RR Donnelley (RRD) Tops Q4 EPS by 50c, Revenues Beat; Offers 1Q Revenues Mid-Point Guidance Above Consensus

RR Donnelley (NYSE: RRD) reported Q4 EPS of $0.71, $0.50 better than the analyst estimate of $0.21. Revenue for the quarter came in at $1.35 billion versus the consensus estimate of $1.16 billion.

Q4 Key messages

• GAAP net sales, including the impact of dispositions and FX, decreased 5.6%; Non-GAAP organic net sales decreased 4.8%; both decline rates improved sequentially from the prior two quarters
• GAAP earnings per share from continuing operations of $0.46 and Non-GAAP adjusted earnings per share from continuing operations of $0.71 both increased significantly from the prior year
• Both GAAP and Non-GAAP income from operations roughly flat to prior year; GAAP operating margin improved 30 bps while Non-GAAP improved by 50 bps, both benefitted from cost reduction actions
• Operating cash flow of $124.6 million in the quarter is down from prior year; 2020 amount includes $47 million paid to terminate 25 deferred compensation plans and cash taxes on the gain from selling the Logistics businesses in addition to the expected impact from accelerating working capital improvements to earlier quarters in 2020
• Gross leverage ratio of 3.7x improves 1.0x from September 30, 2020 and 0.5x from December 31, 2019; net leverage ratio of 3.0x improves 0.7x from both September 30, 2020 and December 31, 2019
• Generated significant cash from non-operating activities, including $244 million primarily from the dispositions of the Logistics businesses and three building sales, and an additional $96 million from liquidating certain life insurance policies

“We delivered a strong fourth quarter to finish an extraordinary year. I am proud of the RRD team’s ongoing resilience and commitment to protect the health and safety of our global colleagues while delivering the essential marketing and business communications our clients need to propel their businesses,” said Dan Knotts, RRD President and Chief Executive Officer. “Our teams continue to deliver innovative solutions to our clients, aggressively execute our cost reduction plans, and make meaningful progress in improving our capital structure. For the second consecutive year, we achieved full year growth in adjusted income from operations and increased operating margins by lowering our cost structure, expanding client relationships, and securing new business. Additionally, we significantly reduced debt outstanding, extended upcoming maturities, and expanded our liquidity as we continue our drive to improve balance sheet flexibility. Our team is doing an incredible job in managing RRD through these unprecedented times and remains highly focused on advancing our strategic priorities into 2021.”

GUIDANCE:

RR Donnelley sees Q1 2021 revenue of $1.09-1.15 billion, versus the consensus of $1.11 billion.

• As the COVID-19 infection rates remain elevated in many parts of the world, the path forward continues to present many uncertainties. As such, the Company is unable to furnish its typical guidance for 2021. However, the Company is providing the following observations and guidance for 2021.
• 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. However, net sales in the first quarter are expected to be between $1.09 and $1.15 billion, down 5 to 10 percent organically since the pandemic did not begin impacting most of the Company’s businesses until late March 2020 and due to last year’s Census work which wrapped up in mid-2020.
• Excluding the unpredictable impact from changes in foreign exchange rates, 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. Results for the first quarter are expected to be slightly lower than the prior year period given the exceptionally strong first quarter of 2020 which included the Census work.
• Interest expense is expected to range from $120 to $125 million benefitting from lower average borrowings and a lower average interest rate throughout 2021.
• 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. Capital expenditures are expected to be approximately $80 million and 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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