A leading provider of printing solutions R.R. Donnelley & Sons Co. (RRD) announced that it has won a multiyear contract from SourceMedia to create magazines and provide digital and commercial printing services, thereby optimizing postal savings by offering co-mail and co-palletization services. Financial details of the deal were not disclosed.
SourceMedia provides information, data and software to clients in the banking, financial services and other technology field. SourceMedia will draw on R.R. Donnelley’s domestic and international capabilities.
Previously, R.R. Donnelley announced that it had been awarded a $375 million contract to provide college textbook printing and other services to Cengage Learning. Cengage Learning publishes materials under imprints, including Brooks/Cole, Course Technology, Wadsworth and others.
R.R. Donnelley is the largest printing company in the U.S., providing various global printing services to a wide variety of businesses worldwide, as well as related services such as logistics and distribution for print customers and mailers. The company is a global provider of integrated communications and a dominant player in the commercial printing industry.
R.R. Donnelley’s services include graphic management services, packaging, on-demand printing and other services. The company had earlier been chosen by AT&T (T) to provide printing services to AT&T’s Advertising Solutions.
The company has been able to gain market share due to its comprehensive global manufacturing and service platforms and its strong relationship with blue-chip customers. We believe strategic win is critical for R.R. Donnelley’s growth, which will expand the company’s printing services. Moreover, these customer wins will add to the company’s revenue growth.
In an effort to grow its business, the company is signing new contracts and seeking out new alliances and partners for its printing services. We believe these strong alliances and customer wins will create value for the company in the long term. Moreover, R.R. Donnelley plans to leverage its existing customer base to generate organic growth in 2010.
Long-Term Neutral
We expect R.R. Donnelley’s revenue growth to pick up by 2011 as printing demand gains momentum. Meanwhile, cost containment efforts will improve margins and leverage growth in earnings.
However, the U.S. forms, labels and statement printing business bear the brunt of weak industry pricing. According to management, this business faces several challenges, such as electronic substitution and pricing pressure.
Moreover, lower paper prices and reduced demand for catalog, magazine and retail, colored books, logistics, office products, commercial print and direct mail product offerings and negative impact of price erosion in commercial print, catalog magazine and retail and forms and labels businesses are expected to lower sales of R.R. Donnelley’s U.S. Print and Related Services segment.
The company reported non-GAAP net income of $69.5 million, or 33 cents per share in the first quarter of 2010. This surpassed the reported net income of $49.2 million or 24 cents per share in the first quarter of 2009 and the Zacks Consensus Estimate of 30 cents. Lower operating expenses boosted the bottom line.
R.R. Donnelley reaffirmed its revenues and cash flow guidance and expects demand to stabilize and as a result, the company expects revenue growth in fiscal 2010. The company’s aggressive acquisition policy, debt repayment initiative, impressive cash flow and stable dividend payout are promising.
We see some upside to the stock in the near term, which is reflected in our short-term Outperform rating (for the next 1-3 months), implying a Zacks #2 Rank. However, over the long term (in the next 6-to-12 months), we have a Neutral rating on R.R. Donnelley.
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