By Dr. Joe Webb on April 3rd, 2008
On Wednesday, the Commerce Department released data about February printing shipments; they were quite disappointing. Shipments were $7.07 billion or -1.6% below February 2007's figures. On inflation-adjusted basis, they were down -$441 million or -5.4%. We've been watching the employment data, as readers know, and they basically warned about this.
Our forecasting models took this rather badly, especially our most conservative one. Our aggressive model had virtually no change. Our judgmental forecast for the year is staying the same for now.
The report that has all of the details, commentary, charts, and forecasts is up on the WTT e-store for just $50.
The industry profits report for the fourth quarter of 2007 was put up on the e-store the other day as well. That was was particularly interesting, the worst profit performance in all of our data set, which starts in 1995. It's a very important report. We all know that profits are very important, but they seem to have become less predictable since 2003. In the commentary I discuss how revenues per quarter for the industry are relatively stable and predictable, but profits used to be evenly dispersed as well. Not any more. Even though the fourth quarter has so much holiday printing volume, one would think that the profits would be okay. Not anymore; the quarter is just 19% of the profits for the year.
The past couple of days I've found the Amazon.com news quite interesting. They've decided to push their own print on demand capabilities, and have taken a lot of heat for it, responding with a letter posted online. Some are comparing this to the “Adobe/FedExKinkos” problem of last year, but it's quite different. Adobe is a seller of production tools to the printing industry, with some of their products having a 90% market share. Acrobat Reader is a free product, an having a Kinko's button to send files for printing was perfectly in their legal rights but a public relations nightmare. Adobe would have had the market presence to stand steadfast by their decision, and I believe they would have weathered the problem. The problem for Adobe was that the industry had standardized on its platform, and built its production tools with heavy input from it the industry-at-large, associations, and owners, many of whom helped on a somewhat voluntary basis. The decision they ultimately made was best for all parties, but it exposed the printing industry to its lack of production diversity, a problem one encounters when it uses standards, even de facto ones. Even though film was a standard for platemaking and image assembly, we always could choose from Kodak, duPont, 3M, Agfa, and others. Not so with the software we use; but that's water under the bridge, as they say. It's not even a battle for another time; it's not even a battle worth having.
Amazon.com, however, is a retailer, and does not produce production tools for our industry, and in that sense “owes” no goodwill to our industry. Do not be surprised if Amazon backs down by suggesting that competing ondemand providers must set up shop in proximity its warehouses and tie in to its computer systems as the price for continuing to sell their offerings at the terms they have been until now. Some people are mad at Amazon. But their first phone call should have been to Barnes & Noble, to see if they would become a safe haven for small and micro- publishers. Amazon has recognition and market power, earned by years of struggle and doubt, to make its decision stand. That does not mean that there are no options for small publishers. There are, but Amazon has always been a “safe” choice.
Also in the news was Heidelberg and their bad financial report, and they are still blaming a slowdown in advertising for their plight (the phrase they use is “advertising cyclicality”). Sorry. Advertising is growing, and the employment data show it. It's the long telegraphed media mix change that everyone has known about for years that is playing out, and there's nothing cyclical about it. It's also the rise of digital printing, in which Heidelberg no longer has a major stake.
Like other companies, Heidelberg made a stock buyback last year which averaged 33.42 euros. The stock is now fluctuating between 15 and 16 euros. This is exactly what I wrote about in my old blog back in 2006, where buybacks can bite back, because just when you need the money, you no longer have it any more. What made the Heidelberg buyback bad at that time, in my mind, was that they were laying off workers at the same time. They're not alone, and this is not to pick on them. Pitney Bowes has done the same thing, and Xerox' buyback program had it purchase stock at prices higher than shares are trading now. Barron's had an article in its December 10, 2007 issue about how badly buybacks had fared in general. It was based on Standard & Poors analysis that was also reported in the November 12, 2007 Financial Week.
If you want to give money to the shareholders because of a groundswell of success and excess cash (is there really such a thing, especially when economies slow down?), stock dividends are the best, and increasing the regular dividend is next best, and in some cases may be even better. At least then you don't have the embarrassment of having lost money investing in your very own stock.