RR Donnelley’s Net Earnings Cut in Half as Net Sales Slump

CHICAGO—Nov. 1, 2012—R.R. Donnelley & Sons reported third-quarter-2012 net earnings of $71.4 million on net sales of $2.5 billion, compared to net earnings of $158 million on net sales of $2.7 billion in the third quarter of 2011.

"While our top line continues to be pressured by challenging industry dynamics and ongoing global economic headwinds, we remained focused on managing our cost structure to drive improved operating earnings and margins in the third quarter," said Thomas J. Quinlan III, RR Donnelley's president and CEO. "As we close the year and look ahead to 2013, our focus on aggressively aligning the cost structure with revenue will remain intact."

Business Review
Net sales in the quarter were $2.5 billion, down $174.5 million, or 6.5 percent, from the third quarter of 2011. Pro forma for acquisitions, net sales decreased 6.9 percent due to volume declines, a 118 basis point unfavorable impact of changes in foreign exchange rates, price erosion and a 46 basis point unfavorable impact of lower pass-through paper sales.

Operating earnings in the third quarter of 2012 were $186.7 million, which were impacted by restructuring and impairment charges and acquisition-related expenses totaling $15.2 million, compared to operating earnings in the third quarter of 2011 of $156.8 million, which included restructuring and impairment charges and acquisition-related expenses totaling $34.9 million.

Excluding restructuring and impairment charges and acquisition-related expenses, non-GAAP operating income increased from $191.7 million in the third quarter of 2011 to $201.9 million in the third quarter of 2012. Lower variable compensation expense, lower pension expense, lower depreciation and amortization and productivity improvements more than offset lower volume, an unfavorable product mix, continued pricing pressure and unfavorable pricing on by-products.

Segments
The company reports its results in two reportable segments: U.S. Print and Related Services and International.

Net sales for the U.S. Print and Related Services segment decreased 6.4 percent from the third quarter of 2011 to $1.9 billion in the third quarter of 2012. Pro forma for acquisitions, net sales in the segment decreased 6.9 percent due to volume declines across most product offerings, lower pass-through paper sales of $18.6 million, or 93 basis points, and continued pricing pressure across the segment.

The segment's operating income of $178.7 million in the third quarter of 2012, which was negatively impacted by charges for restructuring and impairment of $9.4 million, increased $9.4 million from operating income of $169.3 million in the third quarter of 2011, which included charges for restructuring and impairment of $28.1 million.

The segment's non-GAAP operating income of $188.1 million in the third quarter of 2012 declined by $9.3 million from the third quarter of 2011, though the segment's non-GAAP operating margin of 10.1 percent in the third quarter of 2012 improved by 10 basis points from the third quarter of 2011, as productivity improvements, lower variable compensation expense and lower depreciation and amortization were partially offset by volume declines, an unfavorable product mix, unfavorable pricing on by-products and pricing pressure.

Net sales for the International segment of $655.4 million decreased 6.9 percent from the third quarter of 2011, inclusive of a 453 basis point unfavorable impact from changes in foreign exchange rates. The balance of the change in net sales was driven by timing shifts in Latin America, volume declines in Europe and pricing pressure across the segment, partially offset by volume increases in Asia, Global Turnkey Solutions and Business Process Outsourcing and higher pass-through paper sales.

The segment's operating income of $27.5 million in the third quarter of 2012, which was negatively impacted by charges for restructuring of $4.4 million, decreased by $9.2 million from operating income of $36.7 million in the third quarter of 2011, which included charges for restructuring of $4.6 million.

About RRD
RR Donnelley (Nasdaq:RRD) is a global provider of integrated communications. The Ccmpany works collaboratively with more than 60,000 customers worldwide to develop custom communications solutions that reduce costs, drive top-line growth, 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 services to clients in virtually every private and public sector.

Source. RRD.