RR Donnelley (RRD) Misses Q1 EPS by 7c, Revenues Beat; Offers 2Q Revenues Guidance Above Consensus

RR Donnelley (NYSE: RRD) reported Q1 EPS of $0.08, $0.07 worse than the analyst estimate of $0.15. Revenue for the quarter came in at $1.17 billion versus the consensus estimate of $1.12 billion.

Q1 Key messages

• GAAP net sales, including the impact of a disposition and foreign exchange, decreased 3.6%; Non-GAAP organic net sales decreased 4.3%; both decline rates improved from the prior three quarters
• Both GAAP and Non-GAAP income from operations and margins down from strong prior year results; both benefitted from continued cost reductions, but negatively impacted by approximately $11 million of unfavorable foreign exchange
• GAAP loss per share from continuing operations of $0.03 and Non-GAAP adjusted earnings per share from continuing operations of $0.08, both negatively impacted by a higher effective tax rate
• Operating cash flow improved $61 million versus prior year due to continued working capital improvements
• Gross leverage ratio of 3.9x improved 0.9x from March 31, 2020; net leverage ratio of 3.2x improved 0.6x from same period
• Recently announced offering of $400 million of 6.125% senior secured notes due 2026 on track to close on April 28th

“We are off to a strong start in 2021 as we continue to provide essential marketing and business communications for our clients while continuing to protect the health and safety of our global colleagues,” said Dan Knotts, RRD President and Chief Executive Officer. “Our first quarter organic sales rate marked our third consecutive quarter of improving sales trends, we continued to execute our cost reduction plans to align with client demand, and we delivered our best first quarter operating cash flow performance since the spin in 2016. We also made significant progress in improving our balance sheet flexibility with the recently announced extension of the maturity date for our ABL credit facility and the refinancing of a significant portion of our 2024 term loans with new senior secured notes. While the pace of the economic recovery remains uncertain, we continue to successfully advance our strategic priorities and are confident that we will emerge from the pandemic as a stronger company.”

GUIDANCE:

RR Donnelley sees Q2 2021 revenue of $1.1-1.15 billion, versus the consensus of $1.02 billion.

As COVID-19 infection rates remain elevated in many parts of the world, the year ahead continues to present many uncertainties. As such, the Company is unable to furnish its typical guidance for the balance of the year. However, the Company is providing the following observations and guidance for the year.

• Net sales for the year are expected to be flat to up low single digits taking into consideration reductions from the Census project and one-time pandemic related projects in the last half of 2020, offset by a modest economic recovery as the year progresses. Net sales in the second quarter are expected to be between $1.10 and $1.15 billion, up 8 to 13 percent organically reflecting improvement from the pandemic partially offset by last year’s Census project.
• Excluding the unpredictable impact from changes in foreign exchange rates and the possible impact from future inflation and labor availability, non-GAAP adjusted income from operations and the resulting operating margin are expected to be flat to up slightly from the prior year as the Company continues to benefit from aggressive cost-reduction actions. Non-GAAP adjusted income from operations for the second quarter is expected to be up from the prior year reflecting an increase in volume and continued cost reduction efforts, partially offset by unfavorable foreign exchange of approximately $10 million assuming the exchange rates do not change from the current rates.
• Depreciation expense is expected to be approximately $135 million for the year.
• Interest expense is expected to range from $120 to $125 million excluding GAAP only charges estimated at $9 to $10 million associated with terminating certain interest rate swap agreements in connection with the April, 2021 senior secured note issuance and term loan prepayment. Interest expense is expected to include benefits from lower average borrowings and a lower average interest rate in 2021 as compared to 2020.
• The full year Non-GAAP effective tax rate is expected to be approximately 35% which is higher than reported in 2020 as non-recurring benefits were reflected in 2020 and the benefit from the CARES Act has expired.
• Operating cash flow is expected to be slightly lower than the prior year reflecting a reduction due to the repayment of half of the employer portion of payroll taxes deferred in 2020 and payments to settle LSC bankruptcy-related obligations. Capital expenditures are expected to be approximately $80 million. As part of our agreement to sell the printing facility in China, the Company expects to collect one additional deposit of approximately $50 million in 2021. The Company also expects to continue generating additional proceeds from monetizing other assets including proceeds from selling additional facilities.

For earnings history and earnings-related data on RR Donnelley (RRD) click here.

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