Profitability Remains a Challenge for Commercial Printers

By Andrew Paparozzi
In January 23, 2012

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.

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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