Same Store Sales for Printers Continues to Shrink

Third Quarter results seem to indicate that a consolidation play must continue through all segments of print if there is to be any revenue or margin gain! Quad was down, Cenveo and RR Donnelley up only due to acquisitions, and print shipments overall were basically flat to 2010. Shrinking tide sinks some boats will be prevalent over the next five years as any printer's existing customer base will seldom exceed the previous years print spend. Unless new customers exceed lost customers, LTM comparisons will offer little to stakeholders and force those marginal companies into low EBITDA multiples to their cross town or cross country rivals.

Meanwhile at VistaPrint, they continue to be the poster child for a well-run print and marketing communications company. Their acquisitions here and in Europe continue to expand its value proposition to the micro business. Average orders continue to migrate up and 20% revenue growth in the recent quarter confirms their growth strategy in spite of Wall Street discounting their plan to reach $2Bn. InnerWorkings continues to grow yet the stock is not getting the attention it deserves. This fixed asset light arbitrage brokerage model is ideally positioned for those mid-cap and Fortune 500 companies where print is just a Cost of Goods Sold line on the P&L.

Meanwhile, Kodak continues to bring good products to the market and fails to capitalize on the Prosper brand. Heidelberg orders shrink along with offset as a growth engine for any supplier or printer. Digital presses are now the rage and as the industry rushes to install a press daily, the industry will once again add an installed base far in excess of demand. Until the consolidation takes place in print similar to what we have seen in paper, this imbalance dance between demand and supply will continue and prices will fall to fill the open time on both offset and now digital presses.

In closing, Quad stock reached a new low today near 12 &3/4. Quiet a fall from its $42 IPO just a year ago. At the $13 share price, the current Quad multiple would be around 4x EBITDA if it were a private company in play. Meanwhile, RRD stays around the $16 per share price (why they ever borrowed $500MM to buyback their stock when it was near $20 still baffles). Cenveo continues to struggle around $3 and so levered that it will be a long time back to $15.