If the future of print media is dim, the outlook for the companies that actually press ink onto paper must be even darker. Newspapers are collapsing, magazines are losing advertisers, direct mail has morphed into spam, and even books may be threatened by portable electronic readers. Short-term trends—namely the economy's skid—only add to the sense of doom.
Quebecor World, which had been the world's biggest commercial printer as recently as 2003, lies in bankruptcy today.
Yet there is light at the top of the heap, where RR Donnelley & Sons (RRD) resides. Not that Donnelley has been printing money; the Chicago company lost $48.9 million last year, largely because of writedowns and higher acquisition-related interest costs, and its stock value has fallen by one-third since last summer. But industry analysts say Donnelley's geographic breadth, efficient operations, and strong balance sheet should enable the company to ride out a recession and snap up even more of its less fortunate rivals. As evidence, it gained market share in the first quarter—industry shipments declined 5%, yet Donnelley's slipped only 1%. The company, says Piyush Sharma, an analyst at Longbow Research in Cleveland, is "the chief beneficiary of industry distress."
Donnelley's biggest operational advantage comes from adding services upstream and downstream from the presses—becoming "sticky" to the customer, in the words of Matthew Troy, an analyst at Citigroup (C) Global Markets in New York. For instance, Donnelley not only prints magazines (including BusinessWeek) but sorts them by zip code and organizes them on pallets, sparing the U.S. Postal Service the tasks. In return, the Postal Service gives Donnelley a price break, which the company passes on to its customers. "This is what sets them apart from pure ink-on-paper commodity printers," Troy says.
Avoiding Publicity
There's probably no one in the U.S.—and, increasingly, everywhere else—who hasn't held a Donnelley product. The company, with 65,000 employees and 650 locations in 33 countries, handles roughly half of all the mail moved in the U.S. and a quarter of all the mail in the world. The top-secret printing and first-day delivery of Harry Potter books were Donnelley's handiwork. Cash register receipts, tags at office-supply stores, labels on overnight packages, financial prospectuses, bills from telephone companies, banks, and mutual funds—they're all courtesy of Donnelley.
For all that, the company is practically invisible. You rarely see Donnelley's name on anything or in the business press. And that's the way management likes it. "We live on behalf of our customers," says Donnelley Chief Executive Thomas Quinlan III in his downtown Chicago office. "The communications medium should not be out in front of our customers." Donnelley has no public relations staff, and Quinlan doesn't like to give interviews. "There's no reason for me to be above the horizon," the 45-year-old boss states simply.
Donnelley does loom large in one arena, however—mergers and acquisitions. The company has put together more than a dozen deals in the past few years, including a $2.8 billion takeover of Canada's Moore Wallace in 2004. That purchase allowed Donnelley to reclaim the No. 1 ranking in commercial printing from Quebecor. It also brought in new management: Moore Wallace CEO Mark Angelson became Donnelley's chief. He was succeeded in April, 2007, by Quinlan, another former Moore Wallace executive who had become Donnelley's chief financial officer in the interim.
Painful Writedowns
Donnelley kept spending in 2007, paying $2.1 billion altogether for Banta of Menasha, Wis., and three other printers. The additions helped push Donnelley's revenue up 24%, to a record $11.59 billion, in 2007. "They are the most disciplined, financially savvy acquirers I've come across," says Troy.