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RR Donnelley Reports Second-Quarter 2014 Results

07/29/2014

CHICAGO, July 30, 2014 (GLOBE NEWSWIRE) -- R.R. Donnelley & Sons Company (Nasdaq:RRD) today reported financial results for the second quarter of 2014:

Highlights:

  • Second-quarter net sales of $2.9 billion grew 12.9% from the second quarter of 2013; organic net sales grew 0.8% from the second quarter of 2013
  • Second-quarter GAAP net earnings attributable to common shareholders of $64.7 million, or $0.32 per diluted share, compared to GAAP net earnings attributable to common shareholders in the second quarter of 2013 of $65.4 million, or $0.36 per diluted share
  • Second-quarter non-GAAP net earnings attributable to common shareholders of $84.4 million, or $0.42 per diluted share, compared to non-GAAP net earnings attributable to common shareholders in the second quarter of 2013 of $82.5 million, or $0.45 per diluted share
  • Non-GAAP adjusted EBITDA in the quarter of $325.6 million increased by $21.5 million, or 7.1%, from the second quarter of 2013
  • Company reiterates full-year 2014 guidance for net sales, non-GAAP adjusted EBITDA margin and free cash flow

"The positive momentum we experienced late in the first quarter carried through into the second quarter, where we returned to positive year-over-year organic revenue growth, generated higher EBITDA and reduced our total debt in the quarter by approximately $70 million," said Thomas J. Quinlan III , RR Donnelley's President and Chief Executive Officer. "As we begin the second half of the year, our year-to-date performance, including the on-boarding and integration of our acquisitions that closed in the first quarter, keeps us on track to deliver our full-year guidance. Our expectation for free cash flow, in the range of $400 million to $500 million, allows us to continue to migrate toward our targeted gross leverage range of 2.25x to 2.75x on a long-term sustainable basis."

Net Sales

Net sales in the quarter were $2.9 billion, up $330.9 million, or 12.9%, from the second quarter of 2013, largely due to the acquisitions of Consolidated Graphics and the North American operations of Esselte. After adjusting for the positive impact of acquisitions and pass-through paper sales, and the negative impact of dispositions, organic sales increased 0.8% from the second quarter of 2013, as volume increases in the Strategic Services and Variable Print segments were partially offset by price erosion in each segment and volume declines in the Publishing and Retail Services segment.

GAAP Earnings

Second-quarter 2014 net earnings attributable to common shareholders was $64.7 million, or $0.32 per diluted share, compared to net earnings attributable to common shareholders of $65.4 million, or $0.36 per diluted share, in the second quarter of 2013. The second-quarter 2014 diluted share count increased by 18.2 million shares from the second quarter of 2013, primarily related to shares issued in connection with the acquisitions of Consolidated Graphics and the North American operations of Esselte. The second-quarter net earnings attributable to common shareholders included pre-tax charges of $28.3 million and $25.4 million in 2014 and 2013, respectively, all of which were excluded from the presentation of non-GAAP net earnings attributable to common shareholders. Additional details regarding the amount and nature of these and other items are included in the attached schedules.

Non-GAAP Earnings

Second-quarter 2014 non-GAAP adjusted EBITDA was $325.6 million, or 11.2% of net sales, compared to non-GAAP adjusted EBITDA of $304.1 million, or 11.8% of net sales, in the second quarter of 2013. The increase in non-GAAP adjusted EBITDA was due to the acquisitions of Consolidated Graphics and the North American operations of Esselte, as well as higher volume. These increases were partially offset by price pressure in each segment and wage and other cost inflation, all of which also negatively impacted margin. 

Non-GAAP net earnings attributable to common shareholders totaled $84.4 million, or $0.42 per diluted share, in the second quarter of 2014 compared to $82.5 million, or $0.45 per diluted share, in the second quarter of 2013. The second-quarter 2014 diluted share count increased by 18.2 million shares from the second quarter of 2013, primarily related to shares issued in connection with the acquisitions of Consolidated Graphics and the North American operations of Esselte. Second-quarter non-GAAP net earnings attributable to common shareholders excluded pre-tax charges and other adjustments of $28.3 million and $25.4 million in 2014 and 2013, respectively. A reconciliation of net earnings attributable to common shareholders to non-GAAP adjusted EBITDA and non-GAAP net earnings attributable to common shareholders is presented in the attached schedules.

2014 Guidance

The Company provides the following updated full-year guidance for 2014:

 
  Current Guidance Previous Guidance
Net sales $11.5 to $11.8 billion $11.5 to $11.8 billion
Non-GAAP adjusted EBITDA margin 10.5% to 11.0% 10.5% to 11.0%
Depreciation and amortization $480 to $490 million $485 to $495 million
Interest expense $275 to $285 million $275 to $285 million
Non-GAAP effective tax rate 34% to 36% 33% to 35%
Diluted share count Approximately 200 million Approximately 200 million
Capital expenditures $225 to $250 million $225 to $250 million
Free cash flow(1) $400 to $500 million $400 to $500 million
(1)  Defined as operating cash flow less capital expenditures
 

Conference Call

RR Donnelley will host a conference call and simultaneous webcast to discuss its second-quarter results today, Wednesday, July 30, at 10:00 a.m. Eastern Time (9:00 a.m. Central Time). The live webcast will be accessible on RR Donnelley's web site: www.rrdonnelley.com. Individuals wishing to participate must register in advance at http://www.meetme.net/rrd. After registering, participants will receive dial-in numbers, a passcode, and a personal identification number (PIN) that is used to uniquely identify their presence and automatically join them into the audio conference. A webcast replay will be archived on the Company's web site for 30 days after the call. In addition, a telephonic replay of the call will be available for seven days at 630.652.3042, passcode 8850237#.

About RR Donnelley

RR Donnelley (Nasdaq:RRD) helps organizations communicate more effectively by working to create, manage, produce, distribute and process content on behalf of our customers. The company assists customers in developing and executing multichannel communication strategies that engage audiences, reduce costs, drive revenues and increase compliance. RR Donnelley's innovative technologies enhance digital and print communications to deliver integrated messages across multiple media to highly targeted audiences at optimal times for clients in virtually every private and public sector. Strategically located operations provide local service and responsiveness while leveraging the economic, geographic and technological advantages of a global organization.

For more information, and for RR Donnelley's Global Social Responsibility Report, visit the company's web site at http://www.rrdonnelley.com.

Use of non-GAAP Information

This news release contains certain non-GAAP measures. The Company believes that these non-GAAP measures, when presented in conjunction with comparable GAAP measures, are useful because that information is an appropriate measure for evaluating the Company's operating performance. Internally, the Company uses this non-GAAP information as an indicator of business performance, and evaluates management's 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.

Use of Forward-Looking Statements

This news release includes certain "forward-looking statements" within the meaning of, and subject to the safe harbor created by, Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the business, strategy and plans of RR Donnelley and its expectations relating to future financial condition and performance. These statements include all of the items under the column labeled "Current Guidance" in the table included under the "2014 Guidance" section. Statements that are not historical facts, including statements about RR Donnelley management's beliefs and expectations, are forward-looking statements. Words such as "believes," "anticipates," "estimates," "expects," "intends," "aims," "potential," "will," "would," "could," "considered," "likely," "estimate" and variations of these words and similar future or conditional expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. While RR Donnelley believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond RR Donnelley's control. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend upon future circumstances that may or may not occur. Actual results may differ materially from RR Donnelley's current expectations depending upon a number of factors affecting the business and risks associated with the performance of the business. These factors include such risks and uncertainties detailed in RRD's periodic public filings with the SEC, including but not limited to those discussed under "Risk Factors" in RRD's Form 10-K for the fiscal year ended December 31, 2013, those discussed under "Cautionary Statement" in RRD's quarterly Form 10-Q filings, and other filings with the SEC and in other investor communications of RRD from time to time. RR Donnelley does not undertake to and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

 R. R. Donnelley & Sons Company 
Condensed Consolidated Balance Sheets
As of June 30, 2014 and December 31, 2013
(UNAUDITED)
(in millions, except per share data)
   
   June 30, 2014   December 31, 2013 
Assets     
     
Cash and cash equivalents   $ 288.9  $ 1,028.4
Receivables, less allowances for doubtful accounts  2,083.3 1,832.3
Inventories  586.4 501.2
Prepaid expenses and other current assets  244.3 199.7
Total Current Assets   3,202.9  3,561.6
Property, plant and equipment - net  1,650.0 1,430.1
Goodwill  1,736.6 1,436.3
Other intangible assets - net  481.4 315.9
Deferred income taxes  86.7 118.8
Other noncurrent assets  389.3 375.5
Total Assets   $ 7,546.9  $ 7,238.2
     
Liabilities     
     
Accounts payable   $ 1,124.5  $ 1,143.0
Accrued liabilities  817.5 814.8
Short-term and current portion of long-term debt  406.4 270.9
Total Current Liabilities   2,348.4  2,228.7
Long-term debt  3,428.9 3,587.0
Pension liabilities  198.8 245.2
Other postretirement benefits plan liabilities  179.0 174.1
Other noncurrent liabilities  477.0 349.5
Total Liabilities   6,632.1  6,584.5
     
Equity     
     
Common stock, $1.25 par value   323.7  303.7
Authorized shares: 500.0     
Issued shares: 259.0 in 2014 (2013 - 243.0 shares)     
Additional paid-in capital  3,032.8 2,802.4
Accumulated deficit  (536.9) (473.4)
Accumulated other comprehensive loss  (485.8) (488.1)
Treasury stock, at cost, 59.2 shares in 2014 (2013 - 61.2 shares)  (1,439.4) (1,512.8)
Total RR Donnelley shareholders' equity  894.4 631.8
Noncontrolling interests  20.4 21.9
Total Equity   914.8  653.7
Total Liabilities and Equity   $ 7,546.9  $ 7,238.2
 
 
R. R. Donnelley & Sons Company 
Condensed Consolidated Statements of Operations 
For the Three and Six Months Ended June 30, 2014 and 2013 
 (UNAUDITED) 
 (in millions, except per share data)                         
     
   For the Three Months Ended June 30,   For the Six Months Ended June 30, 
  2014
GAAP
 ADJUSTMENTS
TO NON-GAAP
2014
NON-GAAP
2013
GAAP
ADJUSTMENTS
TO NON-GAAP
2013
NON-GAAP
2014
GAAP
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