Earnings Preview: R.R. Donnelley - Analyst Blog
22 February 2012 - 12:30AM
Zacks
R.R. Donnelley & Sons Co. (RRD) is
scheduled to release its fiscal fourth quarter 2011 results before
the opening bell on Wednesday, February 22, 2012. In the run-up to
the earnings release none of the analysts tracking the stock made
any revision to the estimate over the last 30 days.
A Sneak Peak into the Previous Quarter
The printing major’s third quarter earnings came in line with
the Zacks Consensus Estimate. The reported EPS was up 16.0% from
the comparable prior-year quarter. Though the reported revenue
missed the Zacks Consensus by a whisker, it increased 7.8% year
over year.
Operating metrics were down due to continued pricing pressures
that more than offset productivity improvements, lower variable
compensation expense and higher recovery on print-related
by-products. (For further details please read: R.R. Donnelley
Reports In Line)
Fiscal 2011 Estimates
R.R. Donnelley expects revenue for fiscal 2011 at $10.6 billion,
relatively in line with the Zacks Consensus Estimate. Management
expects fiscal 2011 free cash flow in the range of $650 million to
$700 million.
Non-GAAP operating margin is expected between 6.6% and 6.7% and
the non-GAAP effective tax rate between 23.0% and 24.0%.
Management expects total corporate expenses to be down 16% on a
year-over-year basis and to recognize a certain non-cash
curtailment gain of approximately $40 million in the fourth quarter
of 2011.
For the fourth quarter, the Zacks Consensus estimates R.R.
Donnelley to generate revenue of $2.8 billion.
Estimate Revision Trend
None of the 3 analysts covering the stock revised the estimate
in the last 30 days. Hence, the Zacks Consensus Estimate for the
fourth quarter remained at 44 cents per share.
The same phenomenon was witnessed in the estimation of fiscal
2011 earnings, where none of the four analysts covering the stock
made any change. Thus, the Zacks Consensus Estimate remained at
$1.82 per share.
Analysts covering the stock are positive on the company because
of several multi-million dollar deals that it has secured in the
recent past. However, the printing industry is facing
challenges in the form of continued pricing pressures and
increasing threat of digital technologies that enable much easier
transfer, designing, resetting and reproduction of data.
Moreover, organic growth has been next to 0 to negative, as the
company has been concentrating on a large number of acquisitions
such as StratusGroup, Genesis Packaging & Design Inc,
LibreDigital, Sequence Personal, Helium, Inc., Journalism Online,
LLC and 8touches. However, we view the acquisitions positively
because they have not only expanded and enhanced Donnelley’s
offerings to its current customers, but also helped it to pick up
new ones.
Recommendation
R.R. Donelley’s positive earnings surprise for the past four
quarters averages at a modest 1.49% and for the current quarter we
expect the company to beat the Zacks Consensus Estimate by the same
magnitude.
We remain Neutral on the company over the long term (6-12
months) despite its increasing volumes and new customer wins. We
believe that strong alliances and customer wins including those of
AT&T Inc. (T) and Verizon
Communications Inc. (VZ) and more recently Office
Depot Inc. (ODP) will create value for the company over
the long term.
However, we expect Donnelley to remain under pressure due to
weak macroeconomic conditions prevailing in most of its current as
well as prospective markets.
Moreover, higher pension expenses, continuing pricing pressure,
volatility in raw material prices and a highly leveraged balance
sheet are significant headwinds going forward. Currently, Donnelley
has a Zacks #4 Rank, which implies a Sell rating in the short term
(1-3 months).
OFFICE DEPOT (ODP): Free Stock Analysis Report
DONNELLEY (RR) (RRD): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Donnelley (R.R.) & Sons Co. (NYSE:RRD.WI)
Historical Stock Chart
From Sep 2024 to Oct 2024
Donnelley (R.R.) & Sons Co. (NYSE:RRD.WI)
Historical Stock Chart
From Oct 2023 to Oct 2024