News Details

Total Debt Down $273 Million From Year Ago Period; Cumulative Reduction Since 2016 Now Totals $569 Million

Year End Availability Under Credit Facility of $634 Million Sufficient to Repay Upcoming 2020 and 2021 Maturities; Highest Level of Availability Since 2016 Spin

Issues 2020 Guidance – Midpoint Would Reflect Significant Improvement in EPS and Cash Flow; Expects Additional Cash From Monetizing Assets

CHICAGO--(BUSINESS WIRE)--R.R. Donnelley & Sons Company (NYSE: RRD) (“RRD” or the “Company”) today reported financial results for the fourth quarter and full year of 2019.

Full year key messages

• Reported net sales, including the impact of dispositions and FX, declined 7.7%; organic net sales declined 2.3%
• GAAP loss per share of $1.31 includes a fourth quarter goodwill impairment charge of $1.38 per share; Non-GAAP adjusted earnings per share of $0.66 includes a fourth quarter charge of $0.09 cents per share for a state tax valuation allowance
• GAAP income from operations down 52.7% for the year; Non-GAAP adjusted income from operations improves 1.1% from prior year and adjusted operating margin improves 34 bps
• Reduced total debt by $273 million from prior year while increasing investments for strategic projects; total liquidity, including availability on credit facility and cash on hand, exceeds $800 million

“Despite a challenging industry backdrop, I am pleased to report that we delivered solid full year results in 2019,” said Dan Knotts, RRD President and Chief Executive Officer. “For the year, we reported growth in adjusted income from operations and expanded operating margins by improving our core operating performance, leveraging our extensive portfolio of capabilities to expand existing client relationships, and continuing to win new clients. Further, we significantly reduced our debt outstanding and expanded our liquidity in line with our strategic focus to improve our balance sheet flexibility. As we look to 2020, we have a strong client opportunity pipeline, a relentless focus on lowering our cost to serve, and a strengthened financial position to execute our strategy as a leading marketing and business communications company.”

Financial highlights

The following tables provide an overview of RRD’s financial performance:

(1) See pages 9 and 10 for a complete listing of items excluded and a reconciliation of GAAP to non-GAAP measures.

Net sales in the quarter were $1.63 billion, down $137.2 million or 7.8% from the fourth quarter of 2018. The decrease includes a $78.2 million impact from business dispositions and a $5.6 million reduction due to changes in foreign exchange rates. On an organic basis, consolidated net sales declined 3.0%. The Marketing Solutions segment grew 12.4% organically driven by higher volumes in the Direct Marketing and Digital Print product categories. The Business Services segment was down 6.6% organically due primarily to declines in Commercial Print and Logistics, partially offset by growth in Labels.

Loss from operations was $19.4 million in the fourth quarter compared to income from operations of $90.0 million in the fourth quarter of 2018. The fourth quarter of 2019 included a non-cash charge of $98.5 million to recognize the impairment of goodwill in the logistics reporting unit and net restructuring and other charges of $6.0 million. Prior year GAAP results included restructuring and other charges of $16.0 million.

Non-GAAP adjusted income from operations of $93.8 million decreased $13.2 million from the prior year period. The decrease was primarily due to lower sales, inflationary cost increases, higher variable compensation expense and lower by-product recoveries, partially offset by productivity improvements.

Loss per share attributable to common stockholders was $1.26 in the fourth quarter of 2019 compared to a loss per share of $0.32 in the fourth quarter of 2018. The fourth quarter of 2019 included a $1.38 loss per share for the non-deductible goodwill impairment charge. The fourth quarter of 2018 included a $0.45 loss per share on debt extinguishments and a $0.32 loss per share for adjustments related to the provisional one-time transition tax initially recorded at December 31, 2017.

Non-GAAP adjusted earnings per share attributable to common stockholders of $0.44 in the fourth quarter of 2019 declined from $0.64 in the fourth quarter of 2018 primarily due to higher taxes which included a $0.09 per share charge associated with a state tax valuation allowance and lower adjusted income from operations, partially offset by lower interest expense.

Other highlights and information

Cash provided by operating activities of $227.1 million in the fourth quarter of 2019 decreased $40.3 million versus the prior year period amount. Cash provided by operating activities during the twelve months ended December 31, 2019 was $139.3 million compared to $203.5 million in the prior year period. The full year decrease is primarily related to higher tax and restructuring payments. Capital expenditures in the twelve months ended December 31, 2019 were $138.8 million versus $104.4 million in the prior year period. The 2019 amount includes incremental investments from the previously announced construction of a new facility in China and the 2020 Census project. Proceeds from other asset sales, including non-refundable deposits collected, were $65.4 million in 2019.

During the fourth quarter of 2019, the Company repatriated an additional $71 million of international cash to the US, bringing the full year total to $327 million. Net proceeds were used primarily to reduce debt outstanding. During 2020, the Company expects to repatriate an additional $50 million to $75 million of international cash.

As of December 31, 2019, cash on hand was $190.8 million, down $179.8 million from 2018, and total debt outstanding was $1.82 billion, down $273 million from 2018. Availability under the credit facility was $633.7 million at December 31, 2019, up $109.7 million from 2018.

2020 guidance

The Company provides its full year guidance as follows:

“Our 2020 guidance reflects our focus on winning new business, further strengthening our core operating performance and reducing the cost of our capital structure,” said Terry Peterson, RRD Executive Vice President and Chief Financial Officer. “While uncertainties regarding the impact of COVID-19 remain, we plan to continue our aggressive focus on executing our strategy by both adding and expanding client relationships, lowering our cost to serve and further rationalizing our operating platform. The mid-point of our guidance would reflect a significant improvement in both EPS and cash flow which includes benefits from lower interest and taxes.”

Mr. Peterson continued, “Disciplined management of our capital structure has been a key area of focus for our team since we’ve been together. We have executed multiple actions to reduce our interest expense in 2020, including reducing outstanding debt and lowering the effective interest rate by executing interest rate swaps to lock in attractive fixed rates on a substantial portion of our term loan. As is always the case, we are continuously evaluating opportunities to improve our cost of capital against market conditions and execution costs, and will continue to take advantage of value creating opportunities when appropriate. We have reduced our total debt by $569 million from 2016 year-end levels and we exited 2019 with well over $600 million of availability on our ABL which represents our highest level reported since 2016. While we have ample capacity under our ABL to retire our 2020 and 2021 maturities, we will continue evaluating opportunities to extend our capital structure and improve our cost of capital, maturity profile and execution costs. We also remain highly focused on further expanding our financial flexibility through both positive cash flow and additional proceeds from monetizing assets, including facility sales and potential business dispositions.”

Conference call

RRD will host a conference call to discuss its fourth quarter results on Wednesday, February 26, 2020 at 11:00 a.m. Eastern Time (10:00 a.m. Central Time). Participants may listen to the call by dialing 409.207.6985 (access code 4874542#). For those unable to listen live, a telephonic replay of the call will be available until April 30, 2020 at 402.970.0847 (access code 2160311#).

A slide presentation will be available on the Investors section of the RRD web site at www.rrd.com or by clicking through this link.

About RRD

RRD is a leading global provider of multichannel business communications services and marketing solutions. With more than 50,000 clients and 36,400 employees across 29 countries, RRD offers the industry’s most comprehensive offering of solutions designed to help companies—from Main Street to Wall Street—optimize customer engagement and streamline business operations across the complete customer journey. RRD offers a comprehensive portfolio of capabilities, experience and scale that enables organizations around the world to create, manage, deliver, and optimize their marketing and business communications strategies.

For more information, visit the Company's web site at www.rrd.com.

Use of non-GAAP information

This news release contains non-GAAP financial measures, including non-GAAP SG&A, non-GAAP income from operations, non-GAAP Adjusted EBITDA, non-GAAP effective tax rate, non-GAAP net earnings (loss) attributable to common stockholders, non-GAAP diluted earnings (loss) per share and non-GAAP organic net sales. The Company believes that these non-GAAP measures, when presented in conjunction with comparable GAAP measures, provide useful information about its operating results and enhance the overall ability to assess the Company’s financial performance. These measures should be considered in addition to, and not as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. RRD uses these non-GAAP measures, together with other measures of performance under GAAP, to compare the relative performance of operations in planning, budgeting and reviewing the performance of its business. Additional information relating to the adjustments for the non-GAAP SG&A, non-GAAP income from operations, non-GAAP Adjusted EBITDA, non-GAAP effective tax rate, non-GAAP net earnings (loss) attributable to common stockholders, non-GAAP diluted earnings (loss) per share and non-GAAP organic net sales for RRD is set forth in the attached schedules.

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 the Company and its expectations relating to future financial condition and performance. These statements include all those under the column labeled “Current Guidance February 25, 2020” in the table included under the “2020 Guidance” section. Statements that are not historical facts, including statements about RRD’s 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 RRD 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 RRD’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 RRD’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 the “Risk Factors” section in RRD’s Form 10-K for the fiscal year ended December 31, 2019, and other filings with the SEC and in other investor communications of RRD from time to time. RRD does not undertake to and specifically disclaims 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.

(1) Exclusive of depreciation and amortization.