Business News
RR Donnelley Reports Second-Quarter 2009 Results
Wednesday 05. August 2009 - Second-quarter 2009 GAAP net earnings from continuing operations attributable to common shareholders of $25.2 million or $0.12 per diluted share vs. $145.1 million or $0.68 per diluted share in the second quarter of 2008
Second-quarter 2009 non-GAAP net earnings attributable to common shareholders of $76.3 million or $0.37 per diluted share compared to $156.4 million or $0.73 per diluted share in the second quarter of 2008
Year-to-date cash flow from operations of $851 million, an increase of $478 million from the first six months of 2008
R.R. Donnelley & Sons Company (NASDAQ:RRD) today reported second-quarter net earnings from continuing operations attributable to common shareholders of $25.2 million or $0.12 per diluted share on net sales of $2.4 billion compared to net earnings from continuing operations attributable to common shareholders of $145.1 million or $0.68 per diluted share on net sales of $2.9 billion in the second quarter of 2008. The second-quarter net earnings from continuing operations attributable to common shareholders included pre-tax charges for restructuring ($40.1 million) and impairment ($8.1 million) totaling $48.2 million as well as acquisition-related expenses of $1.4 million in 2009 and for restructuring ($15.8 million) and impairment ($0.4 million) totaling $16.2 million in 2008. Substantially all of the restructuring charges in both the second quarter of 2009 and the second quarter of 2008 were associated with the reorganization of certain operations and the exiting of certain business activities. The Companys effective tax rate increased to 64.6% in the second quarter of 2009 from 33.5% in the second quarter of 2008 reflecting the Companys expectation of a higher full-year effective tax rate in 2009. The higher full-year tax rate is primarily driven by the impact of foreign restructuring and impairment charges on which the Company does not expect to realize tax benefits at a rate equivalent to the U.S. statutory tax rate.
The company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP (Generally Accepted Accounting Principles) measures, are useful because that information is an appropriate measure for evaluating the companys operating performance. Internally, the company uses this non-GAAP information as an indicator of business performance, and evaluates managements effectiveness with specific reference to these indicators. These measures should be considered in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.
Non-GAAP net earnings attributable to common shareholders totaled $76.3 million or $0.37 per diluted share in the second quarter of 2009 compared to $156.4 million or $0.73 per diluted share in the second quarter of 2008. Second-quarter non-GAAP net earnings attributable to common shareholders exclude restructuring and impairment charges for both years, acquisition-related expenses in 2009 and income from discontinued operations in 2008. For non-GAAP comparison purposes, the effective tax rate increased to 37.5% in the second quarter of 2009 from 33.3% in the second quarter of 2008 primarily due to the loss of tax benefits in certain foreign tax jurisdictions in 2009. A reconciliation of GAAP net earnings attributable to common shareholders to non-GAAP net earnings attributable to common shareholders is presented in the attached tables.
“We continued to be impacted by the global economic recession during the second quarter, as most of the end-markets that we serve experienced reduced demand. The pace of decline was similar to that which we experienced during the first quarter and consistent with our expectations,” said Thomas J. Quinlan III, RR Donnelley’s President and Chief Executive Officer. “During the first six months of 2009, our focused management of costs and working capital has resulted in cash flow from operations of over $850 million, an increase of nearly $480 million from the prior year.”
Quinlan added, “We are focused on maximizing cash flow and maintaining liquidity. Despite the challenging operating environment, over the past 12 months we have reduced our debt level by nearly $800 million and ended the second quarter of 2009 with available liquidity of $2.4 billion.”
Business Review (Continuing Operations)
The company reports its results in two reportable segments: 1) U.S. Print and Related Services and 2) International. The company reports as Corporate its unallocated expenses associated with general and administrative activities.
Summary
Net sales in the quarter were $2.4 billion, down 19.4% from the second quarter of 2008 including a 3.0% negative impact from changes in foreign exchange rates. The remaining decrease was caused by volume declines and continued price pressures across most products and services due to the global economic slowdown. Gross margin decreased to 25.4% in the second quarter of 2009 from 26.7% in the second quarter of 2008 due to price and volume declines and lower by-products recovery, offset in part by the benefits of our continued productivity efforts and lower variable compensation expense. SG&A expense as a percentage of net sales in the second quarter of 2009 increased to 11.6% from 11.1% in the second quarter of 2008 as the impact of the net sales decline and higher acquisition-related expenses more than offset the benefit of productivity efforts. Operating margin, which was negatively impacted by charges for restructuring and impairment of $48.2 million in the second quarter of 2009 and $16.2 million in the second quarter of 2008, as well as acquisition-related expenses of $1.4 million in the second quarter of 2009, decreased to 5.7% in the second quarter of 2009 from 9.5% in the second quarter of 2008.
Excluding charges for restructuring and impairment and acquisition-related expenses, the non-GAAP operating margin in the second quarter of 2009 decreased to 7.8% from 10.0% in the second quarter of 2008, as the benefits from our productivity efforts and lower expense for variable compensation were more than offset by volume and price declines.
Segments
Net sales for the U.S. Print and Related Services segment in the quarter decreased 17.6% to $1.8 billion from the second quarter of 2008 due to volume and price declines across all products and services. The segments operating margin, which was negatively impacted by charges for restructuring and impairment of $26.0 million in the second quarter of 2009 and $3.9 million in the second quarter of 2008, decreased to 7.8% in the second quarter of 2009 from 13.1% in the second quarter of 2008. Excluding restructuring and impairment charges, the segments non-GAAP operating margin decreased to 9.2% in the second quarter of 2009 from 13.3% in the second quarter of 2008, as the impact of volume and price declines and lower by-products recovery were only partially offset by the benefits of continued productivity efforts and lower variable compensation expense.
Net sales for the International segment in the quarter decreased 24.6% to $574.4 million from the second quarter of 2008 including an 11.4% negative impact from changes in foreign exchange rates. The remaining decrease was caused by volume declines in most product lines and price pressure in Europe and Asia. The segments operating margin, which was negatively impacted by charges for restructuring and impairment of $20.9 million in the second quarter of 2009 and restructuring charges of $9.2 million in the second quarter of 2008, decreased to 4.0% in the second quarter of 2009 from 5.1% in the second quarter of 2008. Excluding restructuring and impairment charges, the segments non-GAAP operating margin increased to 7.6% in the second quarter of 2009 from 6.3% in the second quarter of 2008 as favorable changes in foreign exchange rates, the elimination of amortization expense on certain intangible assets that were impaired in the fourth quarter of 2008, the benefits of continued productivity efforts and lower variable compensation expense more than offset the impact of volume and price declines.
Unallocated Corporate operating expense decreased to $26.4 million in the second quarter of 2009 from $44.7 million in the second quarter of 2008. Excluding restructuring charges of $1.3 million and acquisition-related expenses of $1.4 million in the second quarter of 2009 and restructuring and impairment charges of $3.1 million in the second quarter of 2008, Corporate operating expense decreased $17.9 million to $23.7 million in the second quarter of 2009, primarily due to lower LIFO inventory provisions, continued cost controls and lower variable compensation expense.