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Profitability Remains a Challenge for Commercial Printers

Data from NAPL’s Printing Business Panel suggest that profitability, while improving, remains a challenge for many companies. Specifically, the gap between companies reporting increasing profitability—31.0%—and those reporting decreasing profitability—32.9%—narrowed in 2011. The improvement becomes more apparent when data are compared to prior years: In 2010 profitability was up for 29.1% of our Panel and down for 37.9%. In 2009 profitability was up for 11.4% and down for 64.1%. And while the last reading for 2011 showed the profitability gap turning slightly positive—increasing for 32.3% and decreasing for 31.7%— preliminary data for January 2012 suggest it may be backsliding once again, with profitability up for 29.6% and down for 33.3%. 

Pre-Tax Profitability as a Percent of Sales

For NAPL Printing Business Panel during month indicated.

	2012	2011		2010		2009
	Jan	Oct	Jan	Aug	Feb	Oct	Mar
Increasing	29.6%	32.3%	30.2%	29.4%	21.5%	12.7%	6.9%
Decreasing	33.3%	31.7%	30.7%	37.6%	48.6%	64.5%	73.7%

 

These and other data collected by NAPL clearly reflect an inconsistent business climate, as portrayed by Panel members with comments such as:

• “Business is very sporadic. Nothing consistent from month to month.”

• “Still very inconsistent - expected a much stronger finish to the year.”

• “The market is up and down.”

 

To bolster the bottom line, printers are reducing costs, and many of these efforts have centered on staffing. Data from the Bureau of Labor Statistics  (BLS) show that in 2011 employment for printing and related support activities fell 16,200 to 460,000—a decline of 3.4%. Moreover, preliminary data for January show that more Printing Business Panel members are still reducing factory payroll hours (32.7%) than are increasing them (26.0%). Apparently, for some companies rising costs and little pricing power are offsetting much, if not all, of their cost-cutting efforts. Representative comments from companies we survey:

• “Price competition is fierce!”

• “Still pricing pressure from buyers - competitors are lowering so we are too.”

• “Demand is returning - unused industry capacity still keeping prices low.”

 

Although Printing Business Panel members expect pricing pressures to continue this year, they are cautiously optimistic of some easing. Specifically, only 5.7% expect prices to decline in 2012—about one-quarter the number who saw prices decline in 2011—while over 41.0% expect prices to rise and nearly 53.0% expect prices to remain about the same. But with costs expected to continue to creep up, companies will need more than just modest price increases to maintain and boost profitability.

 

Printing: A New Industry

NAPL estimates that, at 27,285, commercial printing establishments in 2011 will have fallen 11.1% since 2007 and are down 10,388 or 27.6% from 1998. As discussed in the NAPL 2011 Printing Industry Profile: An Industry Being Redefined, the decline has been widespread across all company-size categories and geographic regions.

Data in the Profile show that the industry consists largely of small establishments, with more than four-fifths (82.2%) having fewer than 20 employees and almost 70.0% of establishments fewer than 10. At the other end of the spectrum, NAPL estimates that fewer than 4.0% consists of 100 or more employees. In addition to the large share of small establishments, the commercial printing industry is relatively concentrated geographically, with the top 10 states headed by California accounting for more than half (55.4%) of printing establishments and (56.4%) of industry sales.

But as the report discusses in length, the commercial printing industry is not simply changing; it is being redefined. Because of structural change, it is becoming something fundamentally different than it was, something more complex and even more competitive than it was, creating historic opportunity for the prepared and profound threats for the unprepared. Fewer printers no longer means less competition. Measures of market size and growth tell us absolutely nothing about how market share is being redistributed. And, with the commercial printing industry not growing fast enough for everyone, getting on the right side of market redistribution—i.e., growing at someone else’s expense—is becoming increasingly important.

How do we get on the right side of market redistribution?

    • Think like a leader, not a fallen leader.
    • Don’t ignore the lasting lessons from the Great Recession.
    • Ask the right questions.
    • Pick our value proposition carefully.
    • Develop a new mindset for a new industry.

As emphasized: When viewing the direction of the printing industry, concentrating on company counts, sales totals, and traditional definitions amounts to scratching the surface.

Commercial Printing Industry Continues to Heal

At the Great Recession’s deepest sales were falling for over 89.0% of the NAPL Printing Business Panel—by at least 10.0% for 68.8% and by at least 20.0% for 39.9%—and only one-of-10 Panel members expected business to improve—a confidence reading even lower than immediately after 9/11.

In contrast, last quarter sales increased for 53.7% of our Panel, by at least 5.0% for 43.4% and by at least 10% for 30.9%, and 36.0% now expect business to improve during the six months ahead.

None of that means all’s well—or will be well anytime soon. Our gains are over deeply depressed levels and recoup only a fraction of our losses. But they are a start. And they are a reminder that it’s time to ask some tough questions:

• For companies that are growing: Is our growth likely to continue? Or is it due to special circumstances or a temporary boost so common early in recovery? Do we know? If we don’t, how do we find out—quickly?

• For companies that are not growing: Why aren’t we growing? Are we likely to in the next few months? Are we seeing any signs of improvement? Or are we in danger of being left behind by behind by a recovery that, as NAPL has long emphasized, will leave many behind?

• For everyone in our industry: How we will protect ourselves from a profit squeeze that is already tightening as our cost rise faster than our prices?

For more on the commercial printing industry’s performance and prospects as well as on strategies for beating a profit squeeze, please see the NAPL State of the Industry: Strategic Perspective 2011 to be published in June.

 

 

 

 

 

Commercial Printing: Sales Growing But Not Enough to Lift Profits

Preliminary first quarter 2011 results show that growth is finally returning to our industry. But growth is nowhere near strong enough to restore profitability, not with costs rising broadly, or pricing power. Among the specifics for the NAPL Printing Business Panel:

• Sales increased 4.3% from January through March, with 53.3% of the Panel growing and 43.7% growing at least 5.0%. In comparison, the Panel's sales fell 3.9% during for the first quarter of 2010, with just 40.4% growing and just 29.4% growing 5.0% or more.

• Although the top line is now growing for the majority of the companies we survey, the bottom line is growing for just slightly over one third. Their list of obstacles to profitability is headed by rising healthcare costs, the limited ability to raise prices—just one-quarter report prices are above year-earlier levels—and an improved but still very fragile economy. What about paper prices? They’re a little further down the list only because our survey group has had more success passing along increases in materials (paper, ink, toner, etc.) than anything else.

This is a sign of what’s ahead. Our costs are likely to continue rising faster than our prices as recovery progresses, creating a classic profit squeeze. We beat the squeeze by both preparing clients for price increases and by maximizing productivity and minimizing costs as vigilantly during recovery as we did during recession. We’ll talk about how in the NAPL State of the Industry Strategic Perspective: 2011 to be published in June.

 

Leaders Beginning to Widen Their Lead

It happened after the 2001-2003 recession. And it’s happening now, as recovery from the Great Recession of 2008–2010 begins. NAPL Leaders are widening their lead, growing their sales 7.8% between June 2010 and December 2010. In comparison, industry sales fell 2.5% over the same period. (See the graph below.)

Who are the Leaders? They are not companies of a particular size, equipment configuration, or ownership structure. Rather they are companies that make change—no matter how disruptive—an opportunity rather than a threat. They don’t do it overnight. And their numbers may not be pretty while they’re doing it. But NAPL Leaders ultimately turn change to their advantage by making the tough decisions that others delay or avoid altogether.

What about the widening of their lead as recovery progresses? There are many reasons for that. But no reason is more important than how Leaders prepare for recovery. Even at the recession’s deepest, when others are hunkering down, cutting, and freezing, Leaders are focused on getting more productive, more competitive, and more valuable to their clients. And in the earliest stages of recovery, when others are still in a wait-and-see mindset, Leaders are moving aggressively to gain market share. Put another way, Leaders laid the foundation for their outsized gains of 2005–2007 in late 2003 and early 2004 when our industry was, as it is today, struggling to emerge from deep recession—just as they are laying the foundation today for the gains they’ll be making in 2012–2015, as recovery takes hold.

What else do Leaders do? We’ll talk about that in the NAPL Growth Leaders Study™ we’ll be publishing later this year.

 

 

Quick and Small Commercial Printers 2011: Optimism and Concern

Next week we will publish the first NAPL Quick and Small Commercial Printers Trends Report. The report will provide a quarterly update on the performance, expectations, and defining issues in that important segment of our industry. (Approximately 85.0% of our nearly 28,000 establishments have annual sales of $3 million or less and approximately 90.0% have annual sales of $5 million or less.)

The report opens as follows: “On the revenue side there are signs of life. On the cost side, payroll and overhead have been reduced significantly. There’s optimism, with nearly 70.0% of the quick and small commercial printers contributing to this report expecting their sales to grow in 2011. And there’s concern, particularly about a shaky economy and rising costs.”

Among the key results for companies surveyed:

• Sales were up in 2010 for 55.3%, up at least 5.0% for 42.1% and at least 10.0% for 26.3%.

• Sharp cuts in payroll and overhead reduced total costs to 90.4% of sales in 2010 from 93.6% of sales in 2009.

 • Owner’s compensation averaged over 9.0% of sales last year for all companies surveyed and over 20.0% of sales for the most profitable 20.0%. Productivity, as measured by sales per employee and sales per payroll hour, was the biggest difference between the top 20.0% and everyone else. 

• Nearly 61.0% expect their sales to increase over the next six months and nearly 46.0% expect to raise prices.

• Biggest opportunities include “digital color, variable data, personalized digital marketing/promotional programs, and online capabilities, such as e-mail marketing, online stores, and web-based solutions.”

• Biggest threats include “weak, inconsistent sales … due to a weak, local economy and shrinking demand for print,” and cost inflation—“Increasing supply costs that clients won’t absorb due to the fact that another hungry vendor will not pass costs along.”

The report also covers projected growth by service and how quick and small commercial printers are addressing their biggest concerns.

We'll post a copy of NAPL Quick and Small Commercial Printers Trends Report, Winter 2011 in the complimentary download section of this site shortly. Please let us know what you think by emailing us at apaparozzi@napl.org or jvincenzino@napl.org or by commenting below.

 

Commercial Printing Industry: Great Lessons from the Great Recession

Recovery from our industry’s deepest recession on record has finally begun. Once that would have meant good times for all—because once surviving recession was enough. Now we either prepare for recovery or get left behind.

Learning from the Great Recession is an important way to prepare for recovery. Among the lessons NAPL State of the Industry participants have learned:

• “One second of lax attention and you’re gone!!” Recovery used to widen our margin for error. Not anymore. One second of complacency—one second of thinking that we have it all figured out—and we’re overtaken by competition that we didn’t even see coming.

• “Without a plan you just float along. Success doesn’t happen without knowing what you want to do.” When nothing much is changing, finding better ways to do what we’ve always done is good enough. But our industry isn’t simply changing—it’s being redefined, making it essential that we plan effectively based on, as one State of the Industry participant puts it, “all favorable business intelligence that can be gained from the marketplace to the shop floor.”

• “We can do more with less.” Recessions force us to do things we should have done long ago. The key is to keep doing those things—to not let bad habits creep back in—as recovery progresses. Quoting another State of the Industry participant: “We’ve learned that we can’t use being busy as an excuse for not getting better.”

• “Add value or die.” There are a lot of ways to add value in our industry, from being the most efficient, lowest cost producer in a commodity market to creating marketing programs that integrate print, variable-content digital, database management, purls, landing pages, etc. Whatever we choose, we have to quantify our contributions to the client’s success—How much money have we saved them? How much have we increased ROI to a marketing campaign? How much have we increased traffic to the website?—and never assume that they recognize our contributions.

• “If you aren’t thinking differently, you aren’t in business.” Put another way, there’s plenty of opportunity out there—just not in the same old places or by doing the same old things.

 For a complete list of lessons learned and a detailed discussion of what’s ahead for the commercial printing industry, see the NAPL State of the Industry Report, Ninth Edition, January 2011.

 What have you learned from the Great Recession? Please let us know by commenting below.

 

NAPL Printing Business Index Rises in January

The NAPL Printing Business Index™ (PBI™) rose to 52.1 in January, from 43.7 last June and 39.3 last February. Combined with November’s 51.2 reading, the PBI has now been above 50.0 for two consecutive periods for the first time in three years. (The PBI combines several key indicators, including quote activity, confidence, payroll hours, and pricing, into a single measure of printing industry activity. A reading above 50.0 means more of the companies NAPL surveys report activity is picking up; a reading below 50.0 means the opposite.)

Of course, a 50.0+ Printing Business Index in early 2011, when our industry is rebounding from its deepest recession on record, is very different from a 50.0+ Printing Business Index in late 2007, when our industry was completing its fourth consecutive year of growth. But we are finally rebounding. And as discussed in our previous post, “Commercial Printing Industry Forecast: Growth Expected Through 2015,” this rebound is likely to bring sustained, significant growth—at least to the companies that are best prepared for what our industry is becoming.

What are you seeing? Please comment below.

 

Commercial Printing Industry Forecast: Growth Expected Through 2015

In a previous post, “Commercial Printing Industry Forecast 2011: Sales,” we talked about how our industry will grow this year for the first time since 2007. We were expecting growth of 1.0%–3.0%. Now we expect growth of 2.0%–4.0%.

We also expect our industry to continue growing over the next five years because the American economy is likely to continue growing over the next five years. We say that because of the economy’s history of producing expansions that are far longer than the recessions they follow. Specifically, since 1960 expansions have averaged 65.1 months while recessions have averaged 11.6 months. And since 1990 expansions have averaged 95.0 months while recessions have averaged 11.3 months.

So how much growth can we expect? About 3.0% per year, on average, through 2015. To project growth by year would only be guessing. We do know that growth will vary significantly from year to year, with some years closer to 4.0% or possibly even 5.0% and others closer to 1.0% or 2.0%, depending on the economy’s performance and our pricing power. And we also know that growth will be reserved for companies that are best prepared for what our industry is becoming—i.e., there will not be anything evenhanded about the recovery ahead.

How do we prepare for recovery? The February NAPL Printing Business Conditions and the NAPL State of the Industry Report, Ninth Edition, have plenty of recommendations.

 What do you expect for our industry over the next five years? Please comment below.

 

 

 

Commercial Printing Industry Forecast 2011: Employment

We expect our industry to shed another 7,700 employees this year, bringing the total reduction in employment since 2005 to 144,700. The corresponding reductions for production employees: 3,800 and 90,600, respectively.

The numbers reflect our drive to automate—“automation from beginning to end is going to be key,” is how one NAPL research participant puts it. They also reflect a critical lesson of the Great Recession: We can do more with less. The key, as emphasized in the recently published NAPL State of the Industry Report, Ninth Edition, will be to remember that lesson as recovery progresses.

When we do begin to hire, we’ll have to do more than just recreate the labor force we had prior to the recession. Rather, we’ll have to:

• Enhance skills, such as business management, financial management, strategic planning, IT, marketing, and consultative selling, that are now prerequisite for sustainable success in our increasingly competitive, complex industry.

• Cross-train to develop the flexible, adaptable work force that can be where we need them when we need them.

• Become an employer of choice, as described in the NAPL State of the Industry: Strategic Perspective 2010.

We’ll also have to follow the lead of one State of the Industry participant who’s “getting rid of folks who can’t/won’t help advance the company,” and of another who describes the most significant change in his company over the last three years as occurring “in production, where the ratio of operators to thinkers is changing dramatically.”

 Are you automating? Are you cultivating the new skills our new industry requires? And what have you learned from the Great Recession? Tell us in the comment section below.