Saturday, August 8, 2009

Why I've always liked the "Reprographics" business better than the "Printing" business

I think I mentioned in one of my early posts (around the time I began my blog-site) that the "reprographics" business is different from the "printing" business. One of those differences, and this has long been a key difference between the reprographics industry and the printing industry, is "profitability". Simply put, it has long been known (by the owners in the reprographics industry) that reprographics companies are, pound for pound, more profitable, than printing companies.

I began my career in the reprographics business. A few years after I got involved in what was then a small family business, I decided to expand our reprographics company's business to include "offset printing" services. What did I know, anyway? Why not try something new? What, me worry? (Note that "digital" was not yet a word used in the Printing & Graphics Industry way back then.) So, we bought a couple of offset presses, a platemaker and the rest of the "stuff" that one needs to be in the offset printing business. (All of that proved to be a minor headache, but, whatever, I was young and had a ton of energy.)

Although it was not difficult to grow the offset printing part of our company's business, it proved to be a real drain on focus and time, and the money (profitability) was not worth the aggravation. Later on, shortly after we completed what was a "key merger" transaction (at which time I acquired two partners, Gary Rowley and John Scher Zeller), our senior partner, Gary Rowley (a very astute business person and, still today, I have not yet met anyone - in the industry - who has the sales and marketing sense and prowess that he had), suggested to us that we discontinue our offset printing operations - - so that we could focus all of our time and efforts on growing our then rapidly growing reprographics business. Instead of simply discontinuing our offset printing operations, we sold them. That was nice, gave us some extra cash to invest in our reprographics business. Okay, enough of the old-time nostalgia crap.

ARC just reported its April-June 2009 QTR results. ARC is "primarily" a reprographics company (yes, I know, it also has technology offerings, including software and services.)

Consolidated Graphics recently reported its April-June 2009 QTR results. CGX is "primarily" an offset printing company.

Both ARC and Consolidated Graphics have grown by acquisition (roll-up) and by internal growth.

Both have taken on debt to leverage growth.

Key differences, however, are:

1) Pound for pound, ARC is more profitable than CGX (gross profit-wise and pre-tax-income-wise)

2) ARC's Total Net Sales declined 29% from the QTR one year earlier. In spite of that significant percentage decline in sales, ARC remains profitable. CGX's Total Net Sales declined around 21% from the QTR one year earlier. And, that decline pushed CGX into a loss position.

3) Check out the comparative Gross Profit percentages of the two companies - huge difference in GP's. Check out the comparative Pre-Tax Income percentages of the two companies - huge difference in Pre-Tax Profit percentages.

4) This comparison should also give comfort to ARC shareholders that ARC's management team is doing an outstanding job, so far, managing the business through a very difficult recession.

Sorry, but I've not yet figured out how to cut and paste tables into my blog-site post window. So, the numbers below will be bit difficult to read.

American Reprographics (Symbol: ARP)
June Qtr June Qtr
2009 2008

Total Net Sales 131,054 100.0% 184,941 100.0%
Cost of Sales (81,899) 62.5% (105,853) 57.2%
Gross Profit 49,155 37.5% 79,088 42.8%
SG&A Expense (30,039) (39,499)
Amortization of Intangibles (2,914) (2,813)
Income from Operations 16,202 12.4% 36,776 19.9%
Other (Expense) Income 38 43
Interest Expense (5,836) (6,559)
Pre-Tax Income 10,404 7.9% 30,260 16.4%

Net Sales June Q 2008 184,941
Net Sales June Q 2009 131,054
Sales decline YOY 53,887
Sales decline %age 29.1%

Consolidated Graphics (Symbol: CGX)
(Reformatted to fit my presentation)
(Amortization of Intangibles is included in SG&A expense line item)
Consolidated Graphics
June Qtr June Qtr
2009 2008

Total Net Sales 225,861 100.0% 285,194 100.0%
Cost of Sales (181,032) 80.2% (214,554) 75.2%
Gross Profit 44,829 19.8% 70,640 24.8%
SG&A Expense (44,004) (50,681)
Amortization of Intangibles *
Income from Operations 825 0.4% 19,959 7.0%
Other (Expense) Income 54 (5)
Interest Expense (2,484) (4,211)
Pre-Tax Income (Loss) (1,605) -0.7% 15,743 5.5%

Net Sales June Q 2008 285,194
Net Sales June Q 2009 225,861
Sales decline YOY 59,333
Sales decline %age 20.8%

Okay, so now you know why "us" in the reprographics industry have long been glad that we weren't in the offset printing business.

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