with any Acquisition Proposal.” The one exception: if one of the companies receives a proposal that its board of directors deems better than the proposed Quad-Worldcolor deal.
That means Donnelley or any other suitor would have to make a superior bid without having the intimate knowledge of Worldcolor that Quad executives no doubt have gained the past few months. Donnelley has plenty of people who worked for Worldcolor’s predecessors, but they lack up-to-date information on customer negotiations, labor contracts, capacity utilization, and other important areas.
Stock analysts at RBC Dominion Securities praised the proposed deal but said Donnelley could top it, reports Andrew Willis of the The Globe and Mail of Toronto. They said Quad’s proposal for Worldcolor values it at up to $13.70 per share but that Donnelley could bid more than $15 per share “and still have a deal that makes economic sense,” Willis reported.
RBC noted that Donnelley competes with Worldcolor in more businesses than Quad does (such as telephone directories and short-run publications), creating more potential synergies from a Donnelley purchase of Worldcolor. Donnelley made three attempts last year to buy Worldcolor’s predecessor, Quebecor World, but that was complicated by Quebecor’s bankruptcy reorganization.
The RBC report was issued before the complex (118-page) agreement between Quad and Worldcolor had been made available on the Web sites of U.S. and Canadian securities regulators. The agreement indicates that Quad will establish a wholly owned subsidiary that will “amalgamate” with Worldcolor into a new company known as “World Color Press Inc” that will have its registered office in Montreal.
Don't read too much into that last statement. It says nothing definitive about what the parent company will be called or where it will be located. Perhaps it indicates that Quad will use the Worldcolor (brand name) and World Color Press (legal name) in Canada, where Quad is hardly known.
With the Quadracci family maintaining voting control of the new Quad, it seems likely that the headquarters will remain in Wisconsin.
"Quad is very invested in Wisconsin," Joel Quadracci, Quad's chairman and CEO, told the Milwaukee Journal Sentinel this week. "My hope is that we actually grow jobs in Wisconsin," Quadracci said, calling the company's five plants in the state among the company's most efficient.
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The Quad-Worldcolor agreement says neither company can encourage a competing proposal or “knowingly participate in any way in discussions or negotiations with, or furnish or disclose any information . . . in connection with any Acquisition Proposal.” The one exception: if one of the companies receives a proposal that its board of directors deems better than the proposed Quad-Worldcolor deal.
That means Donnelley or any other suitor would have to make a superior bid without having the intimate knowledge of Worldcolor that Quad executives no doubt have gained the past few months. Donnelley has plenty of people who worked for Worldcolor’s predecessors, but they lack up-to-date information on customer negotiations, labor contracts, capacity utilization, and other important areas.
Stock analysts at RBC Dominion Securities praised the proposed deal but said Donnelley could top it, reports Andrew Willis of the The Globe and Mail of Toronto. They said Quad’s proposal for Worldcolor values it at up to $13.70 per share but that Donnelley could bid more than $15 per share “and still have a deal that makes economic sense,” Willis reported.
RBC noted that Donnelley competes with Worldcolor in more businesses than Quad does (such as telephone directories and short-run publications), creating more potential synergies from a Donnelley purchase of Worldcolor. Donnelley made three attempts last year to buy Worldcolor’s predecessor, Quebecor World, but that was complicated by Quebecor’s bankruptcy reorganization.
The RBC report was issued before the complex (118-page) agreement between Quad and Worldcolor had been made available on the Web sites of U.S. and Canadian securities regulators. The agreement indicates that Quad will establish a wholly owned subsidiary that will “amalgamate” with Worldcolor into a new company known as “World Color Press Inc” that will have its registered office in Montreal.
Don't read too much into that last statement. It says nothing definitive about what the parent company will be called or where it will be located. Perhaps it indicates that Quad will use the Worldcolor (brand name) and World Color Press (legal name) in Canada, where Quad is hardly known.
With the Quadracci family maintaining voting control of the new Quad, it seems likely that the headquarters will remain in Wisconsin.
"Quad is very invested in Wisconsin," Joel Quadracci, Quad's chairman and CEO, told the Milwaukee Journal Sentinel this week. "My hope is that we actually grow jobs in Wisconsin," Quadracci said, calling the company's five plants in the state among the company's most efficient.
Related Articles:
- Donnelley Takes Its Ball and Goes Home: After three tries in less than a month, Donnelley gave up on buying Quebecor World last June.
- Printing's New Odd Couple Leaves Some Questions Unanswered: There are still some unknowns regarding the proposed Quad-Worldcolor deal, which resulted from discussions between the two companies' contrasting CEOs.
Tuesday, January 26, 2010
Printing's New Odd Couple Leaves Some Questions Unanswered
At the companies' joint presentation to stock analysts, Mark A. Angelson did most of the talking even though his company is to be the acquiree rather than the acquirer. But that made sense given the need to communicate that the deal is favorable for Worldcolor and Angelson's experience in selling major mergers and acquisitions in the industry.
"Let's just say I've been to this movie before on multiple occasions," said Angelson, referring to his extensive merger and acqusition experience in the printing industry. "This is the most compelling combination that I've seen."
When the merger is completed this spring or summer, Angelson will give up executive duties to "lend integration and public company expertise" to Quad as a member of its board, according to the presentation.
The combined company will be led by the other member of the Odd Couple, Quad CEO Joel Quadracci, who by all accounts has proved to be a capable leader of the company his father founded. But he has never made a major acquisition or faced Wall Street's scrutiny.
Quad "built itself from greenfield growth" and has always emphasized that "our private status meant that we could manage for today but also for the long term," Quadracci said. He promised that the company would continue to focus on the long term and "the values that have made us successful."
The two CEOs could hardly be more different. Originally an M&A lawyer, Angelson, in his late fifties, has been the printing industry's Great Consolidator, responsible for rolling up such companies as Moore Wallace, Banta, Perry Judd's, and von Hoffman. The 39-year-old Quadracci was born with printer's ink in his veins and groomed to head up Quad -- no doubt with many a sermon from his late, colorful father about the benefits of being privately held and of building rather than buying.
But after numerous discussions that started with a lunch back in August, just a month after Worldcolor emerged from bankruptcy protection, the two apparently began to see eye to eye about the future of their companies. They spoke admiringly of each other at today's presentation.
Some of the questions still to be answered about the deal include:
- Sale Price: The Wall Street Journal put the price at $1.4 billion, but "that's not our number," Angelson said. "We're not going to know until we see how the shares trade between now and the closing."
- Synergies: The stated synergies of $225 million in the first 24 months ("I find Joel's number to be a touch conservative," Angelson noted.) no doubt include some plant closings, but that subject was avoided at the presentation. Not so on Web forums like Topix, where Quad and Worldcolor employees traded speculations about who would get the ax. Most assumed that only Worldcolor plants would be closed (which I don't think is a safe assumption).
- Change of Control: I'm told that many major print buyers have change-of-control clauses in their contracts, giving them the right to get out of or renegotiate their contracts if the the printer changes hands. It's not clear whether Quad's going public would trigger those clauses.
- Anti-Trust Challenges: By Angelson's estimate, the combined company's $5 billion in annual revenue will give it only 3% of the U.S. market, meaning that the printing industry will still be "highly fragmented". But a quick-print shop that produces menus for local restaurants is hardly in the same business as an outfit that prints, binds, mails, and ships millions of Parade magazines or L.L. Bean catalogs. Pressed for the combined company's market share in long-run printing, Angelson responded, "That's not a market, it's a segment." My guess is that anti-trust authorities won't block the deal outright but might require one or more plants to be sold off, just as Abitibi had to sell its Snowflake, AZ mill before merging with Bowater.
- A Good Deal? Both CEOs said the deal would be good for their companies, but analysts and investors will have difficulty deciding for themselves until Quad issues public financial statements, which could take at least a month.
- Print Pricing: Overcapacity has been steadily forcing print prices down, but that could change in parts of the market if there is one less supplier and not so many empty presses.
- An old-fashioned merger at World Color: The Toronto Globe and Mail's analysis of the deal, which accompanies a fairly detailed news story.
- Hell Freezes Over: Quad/Graphics Wants To Buy Worldcolor and Go Public: Dead Tree Edition's initial thoughts on today's announcement.
- Quebecor World: Has the Stalked Become the Stalker? Angelson's hiring as Worldcolor's CEO signaled that the company was ready to talk M&A when it exited bankruptcy protection.
- The transcript of today's presentation.
Hell Freezes Over: Quad/Graphics Wants To Buy Worldcolor and Go Public
Here are a few quick observations regarding today's stunning announcement that Quad/Graphics has an agreement to buy Worldcolor (AKA World Color Press) and that the combined company's stock will be publicly traded:
- Note the press release's reference to “capacity rationalization.” Translation: Some plants will be closed.
- Though it is the country's third largest printer, Quad's finances have always been a bit of a mystery. That will change in a month or so when it has to file detailed reports with the Securities and Exchange Commission.
- Quad is apparently more profitable than Worldcolor even though it is a smaller company, the press release indicates. That's why Quad's owners will get 60% of the new company and Worldcolor's will get 40%.
- Worldcolor has a mix of unionized and non-unionized plants. Quad is non-union and is managed in a way to avoid unionization through employee ownership, generous benefits, etc.
- Worldcolor has a variety of cultures and perspectives, reflecting its history of acquiring plants from a variety of companies. In contrast, Quad employees joke about “drinking the Kool-Aid” because of the company’s strong, rah-rah culture -- though some of the plants have definitely developed their own personalities and cultures.
- Anti-trust challenges seem likely. Worldcolor has a broader portfolio of businesses; for example, Quad does not deal much with book printing, short-run publications, or telephone books. But they are perhaps the two strongest co-mailers of magazines and catalogs (in terms of the savings they can offer via huge pools). And R.R. Donnelley is the only other North American printer that uses rotogravure, which is especially efficient at huge print orders (more than 1 million).
- Another potential hurdle is that either company may entertain, but not solicit, competing offers. Paging R.R. Donnelley.
- Interesting quotation from the investor presentation: "Consolidation likely to continue as industry participants seek to streamline costs to increase efficiency, maximize profitability, improve credit profiles and adapt to an increasingly dynamic and challenging endmarket environment."
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