R.R. Donnelley to close Mendota (IL) plant

Anybody out there want an excellent deal on a large commercial printing plant?

Mendota is about a 2-hour drive west from Chicago.

By Alejandra Cancino — Chicago Tribune

Created: Friday, March 30, 2012 11:33 a.m. CDT

R.R. Donnelley and Sons Co. (NYSE: RRD) will close its Mendota printing plant at the end of May in a move that will affect 207 employees.

The pending closure will be devastating for the city, Mayor David Boelk said Thursday. Boelk said the company's announcement caught him off guard, adding that he learned about the closing on Wednesday when an employee called him in tears.

"I feel for all (the workers). There are quite a few families where both spouses work at the plant," Boelk said.

R.R. Donnelley is one of the largest employers in the city of 7,340 residents. As such, the closing will affect other businesses, including the local post office, which Boelk said was spared in the latest round of Postal Service closings because of the volume of mail generated by the plant. Boelk said he hopes to find a buyer for the plant that could rehire the workers.

The commercial printing company acquired the Mendota plant in 1992 after purchasing Combined Communication Services Inc., a magazine printer. Donnelley employs about 58,000 workers and makes store signs, labels, packaging, receipts, catalogs, coupons, direct mail, bills, books and magazines.

R.R. Donnelley has sought to adapt itself to an increasingly digital world in the last eight years. As part of that reorganization, it laid off 2,899 workers in 2011.

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Eleven years ago, RR Donnelly closed a 100,000 sq ft printing plant in St Petersburg, FL; I pass this printing plant on my way to/from the library in St Pete. Today, it’s a storage facility. That worked for St Pete, a city with a population of around 245,000. I seriously doubt that a large storage facility In Mendota would work, since there are less than 8,000 people residing in Mendota.

R.R. Donnelley to Close St. Petersburg Printing Facility

Press release from the issuing company

CHICAGO, February 5, 2001 -- R.R. Donnelley & Sons Company (NYSE: DNY) today announced it will close its St. Petersburg, Florida, telephone directory printing facility on February 16. "After careful review, we determined the facility, which is the smallest in our operation, lacks the scale necessary to support the current and future needs of our customers," said Ronald E. Daly, president, Telecommunications. "By consolidating our efforts and transferring St. Petersburg's workload to other facilities, R.R. Donnelley can further maximize operating efficiencies and more effectively meet our customers' needs." The St. Petersburg facility, which was acquired from GTE in 1998, employs 120 people. Daly said that after carefully and thoroughly reviewing the business under a variety of marketplace scenarios, the company determined that the best decision was to close the facility. "I want to emphasize that this decision is in no way a reflection on the hard work or dedication of our St. Petersburg employees. We will make every effort to assist affected employees during this difficult time as they plan for the future," said Daly. In addition to separation packages, R.R. Donnelley will offer job search assistance to affected employees. Products currently produced at the St. Petersburg facility will be transferred to other R.R. Donnelley plants. Some of the equipment will be moved to other R.R. Donnelley plants. The company plans to seek a buyer for the building.

In 2009, the former R. R. Donnelly Building at 111 18th Street South, St Petersburg, was renovated for $3.3 million into storage facilities. Now known as Lockup St. Petersburg, the 99,000 SF building offers storage opportunities for Downtown St. Petersburg and the surrounding residential market.

RR Donnelly, an offset printer, facing much of the same challenges that Reprographers are facing?

I don’t like to clutter Reprographics 101 with too many articles about companies who are not in the reprographics industry, but I found this article – about R.R. Donnelly & Sons Company (NYSE: RRD), one of the largest offset printing companies in the world – to be quite interesting.

This article was written by an “investor-type” person; the article is directed at RRD from an “investment” perspective (to, or not to). What prompted the author to write the article was the plunge in RRD’s stock price – stock price was $14.41 on January 14^th, and, today, RRD is right around $11.49. That’s a pretty serious plunge. The author does not think there will be a rebound in RRD’s stock price, at least in the near term. In his article, he "looks under the hood."

The reason why I decided to share this information with my Reprographics 101 blog-visitors: the author makes some interesting comments, which, I think, are somewhat related to what’s been happening in the “reprographics business and industry.”

In today’s post, I’m going to share just some of the stuff that Michael Terry wrote, but, at the end of the post, I’ve provided a link to the full article. (There are lots of interesting graphics, charts and tables in the full article.)

Okay, here we go…..

An Open Book: Inside R.R. Donnelley's Capital Structure

by: Michael Terry / January 25, 2012 | from www.seekingalpha.com

Company Description:

R.R. Donnelley & Sons Company provides premedia, printing, logistics and business process outsourcing products and services to leading clients in virtually every private and public sector. Donnelley conducts operations through two reportable segments, U.S. Print and Related Services (74% of 9Mo 2011 Sales) and the International segment (26% of 9Mo 2011 Sales).

Summary:

R.R. Donnelley is the largest player in a declining industry. The company is attempting to transition the business into the digital age while expanding their traditional business to meet the needs of their customer base (and prospective customers). I view Donnelley as a levered company with pressure on every one of their business lines - pressure which will only increase going forward. With that said, the company currently generates a decent amount of cash flow (north of $600MM TTM) and free cash flow (north of $400MM TTM) which it has used for capital expenditures, acquiring businesses and doing share repurchases. The company has also been opportunistic about issuing debt (in June of 2011 they issued $600MM in notes and used the proceeds to buy back some of their outstanding debt). Ultimately, if the company were viewed in isolation, it would resemble a mature company. Unfortunately, the industry is in a secular state of decline, which is different than being a mature industry.

Industry Background:

The printing industry is a fragmented and mature industry undergoing a transformational change ad the digital age has been thrust upon it. The company stated industry challenges very well in their last 10Q, which I will summarize here:

The print and related services industry, in general, continues to have excess capacity and remains highly competitive. Despite some consolidation in recent years, the printing industry remains highly fragmented. Across the company's range of products and services, competition is based primarily on price, in addition to quality and the ability to service the special needs of customers.

Technological changes, including the electronic distribution of documents and data, online distribution and hosting of media content, advances in digital printing, print-on-demand and Internet technologies, continue to impact the market for the company's products and services.

As a substitute for print, the impact of digital technologies has been felt mainly in directories, forms and statement printing, as electronic communication and transaction technology has eliminated or reduced the role of many traditional paper forms. Electronic substitution has continued to accelerate in directory printing in part driven by environmental concerns and cost pressures at key customers. In addition, rapid growth in the adoption of e-books is having an increasing impact on consumer print book volume, though only a limited impact on educational and specialty books.

In other words, the company is operating in an industry undergoing significant change and is currently price based - which means very little ability to raise prices. Taking out costs can only achieve so much.

(Extracted from commentary later on in the article):

Rather than replace existing equipment as it depreciates, the company has acquired new/bolt-on businesses (more information regarding acquisition activity can be found in the company's 10Q cited earlier). As is obvious from the company's acquisitions over the last two years, RRD recognizes the changing landscape of the printing industry and is in the midst of diversifying their business and transitioning to the "digital age". This, when done properly is shareholder friendly in the near and longer term while it is negative to the debt portion of the capital structure as it is typically cash and debt financed.

Conclusion:

In conclusion, an investment in the company is an investment in an industry in decline. While the company is the largest player in the space, I do not see a catalyst to drive prices higher. If choosing my spot within the capital structure, I would be buying into shorter maturity debt.

If you want to read the full article that Michael Terry wrote, you can access that article at this link:

http://tinyurl.com/7l9qf9t