A question on many printers’ minds (and indeed equipment suppliers’) is likely, “Is this the time to invest in new equipment, processes, and markets?” The answer depends on three key drivers of investment demand—the economy, print markets, and printers’ profits. Further, successful printers understand that the answer to this question must focus not just on capacity issues but, more importantly, on productivity and cost issues.
Is this a recovery?
The “Great Recession” officially ended more than two years ago, but the recovery has been weak and has recently stalled with 0.4% growth in the first quarter and 1.3% in the second quarter. Printing Industries of America’s updated forecast projects that the annual growth of inflation-adjusted Gross Domestic Product will likely pick up speed over the second half of the year, but still be only around 2% for 2011 and increase to slightly over 3% next year. These rates can be characterized as a sluggish recovery, at best, and are extremely low for an economy coming out of a major recession.
Back on track?
As shown in the graph below, printing shipments generally follow nominal or non-inflation-adjusted GDP patterns, and they do best relative to the economy when the economy is in a mature recovery phase and worse relative to the economy when the economy is in decline. Currently, print markets, as measured by PIA’s Print Market Tracking Model, are growing slightly and should continue to improve, with around 2% growth in shipments this year; meaning an annual total of around $147 billion, which will result in close to $3 billion in new sales compared to 2010. The outlook is a little brighter for 2012, with print driven by the national elections and an improving economy. Total 2012 printing shipments are projected at $151.3 billion, a 3% gain.
Digital toner-based print, inkjet printing, and printers’ ancillary sales will grow more than conventional ink-on-paper print. Also, since the number of North American printing plants will continue to decline, sales of surviving plants will outpace the market as they pick up sales of defunct plants. Survivors should see their total sales grow by 1% to 2% above the overall market pace each year (3% to 4% in 2011; 4% to 5% in 2012).
A core metric that we also track is print by function. Although many print products and services provide multiple functions, we can sort data on shipments and plants by three major intended functions:
1) Print intended to inform or communicate factual and editorial information such as magazines, newspapers, books, and reports.
2) Print providing product logistics to manufactured products—packaging, labels, wrappers, and user manuals.
3) Print intended to market, promote, or sell various products, services, political candidates, positions, or ideas—marketing and promotional print such as catalogs, direct mail, and brochures.
Of the three functions, only one—print logistics—is not subject to competition and substitution by digital media. Conversely, print’s inform or communicate function is subject to the highest risk of substitution from digital media. Print as a marketing, promotion, and sales media appears to be in the middle.
Printers participating in the 2011-2012 Ratios Survey experienced average profit rates for 2010 of 1.4% of sales. This is a significant rebound from last year’s average loss of 1.4% of sales and ends the three prior years of consecutive decreases. At this rate, the industry earned approximately $2.1 billion in total profits over the course of the year, as opposed to the previous survey year’s approximate $1.9 billion in total losses. This past year only 38% of printers participating in the most recent Ratios Survey posted a loss for the year, down from the 55% who reported losses a year earlier.
Printers in the top 25% of profitability saw profits rise significantly over the year, increasing from 7% to 9.5% of sales.
Printers’ profits tend to lag both print sales and the economy. As the economy continues to recover, print profits should then slowly rebound over the next two years. Our projections call for overall industry profit rates as a percent of sales to rebound to around 2%, and profit leaders to over 9% in 2011; and 3% and 10%, respectively, in 2012.
In conclusion, there are many opportunities ahead, even in these challenging times for the economy and print. Printers who make their investment decisions in light of the emerging economic and print market environment, with a focus on customer needs and productivity enhancements, can add market share and sales growth, reduce cost, and enhance profits.