RR Donnelley & Sons Company

RR Donnelley Reports Fourth-Quarter and Full-Year 2013 Results and Issues 2014 Full-Year Guidance

R.R. Donnelley & Sons Company (NASDAQ: RRD) today reported financial results for the fourth quarter of 2013:

Highlights

- Company achieved or exceeded its previous guidance on revenue, non-GAAP adjusted EBITDA margin and cash flow as follows:

Full-year 2013 Guidance Full-year 2013 Actual Net Sales $10.35 to $10.45 billion $10.48 billion Non-GAAP Adjusted EBITDA margin 11.0% to 11.2% 11.0% Free Cash Flow $400 to $500 million $478.2 million (1) Defined as Operating Cash Flow less Capital Expenditures: 2013 Actual Operating Cash Flow of $694.8 million and Capital Expenditures of $216.6 million

-- Fourth-quarter net sales of $2.8 billion grew 3.6% from the fourth quarter of 2012; organic sales grew 2.3% in the quarter

-- Fourth-quarter GAAP net earnings attributable to common shareholders of $104.0 million, or $0.56 per diluted share, compared to a net loss attributable to common shareholders in the fourth quarter of 2012 of $849.0 million, or $4.70 per diluted share

-- Fourth-quarter non-GAAP net earnings attributable to common shareholders of $89.8 million, or $0.49 per diluted share, compared to non-GAAP net earnings attributable to common shareholders in the fourth quarter of 2012 of $78.1 million, or $0.43 per diluted share

-- Non-GAAP adjusted EBITDA in the quarter of $293.6 million, or 10.7% of net sales, compared to $292.2 million, or 11.0% of net sales, in the fourth quarter of 2012

-- Company realigns into four new operating segments

-- Company to celebrate 150-year anniversary in October 2014

"We are pleased with the fourth-quarter organic revenue growth of 2.3%, driven by strong revenue performance across many of our offerings. For the year, we realized reported revenue growth of 2.5% and organic growth of 0.6%, our best organic revenue growth performance since 2010, and continued to deliver strong free cash flow, at the upper end of our guidance for the year," said Thomas J. Quinlan III, R.R. Donnelley's President and Chief Executive Officer. "The continuing development of our market segment solutions, combined with our recent acquisition of Consolidated Graphics, will allow us to build upon the positive trend realized in 2013. We continue to target gross leverage on a long-term sustainable basis to be in the range of 2.25x to 2.75x."

Net Sales

Net sales in the quarter were $2.8 billion, up $95.7 million, or 3.6%, from the fourth quarter of 2012. After adjusting for the impact of acquisitions, changes in foreign exchange rates and pass-through paper sales, organic sales grew by 2.3% from the fourth quarter of 2012, driven by volume growth in many offerings and an increase in pass-through postage revenue.

GAAP Earnings

Fourth-quarter 2013 net earnings attributable to common shareholders were $104.0 million, or $0.56 per diluted share, compared to a net loss attributable to common shareholders of $849.0 million in the fourth quarter of 2012. Fourth-quarter net earnings attributable to common shareholders included pre-tax charges and expenses, detailed on the attached schedules, of $74.5 million and $1.0 billion in 2013 and 2012, respectively, as well as income tax adjustments in both years, all of which were excluded from the presentation of non-GAAP net earnings attributable to common shareholders. Additional details regarding the amount and nature of these and other items are included in the attached schedules.

Non-GAAP Earnings

Fourth-quarter 2013 non-GAAP adjusted EBITDA was $293.6 million or 10.7% of net sales, compared to non-GAAP adjusted EBITDA of $292.2 million, or 11.0% of net sales, in the fourth quarter of 2012. Unfavorable changes in foreign exchange rates contributed nearly 20 basis points of the quarter-over-quarter margin decline, while higher pass-through postage revenue accounted for an additional 20 basis points of the decline. Higher volume and a favorable product mix offset price pressure, higher benefits-related expenses and wage and other cost inflation.

Non-GAAP net earnings attributable to common shareholders totaled $89.8 million, or $0.49 per diluted share, in the fourth quarter of 2013 compared to $78.1 million, or $0.43 per diluted share, in the fourth quarter of 2012. Fourth-quarter non-GAAP net earnings attributable to common shareholders exclude pre-tax charges and expenses of $74.5 million and $1.0 billion in 2013 and 2012, respectively, as well as income tax adjustments in both years. A reconciliation of net earnings attributable to common shareholders to non-GAAP adjusted EBITDA and non-GAAP net earnings attributable to common shareholders is presented in the attached schedules.

2014 Guidance

The Company provides the following full-year guidance for 2014, which includes eleven months of performance from the acquisition of Consolidated Graphics that closed on January 31, 2014:

2014 Guidance 2013 Actual Net sales $11.5 to $11.7 billion $10.5 billion Non-GAAP adjusted EBITDA margin 10.5% to 11.0% 11.0% Depreciation and amortization $500 to $510 million $435.8 million Interest expense $275 to $285 million $261.4 million Non-GAAP effective tax rate 33% to 35% 30.5% Diluted share count Approximately 199 million 183.5 million Capital expenditures $225 to $250 million $216.6 million Free cash flow $400 to $500 million $478.2 million (1) Defined as operating cash flow less capital expenditures

New Operating Segments

During the fourth quarter of 2013, the Company changed its reportable segments to reflect changes in the management reporting structure of the organization. The revised reporting structure includes four operating segments:

  • Publishing and Retail Services
  • Variable Print
  • Strategic Services
  • International

The schedules that follow provide quarterly segment-level financial data for 2011, 2012 and 2013. Listed below are the reporting units that comprise each segment:

Publishing and Retail Services: Magazines, Catalogs, Retail Inserts, Books and Directories

Variable Print: Commercial and Digital Print Logistics, Direct Mail, Labels, Statement Printing, Forms and Office Products

Strategic Services: Logistics, Financial, Digital and Creative Solutions, and Sourcing

International: Asia, Latin America, Business Process Outsourcing, Europe, Global Turnkey Solutions and Canada

Conference Call

RR Donnelley will host a conference call and simultaneous webcast to discuss its fourth-quarter results tomorrow, Wednesday, February 26, at 9:00 a.m. Eastern Time (8:00 a.m. Central Time). The live webcast will be accessible on RR Donnelley's web site: www.rrdonnelley.com. Individuals wishing to participate must register in advance at http://www.meetme.net/rrd. After registering, participants will receive dial-in numbers, a passcode, and a personal identification number (PIN) that is used to uniquely identify their presence and automatically join them into the audio conference. A webcast replay will be archived on the Company's web site for 30 days after the call. In addition, a telephonic replay of the call will be available for seven days at 630.652.3042, passcode 9850121#.

Investor Meeting

In addition to the conference call, an investor meeting and live webcast will be held tomorrow, Wednesday, February 26, from 12:00 p.m. to 3:30 p.m. Eastern Time, with check-in beginning at 11:00 a.m Eastern Time. A management presentation, including a discussion of the Company's strategy and financial outlook, will be followed by a question and answer session. The live webcast will be accessible on RR Donnelley's web site: www.rrdonnelley.com. A copy of the presentation will be available on the Company's web site in advance of the webcast.                                        

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