Are Profits on the Mend?

By Andrew Paparozzi
In September 3, 2009

The latest data from the Bureau of Economic Analysis (BEA) show that corporate profits rose in the second quarter of 2009 to $1,250 billion, almost $68 billion above the previous three months and 11.3% above the low point recorded in the final quarter of 2008. The recent increase is definitely a move in the right direction. But we need to keep the improvement in perspective— corporate profits remain almost 11.0% below a year ago and almost 25.0% lower than their peak in the third quarter of 2006.

Something else we need to keep in perspective: To a large extent, the increase in profits reflects gains achieved through cost cutting—companies slashing labor costs and other expenses. There is nothing wrong with boosting profits from the expense portion of the income statement—becoming leaner and more efficient is part of the healing process during and following a cyclical downturn. But, at some point, in order to see a sustained pickup in profits, the revenue end of the income statement will need to contribute. As is being reflected in the recent jump in nonfarm business productivity (output per labor hour) of 6.6% in the second quarter, companies are leaner and better positioned to take advantage of a pick up in sales. Once recovery establishes a firm foothold, look for profits to benefit significantly. But it’s not going to be across the board. There will be winners and losers—both among and within sectors. Market redistribution marches on.

What are you doing to be on the right side of market redistribution in the commercial printing industry? Based on the latest data from the NAPL Printing Business Panel, pre-tax profitability fell in August for 65.5% of the Panel, while rising for only 11.9%. Not great, but better than the previous month. With commercial printing industry sales down 16.0 % year-to-date, results of widespread lower profitability is not very surprising. And the road to repairing profitability will be slow and bumpy. But it would be a mistake to wait on a meaningful recovery in order to see improvement on the bottom line. How are we preparing for recovery? What steps are we taking to seize upon the numerous opportunities that will present themselves? These are questions we should already be asking ourselves. A “recovery preparedness checklist”—highlighted in the upcoming NAPL State of the Industry Report, Eight Edition—provides a good starting point. But, with most things in our industry, acting on the information—executing—remains key. We will not be the same industry coming out of the downturn as we were going in. Why? The answer clearly points to structural changes.

Andrew Paparozzi        Joseph Vincenzino        Kong Lue Wang

Andrew Paparozzi

Epicomm's Andrew Paparozzi, Vice President/Chief Economist, is well-known for his accurate and thoughtful discussions on the economy and US commercial printing industry. A foremost author and speaker on economic business trends in the printing industry, Paparozzi heads Epicomm's Printing Economic Research Center.

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