Donnelley's future: still inky
Printer needs CEO with nose for growth
By Bob Tita
August 04, 2003
R. R. Donnelley & Sons Co.
needs a new CEO
who can solve the riddle that has stumped the last two: how to turn an
old-line printing company into a fast-growing services provider.
Efforts to expand Chicago-based Donnelley's 139-year-old act into
everything from software distribution to direct mail have flopped. CEO
William Davis, who has announced plans to retire as soon as a successor
is named, has tried with limited success to make the company a logistics
specialist managing printed material from design to delivery.
But five years after Mr. Davis took the helm, Donnelley still gets 65%
of its $4.7 billion in annual revenues from commercial printing, a
slow-growth, cyclical industry hammered by the recent recession and a
migration of publications to the Internet. Logistics and other services
made up about 35% of sales last year, well short of Mr. Davis' goal of
50% by 2005.
Industry observers say Donnelley's next CEO will have to improve on Mr.
Davis' efforts to move the company beyond its traditional role as a
printer of magazines, catalogs, telephone directories and other
publications.
For that, Donnelley's directors will likely look outside the company and
the printing industry, which has traditionally been dominated by
managers more interested in improving printing technology than tapping
new revenue streams.
"One of the
problems with the printing industry is that it's focused so much on
printing," says Charles Oppenheimer, president and CEO of Amvest
Financial Group Inc., an Independence, Mo.-based investment bank and
consultancy for the printing industry. "You need a bigger-picture
person."
Continuing momentum
Industry experts credit Mr. Davis with carrying out a much-needed
overhaul of the company. He sold off Donnelley's interests in Stream
International, a software distribution service; Metromail, a direct-mail
provider, and Donnelley Enterprise Solutions, an information technology
subsidiary.
His campaign for production efficiency trimmed $175 million from the
company's fixed costs in two years.
Moreover, he elevated logistics services to a separate division within
the company, putting it on an equal footing with printing. Logistics
revenues totaled $784 million in 2002, an increase of 233% from five
years before. Among the company's biggest logistics successes is a
recent contract with Target Corp. to distribute all of the
Minnesota-based retail company's advertising inserts to newspapers.
The changes haven't gone unnoticed on Wall Street. Investors
anticipating recovery in the publishing industry have bid up Donnelley's
stock price more than 50% since it hit a 52-week low of $16.94 in March.
"When I arrived, the company needed to rededicate itself. Today, it's
markedly different," says Mr. Davis, 60, a former Emerson Electric Co.
executive who came to Donnelley in 1997 after predecessor John Walter
left for an ill-fated tour of duty as president of New Jersey-based
telecom giant AT&T Corp. "The individual selected (as CEO) will really
need to keep that momentum going."
Mr. Davis declined to discuss specific successor candidates. If the
board looks to promote from within, company observers anticipate that
Executive Vice-president Joseph Lawler, 53, who oversees Donnelley's
largest businesses, and John Campanelli, 46, recently appointed
president of the print division, would be considered. Messrs. Campanelli
and Lawler could not be reached for comment.
Outsider predicted
However, industry analysts predict that it's more likely the new CEO
will be hired from outside the printing industry to continue an
aggressive push into logistics. Although revenues from logistics grew
just 1% last year, compared with 2001, and accounted for 16.5% of the
company's sales, it was the only Donnelley unit that grew at all last
year.
In March, the company purchased Momentum Logistics, a Florida-based firm
that distributes small packages directly to local post offices in the
Southeast. Mr. Davis predicts the acquisition will push 2003 logistics
revenues above $900 million.
The outlook for commercial printing, however, remains murky at best.
Sales slipped nearly 12% last year from 2001, to $3 billion.
This year, companywide first-quarter sales slipped about 2% to $1.07
billion, compared with the 2002 quarter. Even when a recovery occurs,
fierce competition will hold down prices, putting pressure on printers
to offer more services than putting ink on paper.
Gary Sutula, a former vice-president and chief information officer at
Donnelley who left last year, says: "Being able to manage that whole
supply chain, that's the big play in printing now."
©2003 by Crain Communications Inc.
