State of the Printing Industry Q2 Update: Profitability Pressures and a Surge in AI

Every quarter, PRINTING United Alliance and NAPCO Research survey the state of the printing industry. Our most recent survey, conducted in August 2024, found profitability remains a top concern, interest in artificial intelligence is growing, and sustained success requires using all tools — including AI — to maximize productivity companywide, build superior data analytics, and tackle disruptive change while maintaining focus on business fundamentals.

The 104 participants collectively produce products ranging from direct mail to window graphics to promotional product imprinting and have annual sales (all sources) ranging from less than $1 million to more than $250 million.

Results varied dramatically from company to company through midyear. On average, however:

• Sales grew just 1.1%, increasing for 43.0% but flat or decreasing for 57.0%. And while 21.0% report sales increased 10.0% or more, nearly as many, 18.0%, report sales declined 10.0% or more.
• Operating cost inflation outpaced price increases 5.2% to 3.8% as a variety of costs, including employee compensation, insurance, debt service, and transportation, continued to rise and resistance to price increases stiffened.
• Real (inflation-adjusted) sales, a measure of production, decreased 2.7%, falling 5.0% or more for 41.0% and 10.0% or more for 25.0%.

The result was a textbook profit squeeze, with pre-tax profitability increasing during the first half of 2024 for just 30.8% of the participants in our research, flat for 26.9%, and decreasing for 42.3%. Where profitability did increase (or at least didn’t decrease), it was largely because of something a company has done, such as investing to boost productivity, selling and marketing more effectively, or diversifying their customer base and products, rather than anything the economy or markets have done for them. In fact, nearly 71.0% report that the economy, interest rates, and inflation have negatively affected their businesses this year.

We asked about capital investment plans. We learned that 84.2% expect to purchase equipment, hardware, or software over the next 12-18 months, with artificial intelligence applications topping the list. Bindery/finishing systems, digital infrastructure, e-commerce solutions, workflow software, and management intelligence systems follow. Among companies planning a capital investment, 88.2%, the highest percentage by far, are investing to increase productivity.

Click to Enlarge.

We also learned that interest in AI is growing, with 62.4% of our research panel either using AI or planning to within the next year, up significantly from 50.7% in September 2023. A representative commented: “We feel very strongly about our organization learning about and using AI because if we don’t, our competitors are going to pass us by.”

Throughout our survey, participants shared their opinions about who’s going to excel in the long-term. There was broad-based agreement that across printing segments and for companies of all types and sizes, three actions will be essential:

• Maximize productivity companywide. Artificial intelligence can automate processes from estimating to billing we could never automate before – i.e., automation is no longer limited to production. Every hour saved by automating a time-consuming, low-value task is an hour that can be devoted to activities that create the most value for clients, employees, and the company.
• Create superior databases and data analytics. It’s all about the data. And not just “structured” data that fits neatly into Excel spreadsheets but “unstructured” data such as audio files, video files, text files, and data generated by Internet of Things sensors. AI’s ability to analyze unstructured data vastly expands the intelligence on which to base decisions, increasing the odds of getting it right the first time in an industry in which an unforgiving business climate is elevating both the return to making the right decisions and the cost of making the wrong ones.
• Maintain focus on timeless business fundamentals. It’s easy to lose sight of the fundamentals given disruptive new technologies such as AI, boundaries between who does what, how, and for whom breaking down, and everything else happening in our industry. The fundamentals state of the industry participants plan to pay particularly close attention to include "everything that affects profit,” "billing for things we were giving away,” maintaining accurate budgeted hourly cost rates, focusing on more profitable, higher value-added work, "firing bad clients," marketing the value created for clients rather than capabilities and features alone, and diversifying selectively by pursuing opportunities that best match our capabilities, circumstances, and resources – i.e., “focusing on what we are good at.”

Complete results of our survey are published in State of the Industry Update, Second Quarter 2024, sponsored by Canon U.S.A., Inc. Additional topics include artificial intelligence applications used and the AI experience to date, sales expectations for more than 40 printed products, the importance of fusing human intelligence and artificial intelligence, how to market sustainability, and how the Entrepreneurial Operating System® can help companies of all types define a best course and staying on that course. PRINTING United Alliance members can download the report and non-members can download an executive summary here.