R.R. Donnelley & Sons Company
) has secured a multi-year multi-million dollar contract from
Guideposts for providing comprehensive printing solutions and
logistics support to the latter. Guideposts is a non-profit
organization in the business of publishing books and magazines,
including the narration of inspirational tales from real
Guideposts magazine has a massive paid circulation of 2 million,
selling more than 5.7 million books every year. Apart from
providing printing solutions for books and magazines, Donnelley
will be entrusted with printing management services for forms,
labels and other Guideposts productions.
Donnelley's recent growth has been driven by important contract
wins. The latest contract from Guideposts adds to the decent list
of major multi-year contracts won this very year from companies
such as Metro Inc., Chrysler and
Office Depot Inc.
). Other contract wins include Herbalife, Meredith, Bauer
Publishing Group, L.L. Bean and Shop Direct Group in 2011.
Donnelley also entered into accretive partnerships with KBA and
HarperCollins in 2011.
We believe that the new contracts and partnerships bode well for
Donnelley, as they help the company tackle the growing threat of
digital technologies that enable much easier transfer, designing,
resetting and reproduction of data. Moreover, the new contract wins
are a reflection of Donnelley's superior technology and growing
reputation, which enhances its competitive position, in our
However, we notice that in the recently concluded quarter, U.S.
print and related services revenue for Donnelley was down 4.0% from
the comparable prior-year quarter to $1.85 billion. Lower volumes
along with continued pricing pressure across the segment and lower
pass-through paper sales affected this segment's revenue.
Nonetheless, Donnelley has been experiencing strong growth in
the logistics segment. In the last concluded quarter, this segment
reported an 11.3% jump in revenue. Strong growth in the logistics
space along with volume increase in certain office products
restricted the decline in total revenues to 3.6% on a
We believe that Donnelley's stock will most likely remain under
pressure in the near term due to weak macroeconomic conditions
prevailing in most of its current as well as prospective markets.
The continuing pricing pressure, volatility in raw material prices
and a highly leveraged balance sheet are significant headwinds
In such a scenario, Donnelley is expanding its scope beyond
traditional markets primarily through acquisitions. The company's
continued focus on acquisitions will also spur its already dominant
market position and drive long-term growth, in our view.
We have a Neutral recommendation over the long term (6-12
months). Currently, Donnelley has a Zacks #3 Rank, which implies a
Hold rating in the short term (1-3 months).
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