RR Donnelley Records a Net Loss as Demand Softens

CHICAGO—Feb. 22, 2012—R.R. Donnelley & Sons reported a fourth-quarter net loss of $326.7 million on net sales of $2.7 billion. That compares to net earnings of $27 million on net sales of $2.7 billion in the fourth quarter of 2010. The fourth-quarter net loss attributable to common shareholders included pre-tax net charges totaling $483.9 million, primarily related to non-cash impairment.

Non-GAAP net earnings attributable to common shareholders totaled $85.2 million in the fourth quarter of 2011, compared to $107.2 million in the fourth quarter of 2010.

“Although demand softened during the last few months of the year, we are pleased with the $695 million of operating cash flow less capital expenditures that we generated in 2011,” said Thomas J. Quinlan III, RR Donnelley’s president and CEO. “We’ve paid down over $400 million of debt in the second half of 2011, ending the year with gross leverage of 2.9x, within our targeted leverage range of 2.5x to 3.0x.”

Quinlan continued, “While I am pleased with the customer wins we have added to the platform, we begin this year managing our cost structure even more aggressively. Our expectation is that the customer wins, coupled with our aggressive cost management, will result in non-GAAP earnings per diluted share in the range of $1.84 to $1.92 for 2012. Looking forward, we expect to continue to generate strong cash flow, allowing us to invest in the platform, pay our $1.04 per share annual dividend and remain within our targeted leverage range of 2.5x to 3.0x.”

Summary

Net sales in the quarter were $2.7 billion, up $13.7 million, or 0.5 percent, from the fourth quarter of 2010. Pro forma for acquisitions, net sales decreased 3.7 percent, due to volume declines in certain product offerings, price erosion and a 76 basis point unfavorable impact of changes in foreign exchange rates.

Gross margin of 22.9 percent in the fourth quarter of 2011 declined from 23.1 percent in the fourth quarter of 2010 as an unfavorable product mix and pricing pressure more than offset the impact of productivity actions, the pension curtailment gain and lower variable compensation expense.

The operating loss of $317.1 million, which was impacted by restructuring and impairment charges, the pension curtailment gain, the contingent compensation and acquisition expenses totaling $483.9 million in the fourth quarter of 2011, compared to operating income of $85.7 million in the fourth quarter of 2010, which included restructuring and impairment charges and acquisition expenses totaling $88.6 million.

Segments

Net sales for the U.S. Print and Related Services segment decreased 1.0 percent from the fourth quarter of 2010 to $2 billion. Pro forma for acquisitions, net sales in the segment decreased 5.1 percent, as volume declines in books and directories and financial print and continued pricing pressure across the segment more than offset volume increases in logistics and office products.

The segment’s operating loss of $211.1 million in the fourth quarter of 2011, which was negatively impacted by charges for restructuring and impairment of $373.7 million and the contingent compensation on a prior acquisition of $15.3 million, decreased $338.4 million from operating income of $127.3 million in the fourth quarter of 2010, which included charges for restructuring and impairment of $66.1 million.

Net sales for the International segment increased 4.9 percent from the fourth quarter of 2010 to $715.7 million. Pro forma for acquisitions, net sales grew by 0.5 percent, as increased volume in business process outsourcing and Asia and higher pass-through paper sales more than offset the impact of continued pricing pressure and a $20.6 million (302 basis point) unfavorable impact of changes in foreign exchange rates.

The segment’s operating loss of $89.0 million in the fourth quarter of 2011, which was negatively impacted by charges for restructuring and impairment of $133.4 million, decreased $138.6 million from the operating income of $49.6 million in the fourth quarter of 2010, which included charges for restructuring and impairment of $5.0 million.

About RRD
RR Donnelley (Nasdaq:RRD) is a global provider of integrated communications. The Company works collaboratively with more than 60,000 customers worldwide to develop custom communications solutions that reduce costs, enhance ROI and ensure compliance. Drawing on a range of proprietary and commercially available digital and conventional technologies deployed across four continents, the Company employs a suite of leading Internet-based capabilities and other resources to provide premedia, printing, logistics and business process outsourcing products and services to leading clients in virtually every private and public sector.

Source: RRD.