American Reprographics (ARC) Q3 2011 Results - Joel's comments and further estimates

American Reprographics Co (ARC) released its Q3 2011 results last week on Tuesday, November 2^nd, 2011, after the market closed.

Prior to ARC releasing its Q3 2011 results, I issued a” guesstimate”, in a blog post, that ARC’s Q3 2011 sales would come in at $105.00 million.

A few days later, ARC reported its Q3 2011 results, and it’s “actual” sales revenues came in at $104.8 million.

So, my “guess” wasn’t far off. Chalk it up as a “lucky guess.”

Now, I’m going to “guesstimate” ARC’s sales for the Full-Year 2011, and, to do that, I also have to “guesstimate” ARC’s Q4 2011 sales.

For most reprographers who are heavily involved in providing services to the A/E/C industry, the last quarter of the calendar year is, sales-wise, usually the worst quarter of the year. ARC management typically points that out during earnings calls. ARC’s revenues from “reprographics services”, the latter being ARC’s primary revenue segment, have continued to trend down, and I don’t see anything yet that’s going to change that for this year’s 4^th quarter, inasmuch as the A/E/C industry (A/E work and Construction activity) has yet to show evidence of a rebound. ARC management did say, during the earnings call the other day, that ARC is experiencing significant growth in its MPS business, but ARC’s FM business, apparently, has not yet resumed growth, and ARC’s Riot Color business does not appear to have yet gained sufficient traction to offset declines in A/E/C plan and spec printing activity.

Based on all that, my “guesstimates” for ARC’s Q4 Sales and Full-Year 2011 Sales, respectively, are $99.0 mil and $$419.89 mil.

“Total” Sales by Quarter, 2010 and 2011, actuals and estimates:

Sales millions Q1 2010 $112.16 actual Q2 2010 $115.09 actual Q3 2010 $109.42 actual Q4 2010 $104.97 actual Year 2011 $441.64 actual Q1 2011 $106.50 actual Q2 2011 $109.59 actual Q3 2011 $104.80 actual Q4 2011 $ 99.00 Joel’s estimate Year 2011 $419.89 Joel’s estimate

And, if my guesstimate are close, then that would mean ARC would show a Sales decline of 5%, 2011 vs. 2010. Not bad, considering the fact that A/E/C industry activity is probably off close to 10%, 2011 vs. 2010.

Let’s take a closer look at ARC’s revenues from its “reprographics services” revenue segment, and, below, you’ll see that I’ve “guesstimated” ARC’s reprographics services sales for Q4 2011 and for the Full-Year 2011.

“Reprographics Services” Sales, year-over-year, actuals and estimates:

Year	Q4	Full-Year
2008	$108.9	$ 518.1	actuals
2009	$ 75.8	$ 350.5	actuals
2010	$ 67.1	$ 294.6	actuals
2011	$ 62.0	$ 289.4	Joel's estimates

If my “guesstimates” are close, then it will be apparent that ARC’s “reprographics services” sales pretty much bottomed-out during 2011. Personally, I expect to see an uptick in ARC’s reprographics services” sales in 2012, say in the range of 5-10% about 2011 numbers, as a result of increased A/E/C industry activity in 2012 and as a result of ARC’s Riot Color business finally gaining traction.

ARC’s Q3 2011 results must have pleased investors, for ARC’s stock price has gone up since it reported earnings, closing at $4.77 on Friday, November 7, 2011, two days after ARC reported its results. That’s probably due to investors believing that ARC’s prior revenue declines are pretty much over and done with (with the exception of Q4 2011) and that ARC is now poised for growth (in 2012 and later on), especially considering Suri’s comments about growth in ARC’s MPS business. ARC’s stock price closed at $3.17 on October 3^rd, 2011, only five weeks ago, and, since then, ARC’s stock price has increased an impressive 50%. Damn nice gain if you got in at, or near, that price.

One other comment: ARC did another write-down of (took another substantial charge against) its goodwill in Q3 2011. The faster ARC writes down its goodwill when it is in a bottoming-out, pre-recovery stage, the better ARC’s operating earnings will be once growth resumes. In the short-term, investors are apparently unconcerned about ARC’s substantial goodwill write-offs (since that’s a non-cash expense), but I suspect they will be pleased by the affects of that as, in forward years, there will be lower “normal” charges for amortization of goodwill, which will have a positive affect on EPS.

As I mentioned in one of the posts I did about the Eastern (Regional) Reprographics Association convention, Suri spoke about ARC’s strategy, going forward, and he was very, very pumped up about ARC’s opportunities to grow its businesses – MPS. FM, Color and Technology.