R.R. Donnelley & Sons (RRD), a leader in the commercial printing industry, is scheduled to report fourth-quarter 2009 results on February 24, before the market opens.
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.
During the third quarter earnings release, management said that it expects sequential revenue growth in the fourth quarter in the low single digits. Non-GAAP operating margin is expected to be between 125 – 175 basis points lower than the third quarter of 2009 due to the absence of some of the third-quarter benefits. Free cash flow was expected to exceed $1 billion in 2009. However, the company did not provide an earnings forecast.
Zacks Estimate Revisions Watch
The earnings outlook for the full-year 2009 appears far less robust than in the recent past. The Zacks Consensus Estimate for the full year is $1.58 per share, with no upward or downward revisions in the last 30 days. However, this is a huge decline from the year-ago period, when Donnelley reported earnings of $2.92 a share. We believe the challenging economic environment in 2009 impacted end-market demand and forced the company to lower prices, thereby hurting profits.
The current Zacks Consensus Estimate for the fourth quarter is 43 cents, which has seen no revisions in the last three months. However, it is a decline of 31.7% reported in the same quarter last year. We do not see any surprises this quarter, with earnings expected to be in-line with the current Zacks Consensus.
But RRD’s quarterly results were not always devoid of surprises. The company’s third-quarter earnings of 54 cents beat the Zacks Consensus Estimate of 43 cents by 11 cents. This was despite a huge decline from the year-ago period.
Donnelley has posted positive surprise in 3 of the 4 preceding quarters. The average surprise for the last four quarters (including the third quarter of 2009) is 9.6%. However, we expect earnings surprises to be non-existent for the current year and next.
Longer-Term Outlook
We expect revenue growth to pick up, as the effects of the recession are expected to wear off by fiscal 2011. Meanwhile, cost-containment efforts will improve margins and leverage growth in earnings.
The company’s aggressive acquisition policy, debt repayment initiative and an attractive regular dividend payout (5% yield) are other positives. In our opinion, RRD has sound fundamentals and a number of competitive advantages which have enabled it to generate impressive cash flow. Thus we remain positive on RRD’s long-term value for investors.
However, the lack of estimate revisions, in either direction, in the company’s Zacks Consensus implies an almost flat performance for the current year. Additionally, the highly leveraged balance sheet and integration related risk are of concern, as reflected in its Zacks #3 Rank (short-term Neutral rating).
Read the full analyst report on “RRD”
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