Book Printing Outlook -- Consumer Confidence Key

ONE OF the characteristics of a difficult economy is the slowdown of consumer confidence, which has a trickle-up effect on the goods and services sector. Less spending equals lower demand, equals lesser manufacturing output. The schizophrenic bounces of the oil market in 2008 is perhaps an extreme example. Restoring consumer confidence will lift all of the boats that have run ashore due to the economic concerns that network one another. There is precedent hope surrounding the election of a new U.S. president, someone who can not only rinse away the bad taste of 2008, but also breathe new life into the American psyche.

Still, it will require more than a new president to rejuvenate the business sector. Take the U.S. book market. In a down economy, there is less funding for schools, which cut back on their orders for new textbooks and materials. Publishers, as a result, curtail their print runs. Publishers took a cautious, wait-and-see approach in 2008.

Optimism is strong for 2009, and printers are taking measures to ensure success. Montreal-based Quebecor World, which filed for restructuring bankruptcy in the United States and Canada in 2008, made a lot of difficult choices over the course of the year. It removed some flexographic capacity from its book platform, restructured its operating units for maximum efficiency, and is now poised to emerge from creditor protection with a much-improved balance sheet and available funds.

“The new Publishing Services Group has 21 operating plants, now all linked, and three manufacturing executives driving those businesses,” notes Kevin Clarke, president of Publishing Services for Quebecor World. “It’s really a powerful solution. With the synergies we’ve brought forward since June, we’re seeing significant efficiencies and the timing couldn’t be better. We put in new equipment—I call them hybrid presses—in both of our consumer-focused plants. They’re targeted to be efficient both for long- and short-run work.”

Few Blockbuster Sales

Quebecor World reaped a mixed-bag 2008 on the book side. Education was strong for the first three quarters, but began to soften in the fourth quarter. Its greatest weakness is the consumer end, which clearly is tracking the economic slowdown. And, while authors like Stephenie Meyer continue to grow in popularity, there simply wasn’t any J.K. Rowling buzz to drive people into bookstores.

Children’s publishing enjoyed a very strong showing for Quebecor World, while religious proved to be steady as ever, a linchpin for the company’s Latin American platform. And as costs associated with exporting jobs with long lead times have escalated, turning to South America is becoming a more attractive alternative.

Sean Twomey, executive vice president of market development at Quebecor, notes the printer focused on investments in one- and four-color digital assets for facilities in Iowa, Massachusetts and Michigan. He adds that Quebecor World will be announcing new partnerships that leverage its growing digital base. In fact, the company has spent more than $100 million in capex to augment its print platform over the past three-plus years.

As for Clarke, he envisions an aggressive and successful Quebecor World from the start of 2009. “The application of our hybrid press technology fully matured in early 2008, and we’ve seen huge benefits and flexibilities,” he says. “It supports our product life cycle focus: speed to market. It’s supporting very aggressive supply chain targets from our major publishers in pretty much all of the markets that we serve.

“We continue, as we exit bankruptcy—hopefully in the first half of 2009—to be a very strong company from the standpoint of our EBITDA-to-debt ratio. Customers already recognize that and supported us with $2 billion of secured, long-term business. We’ve gone through a lot of turbulence in the past, restructured capacity and have taken ineffective capacity out, and we anticipate that’s going to be required by other folks. We’re going to come out of the tunnel first and, unfortunately, there will be people behind us that will have to meet with those challenges.”

For North Chelmsford, MA-based Courier Corp., 2008 posed a number of challenges in markets that had exhibited strength in recent years. Peter Tobin, vice president, says the company saw unexpected softening in the usually solid elementary-high school (el-hi) market, as publishers hedged on orders due to school districts finding themselves under intense budget pressures. The generally busy season of late spring leading into summer was “quieter than expected.”

Cutting Back Print Runs

On the trade end, Courier enjoyed a solid campaign but, again, publishers cut back on print runs and took a pass on reprinting some titles—opting for a more conservative approach. Without star author power drawing people into bookstores, the opportunity was prime for election-year tomes to grab the spotlight. According to Tobin, that wasn’t the case in the 2008 season.

“In terms of blockbusters that get people talking about publishing, this wasn’t a year for that,” Tobin points out. “There’s some optimism that in tough economic times, when retailers predict a grim holiday season, it’s the kind of environment where people buy books. I’m hoping that will be the case this year.”

Courier put the finishing touches on its Kendallville, IN, four-color facility capacity expansion this year, and is in the process of constructing a 200,000-square-foot warehouse at the plant. In the past 10 years, the staff there has grown from 185 to more than 600. Courier also made an investment in adding to its sales force, which has raised revenues from existing clients and brought in new accounts.

A new greening initiative has been successful, as well. Courier launched a green labeling program for books called Green Edition. Using the Environmental Defense Fund’s paper calculator, Courier determines the environmental savings for the print run of a domestically produced book, based on using recycled paper as opposed to virgin grades. Publisher jobs meeting certain criteria may get the green label, and the printer has reeled in incremental business as a result.

Due to customer requests and a desire to be a full-service book printing provider, the print-on-demand (POD) era is coming to Courier Corp. Tobin says the company plans to develop a digital book printing platform in-house during 2009. This will enable the printer to continue serving clients with lower quantities in an age of low-to-near-zero inventory.

As for how 2009 may play out, Tobin rattles off the prime suspects: the economy, consumer confidence, credit markets and global financial markets. Understanding the cautious approach taken by customers will go a long way toward setting expectations, he adds.

“We, at Courier, are focusing on what we’ve been doing this year—providing great service, increasing our share with current customers and winning new clients,” Tobin remarks. “We’re confident we’ll do fine in ’09. That said, I think it will be a year where everyone is just going to be very careful about how they spend money and invest, and publishers will be cautious about building too much inventory.

“Print runs will probably continue to get smaller in some instances, but I think the industry will be healthy. Enrollments are up, so that will help. As long as we understand people are being conservative in spending, we’ll be able to adjust our efforts accordingly. It should work out to be a decent year.”

With an unpredictable trade market and retailers staring down a challenging 2008 holiday season, RR Donnelley provided customers with inventory management, quick turnarounds and broad flexibility. Meyer’s “Twilight” and Oprah picks gave RR Donnelley the chance to continue providing quick turns on large volume orders, so its customers could maximize sales.

Some Segments Growing

Ed Lane, president of book and directory at RR Donnelley, points out that the education sector saw growth in basal and supplemental sales, buoyed by RR Donnelley’s diverse product list ranging from testing materials to flash cards, kitting and fulfillment. Aiding in the growth is its investment in single-color digital gear, sheetfed presses and binding lines to improve flexibility and efficiency in its domestic and Chinese platforms.

“We upgraded our one-color digital print module, which enabled us to improve upon the quality, speed and resolution for our one-color trade and education customers,” Lane explains. “In addition, we announced the development of the industry’s first 1,200 dpi, four-color, ink-jet web press. By the end of the first quarter of 2009, we plan to expand our product offering of one-color digital printing to include four-color digitally printed books.

Other planned investments include increasing the capacity of its Lake Park, WI, facility to meet demand from book fulfillment and distribution customers. RR Donnelley’s order entry and archival systems have also been upgraded.

What does RR Donnelley expect from 2009? With an uncertain economy and the need for consumer confidence, Lane plans on staying close to his customers and leveraging the printer’s strengths—those things in his control.

“As always, the book market enjoys growth from bestsellers,” Lane says. “With the election and the Olympics over, the opportunity for book media coverage increases, and this translates into more book sales. The el-hi segment will be dependent upon funding from the states, while the college market is expected to be stable, although digital options continue to be introduced.

“RR Donnelley is committed to our customers and believes that our expansive global book manufacturing platform, superior customer service, and overall breadth of services enable us to be nimble and respond quickly and effectively to each market’s growth and to customers’ ever-changing needs.” PI