R. R. Donnelley & Sons Company
Q4 2014 Earnings Call Transcript

Published: 25 Feb 2015

[Operator:]

Welcome to the RR Donnelley Fourth Quarter 2014 Results Conference Call. My name is Kristine, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Dave Gardella, you may begin.

[David Gardella:]

Thank you, Kristine. Good morning, everyone and thank you for joining the RR Donnelley's fourth quarter 2014 results conference call. This morning, we released our earnings report, a copy of which can be found in the Investor section of our website at rrdonnelley.com. During this call, we'll refer to forward-looking statements that are subject to uncertainty. For a complete discussion, please refer to the cautionary statement included in our earnings release and further detailed in our annual report on Form 10-K and other filings with the SEC. Further, we will discuss non-GAAP and pro forma financial information. We believe the presentation of non-GAAP and pro forma results provides you with useful supplementary information concerning the company's ongoing operations and is an appropriate way for you to evaluate the company's performance. They are, however, provided for informational purposes only. Please refer to the press release and related footnotes for GAAP information and a reconciliation of GAAP to non-GAAP information. We also posted to our website, in the Investor section, a description, as well as reconciliations of non-GAAP measures to which we will refer on this call. We're joined this morning by Tom Quinlan, Dan Leib, Dan Knotts and Drew Coxhead. I'll now turn the call over to Tom.

[Thomas Quinlan:]

Thank you, Dave, and good morning, everyone. The fourth quarter marks the completion of our 150th anniversary year and we wrapped up both the quarter and the year with a number of achievements in innovative developments. While Dan Leib will go into more specifics in a few minutes, I want to begin by mentioning some financial highlights for the quarter and for the year as well as discuss the progress we’re making against the strategy that we laid out at the beginning of 2014. Fourth quarter revenue increased by $314 million or 11.4% versus the fourth quarter of last year largely driven by the acquisitions of Consolidated Graphics and the North American operation of Esselte. On an organic basis we continue to see modest revenue growth in the quarter reporting a 0.5%, which is the same as what we reported for the full year. In addition we delivered $499 million of free cash flow for the year which was at the top end of our guidance range. 2014 was also a successful year from a strategic perspective. A year ago we held an Investor Day, which we presented the details of our strategy and go to market plants for 2014. We talked about product diversification as a strategic advantage in our industry and how we can provide comprehensive solutions that support our customer’s communication strategies. Consumers have a variety of preferences on how to connect with their favorite brands, a catalog, direct mail, the web, mobile and more. We’ve been embracing changes in communication trends since we were founded and we continue to evolve our business with these changing consumer preferences. Today while print remains the core of our business, we continue to add complimentary capabilities in creative and design services, content management, multichannel delivery, data analytics, supply chain management and logistics to support our more than 16,000 customers around the world. We help our customers synchronize our communications across multiple channels from the inbox to the mailbox to help them strengthen bonds and create loyalty with their customers, thereby helping to drive consumer response. When we talked about strategy at last year’s Investor Day, we revealed our plans to bring targeted solutions to a variety of vertical markets with an initial focus on health care, retail and financial services. We also covered the unique differentiation in our value proposition and the scaled benefits that our business model provides. Let me share a few examples of the success we are having in implementing the strategy. The first is in the healthcare market, where RR Donnelley has developed offerings to help healthcare organizations be more effective and efficient in their member communications. With recent changes in the healthcare marketplace, managed care companies and other payers are now communicating with their members unlike ever before. These changes are helping to drive demand from personalized and efficient solutions in order to engage existing and potential members across many communication channels. For example, a large managed care provider was looking for more effective ways to onboard members through their e-Welcome Kits. RR Donnelley’s content creation, content optimization and data analytic services allowed the customer to provide highly personalized communications that would tailor to each of its members, thus starting a more effective and engaging dialog. I also want to share two examples of our market segment strategy at work in the retail industry. Our retail customers have complex communication requirements across mobile, mail, Internet, and print and we collaborate closely with them to identify their critical needs and apply our solutions to increase both the efficiency and effectiveness of their communications. For instance, we currently work with one of the United States largest grocers, operating in thousands of stores across the country. This grocer initially came to RR Donnelley for help to managing its promotions including print circulars, in-store communications and direct mail offerings. In addition to meeting their initial needs, we now assist with portions of their creative elements and photography for their promotions and maintain responsibility for the production, creating fulfillment and delivery of their in-store material going into each and every store nationally. RR Donnelley effectively synchronizes the in-store promotions of each location to provide the right signs to the right store with the correct promotions for each location at the right time every time. A different major retailer working with RR Donnelley is highly focused on visual merchandising and the experience they want to provide to consumers visiting any of their nearly 3000 stores across the United States. We play a prominent role in the creation of their materials as well as in the coordination and production of their in-store parent paints and marketing initiatives. We manage kitting logistics and promotional shipments maintaining end to end accountability for scheduling, execution, and synchronization of their promotion and signage at each store. Another area I’d like to touch on is our logistics offering. Since 2009, we’ve grown this business from less than $500 million in revenue to nearly $1.2 billion in 2014, a 19.2% compound annual growth rate. We’ve leveraged our print related volume to expand our logistics offering to areas unrelated to print and while we’ve made a handful of acquisitions in this space to further diversify our service offering, the majority of our growth has been organic achieving double-digit organic revenue growth in each in the last five years using an asset light operating model. We remain excited about the opportunities. We sustain growth in this business and we’ll continue down the path of broadening our capabilities in this area taking the same capital efficient approach that we currently utilize. Each of these examples show how we executed our strategy during 2014, while also remaining alert to other opportunities for growth. We continue to make organic investments to expand our portfolio of products and services and we successfully completed the acquisitions of consolidated graphics, the North American operations of Esselte and MultiCorpora each of which provide our customers with even more comprehensive menu of products and services to support their communications objectives. As you may recall the addition of consolidated graphics, a provider of digital and commercial printing, fulfillment services, print management, and inner base technology solutions significantly expanded our short run commercial print in digital production facilities across the United States, Canada, Europe and Asia. Along with adding to our geographic footprint, the acquisition enhanced our ability to provide additional localized service, increased responsiveness and greater speed to market, while offering customers the flexibility and distribution cost advantages available from a broader network. The acquisition of Esselte expanded our office products offering, which combined with RR Donnelley’s high service levels has been well received by our customers. By integrating our best practices, complementary products and manufacturing and distribution capabilities, we’ve been successful in taking this portfolio of respected brand and products to our combined customer base of retailers, wholesalers, contract stationers and dealers. We also strengthened the capabilities of our language solutions with the addition of MultiCorpora, an international provider of translation technology solutions. This addition enhanced our ability to meet the evolving needs of our customers particularly in the areas of multilingual web content solution and transcreation. And just a few weeks ago, we announced the pending acquisition of Courier Corporation a leader in digital print, publishing in content management, specializing in education, religious and trade books. While the closing of the transaction is subject to customary closing traditions we look forward to the complementary capabilities Courier will bring in delivering enhanced efficiency and speed to market for our customers. Through internal development, organic investments and acquisitions, we have assembled the industry’s broadest portfolio of products and services under our virtual roof and many of our international resources are connected by our robust information technology infrastructure. In additional, we have a vast network of third-party providers that supplement our ability to help our customers meet their communications objectives. This combination enables us to execute a wide array of programs for our customers from the most simple to the most complex. As we look ahead, we’ll continue to strengthen this portfolio delivering value to our customers and creating value for our shareholders. And with that, I will turn it over to Dan Leib. Dan?

[Daniel Leib:]

Thank you, Tom. As with prior quarters, the focus of my comments will be on certain non-GAAP results and measures. Please refer to the support schedules of our earnings release for a reconciliation of the GAAP to non-GAAP results for the fourth quarter. As highlighted in this morning’s press release, our results were favorable to or in line with our previous guidance. So we are pleased with how we closed out the year. Fourth-quarter revenue of $3.1 billion represented revenue growth of 11.4% from the fourth quarter of 2013. The growth was primarily driven by the acquisitions of Consolidated Graphics and the North American operations of Esselte, both of which were completed in the first quarter of this year and was partially offset by a 120 basis-point unfavorable impact of changes in foreign exchange rates. Despite the continuing price erosion in here and many areas of the business, we achieved positive organic revenue growth of 0.5% led by organic growth in our strategic services, verbal print and international segments, partially offset by a decline in the publishing and retail services segment. Fourth quarter gross margin was 21.8%, 16 basis point lower than the fourth quarter of last year, primarily due to price erosion across all segments, wage inflation in Latin America and Asia and volume declines in publishing and retail services. The unfavorable impacts of these items were partially offset by increased volume in the variable print, international and strategic services segments. Costs control initiatives across the company and a favorable business mix. SG&A expense in the quarter as a percentage of revenue was 11.1% or 15 basis points lower than the fourth quarter of 2013, primarily due to a favorable business mix. The year-over-year reduction in SG&A as a percentage of revenue in the quarter represents the first reduction in several quarters as we continue to integrate the recent acquisitions and are achieving our targeted costs savings. Fourth-quarter non-GAAP adjusted EBITDA was the $326.9 million, compared to $293.6 million in the fourth quarter of 2013. Non-GAAP adjusted EBITDA margin in the quarter of 10.7% was flat to the fourth quarter of last year. Similarly fourth-quarter non-GAAP operating margin of 6.8% was also flat to the fourth quarter of 2013. Our non-GAAP effective tax rate in the quarter was 22.8% or 70 basis points higher than the fourth quarter of 2013. Our full-year non-GAAP tax rate of 31% was lower than our previous guidance of 34 to 35%, primarily due to an extension of the expiration of a portion of our investment credits and the passage of certain US legislation, both of which occurred in the fourth quarter. Now I’ll discuss revenue and non-GAAP adjusted EBITDA performance for each of the segments in more detail. Revenue in our Strategic Services segment was $669.6 million in the fourth quarter of 2014, an increase of 8.2% from last year’s fourth quarter. Similarly organic growth for the quarter was 8.5%. The strong performance was driven by logistics which had another solid quarter with organic growth of 9.5% despite lower pass-through revenue related to declining fuel prices, our sourcing business which reported organic growth of 34.3% primarily driven by new customers wins and financial print which reported organic growth of4.1% driven by growth in our global investment markets offering. Non-GAAP adjusted EBITDA margin of 12.5% for the Strategic Segment increased by 82 basis points from the fourth quarter of 2013 primarily driven by gain on an asset disposal and productivity improvements which more than offset the impact of higher transportation costs within the logistics business. Revenue in our Variable Print segment was $1 billion, an increase of 52.8% from the fourth quarter of 2013 due primarily to the acquisitions of Consolidated Graphics and the North American operations of Esselte. On an organic basis, year-over-year revenue increased 1.2% driven by election related revenue in commercial and digital print, as well as improving volume in direct mail and statement printing partially offset by lower pricing across the segment. The segment’s non-GAAP adjusted EBITDA margin of 12.8% in the fourth quarter improved 63 basis points from the fourth quarter of 2013,.higher volume and the impact of our productivity initiatives more than offset price pressure. Fourth quarter revenue in our International segment was $686.7 million, declining by 4.1% from the fourth quarter of 2013, after adjusting for the favorable impact from acquisitions and pass-through paper sales, as well as the unfavorable impact of changes in foreign exchange rates in dispositions completed during 2014. Organic revenue increased 1.3% primarily due to the timing shift of a significant customer project into the fourth quarter which positively impacted the segment’s growth by approximately 250 basis points. Volume increases in global turnkey and business process outsourcing, we are offset by lower volume in Asia and Latin America, as well as price pressure across most offerings in the segment. The non-GAAP adjusted EBITDA margin in the segment of 9.6% was 164 basis points lower than the 11.2% margin in the fourth quarter of 2013. The margin was negatively impacted by price erosion across the segment, wage and inflationary pressure and the impact of changes in foreign exchange rates. Revenue in our Publishing and Retail Services segment was $682.7 million, representing a decline of 8.5% from the fourth quarter of last year, 70 basis points of the decline related to lower pass-through paper sales, resulting in an organic year-over-year decline of 7.8%. We experienced volume declines in each of our reporting units within the segment, as well as continued price pressure primarily in magazines, catalogs, and retail inserts. Non-GAAP adjusted EBITDA margin for the segment of 9.9%, declined 222 basis points from the fourth quarter of 2013 as a result of price erosion and lower volume. Fourth quarter 2014 non-GAAP on allocated corporate EBITDA was negative $22.4 million or $9.3 million better than the fourth quarter of 2013. The favorable variance was due to lower employee related costs. Free cash flow in the quarter was $409.7 million or $99 million higher than the $310.7 million in the fourth quarter of last year. Relative to last year’s fourth quarter, the increase is primarily due to working capital being a higher source of cash, increased EBITDA from the 2014 acquisitions, and lower capital expenditures, partially offset by higher cash taxes and cash interest. Our controllable working capital rate, which we define as accounts receivable, plus inventory, less accounts payable was 12.5%, an increase of 20 basis points on a like-for-like basis, when adjusted for the impact of the consolidated graphics in Esselte acquisitions. Full-year capital expenditures were $223.6 million, or 1.9% of revenue, slightly lower than the 2% to 2.25% of revenue that we expect going forward. I should also note that we had very strong working capital performance at the end of the year, some of which we believe represents a favorable timing shift that benefited 2014 and that will negatively impact 2015. As of December 31, 2014, our gross leverage was 2.9 times, down 0.2 times from where we ended the third quarter and down 0.4 times from year-end 2013. As has been the case for the past few quarters and will be the case for a few more quarters, our reported leverage remains slightly elevated and as the impact of our 2014 acquisitions are fully reflected in our debt levels, but the base EBITDA and synergies are not yet fully reflected in the income statement. We continue to target gross leverage in the range of 2.25 times, the 2.75 times on a long-term sustainable basis and expect that we will continue to reduce our leverages to corporate the acquisitions into our results. Adjusting for a fully synergized full-year of our 2014 acquisitions, year-end gross leverage was near the top end of our targeted range. We paid down the April 2014 maturity of $258 million and ended the year with $1.8 billion of net available liquidity with nothing drawn on our $1.5 billion revolving credit facility. Our next term debt maturity of $200 million is due in May 2015. From 2015 to 2018, our average maturity is $230 million with the highest maturity of $251 million due in January 2017. As of December 31, 2014, our term debt was approximately 95% fixed and then average interest rate was 7.3%. At year-end, our pension and other post-retirement benefits plans were underfunded by $822.4 million, representing a $401.5 million year-over-year increase in the underfunded amount. This increase is primarily due to the lower discount rates used to determine the benefit obligations as well as the required adoption of the new mortality tables. Reported contributions in 2015 under all pension and other post-retirement benefits plans are expected to be approximately $25 million to $30 million. We expect reported contributions to remain at this level for the next several years. In 2015, we expect pension income of $43 million, a $6 million decrease from 2014. I should also note that in June 2014, we communicated to certain former employees, they often do receive a pension settlement buyout. Payments were funded from existing pension plan assets and began in the fourth quarter of 2014. The reduction in the reported pension obligations for these participants was $404 million, compared to payout amounts of approximately $317.7 million. Our pension assets and liabilities were re-measured as of the payout dates and in connection with this re-measurement, we recorded a non-cash settlement charge of $95.7 million in the fourth quarter of 2014 on the SG&A line of our GAAP income statement, but excluded this charge from our non-GAAP results. Before turning to our 2015 guidance, I’d like to recap our full-year 2014 performance relative to the five-year outlook we provided last February at our Investor Day. For the full-year, our organic growth of 0.5% was in line with our expectations. The revenue growth in Strategic Services and revenue decline in Publishing and Retail Services were each within our expected ranges and each favorable to the midpoint of our five-year outlook. While the International segment’s performance was below our expected range, our Variable Print segment outperformed our expectations achieving organic growth of 0.8% in reversing the annual trend of organic decline. From a margin perspective, three of our four operating segments achieved EBITDA margins within our expected ranges with the International segment reporting margins 20 basis points outside of expected range. Additionally, we generated nearly $500 million in free cash flow. Excluding the benefit of the favorable timing on working capital that I noted earlier, we finished 2014 above the $450 million midpoint of our expected range of free cash flow. As it relates to our outlook through 2018, we continue to expect revenue to be approximately flat on an organic basis, with EBITDA margins averaging closer to the low-end of our previous range. Our expectation for capital expenditures is unchanged in the range of 2% to 2.25% of revenue and finally we continue to expect annual free cash flow in the range of $400 million to $500 million. With respect to 2015 in specific, let me also share that guidance, which was included in this morning’s press release and excludes any impact of the pending acquisition of Courier Corporation. We expect revenue in the range of $11.7 billion to $11.9 billion. At the midpoint this implies organic revenue growth of 0.8% with a range of flat to 1.6%. We expect our non-GAAP adjusted EBITDA margin to be in the range of 10.3% to 10.5% as the impact of continuing price pressure, inflation related cost increases and rising cost of transportation is only partially offset by our productive initiatives and the benefits of higher volume. Depreciation and amortization is expected to be in the range of $455 million to $465 million. We expect interest expense in the range or $265 million to $275 million, a decrease of $12 million at the midpoint resulting from the repayment of term debt. We expect our full year non-GAAP tax rate in the range of 33% to 34%. We project the full year fully diluted weighted average share count to be approximately 202 million shares. We expect capital expenditures in the range of $225 million to $250 million and free cash flow in the range of $400 million to $500 million. Before I turn it back to Tom, I should note that from a seasonality perspective we anticipate our first quarter revenue to be flat to slightly down on an organic basis, probably based on what we experienced in January, where organic revenue was down approximately 1% compare to January 2014, with the most notable declines in publishing and retail services and international being partially offset by continued growth and strategic services. In addition while changes in foreign exchange rates are excluded from organic revenue calculations, we expect the annual impact to EBITDA to be approximately negative $10 million in 2015. Lastly we continue to face a challenging operating environment in certain international geographies. Well these assumptions are included in the full year guidance, I just walk through. I wanted to provide additional color on our expectation for the first quarter. And with that I’ll turn it back to Tom.

[Thomas Quinlan:]

Thank you, Dan. Well done, lot there to digest. As we wrap up our 150th anniversary year, we’re proud of achieving this momentum milestone. Yeah, we maintain our focus on the future. Our ability to adapt to changing technology and our customer’s evolving preferences has enabled us to achieve our successes over the years. We outlined our strategies at last year’s Investor Day and we’re fulfilling our plans to develop innovative solutions for market verticals and expand our capabilities to further support customer’s communication needs. In 2015 we’ll apply what we learned from each of our customer engagements and continue to execute our strategy, drive results and we create additional value for our shareholders. And before we open it up for questions, we would like to say special thank you to Pete Parnell [ph], a transportation distribution manager for RR Donnelley. Pete is retiring after working at RR Donnelley for 51 years. Pete, thank you for all that you’ve done to serve RR Donnelley’s customers at the highest level, by helping RR Donnelley to continue to move forward and for being part of a great team that creates value for all of our investors. All of us wish you and your family nothing but the best on the next part of your journey. And with that operator, we’ll open it up for questions.

[Operator:]

Thank you. [Operator Instructions] And our question is from Charles Strauzer of CJS Securities. Please go ahead.

[Charles Strauzer:]

Hi, good morning.

[Thomas Quinlan:]

Good morning, Charles.

[Charles Strauzer:]

Just a quick question on the Courier acquisition, tell me if you could expand on some of your thoughts there kind of behind the strategy, behind it as well as maybe your thoughts on your kind of revenue, operational and cost synergies kind of once this thing closes?

[Thomas Quinlan:]

Sure, Charlie, thanks. Look, Courier is obviously limited on what we can say right now but Courier is a very well run respected company. They are the leading customers in the book product. There are also capabilities, binding equipment and digital presses that can be used not only to print books but just about in many other products. I think sometimes I think those of you have been around this know that we use M&A as a surrogate for CapEx as well and Courier is a great example of that with the equipment that we are going to be able to add. I would tell you sometimes that - we tell our customers all the time, let’s build better by smarter. We also apply to us as well and I think this gives us a great opportunity to help that particular product line as we go through. I think, Charlie, as you go through it, you are seeing more and more opportunities. As you think about the segments that we did last year in 2014, as we’ve told you last year, we started managing the business in that way. It allows us to continue to leverage the breadth of our products and services while recognizing the dynamics that exists within each one of the platforms. When you think about the Publishing and Retail Services segment, it’s not a surprise. The organic dynamic is tough, but we’re fortunate to have solid customers in every way imaginable but it’s a tough segment. This, though, creates opportunity as we’ve seen in the book product. It allows us to do more things in warehousing, fulfillment and distribution. Catalog allows us to go ahead and serve our customers well there from a distribution standpoint, because how we can save their money there, if you look, there are some retailers that have come out lately and have talked about digital end print and that’s just being digital or print. Retail inserts is driving for us, the retail initiatives that we’ve got on in the solutions from a vertical standpoint. So I think as you look there, we think there are some good opportunities with the Courier property and we also think there’s still some real good opportunities as it relates to the Publishing and Retail Services segment.

[Charles Strauzer:]

And then a pick up from that, Tom, on Publishing and Retail, are there some larger kind of contract opportunities, I know you’ve talked about kind of like the textbook cycle et cetera, you mentioned Texas [ph] previously but are there any other opportunities out there that you’re tracking that could be a benefit to this year?

[Daniel Knotts:]

Hey, Charlie, it’s Dan Knotts here. Yeah, from a tracking of those opportunities, we are always looking at in tracking what’s available in the marketplace across each of those product offerings within Publishing and Retail Services and for those that are a good fit for us, makes sense for our platform, we continue to pursue those opportunities aggressively within that space. So track it, manage it, but it isn’t just for the sake of going out and trying to capture things that don’t fit our platform or very diligent about that evaluation before we pursue those opportunities.

[Thomas Quinlan:]

And, Charlie, not to continue to hop on that product, but look there really hasn’t been a, what we’ll call what - the industry calls it runner. Harry Potter is no longer with us Vampires [ph] and Teenage Girls hasn’t occurred, but in 2015 there could be some books that are out there that will be what is defined as a runner. We think that the states from a budget standpoint, there is more attention being paid to curriculum. We got the presidential election coming up in ’16. We think it’s going to be a hot topic in ’15. So look we’re out there and we’re paying attention to anything that’s going to take place and helping our customers do that very good through it.

[Charles Strauzer:]

And then just one kind of more macro question for you and you always found the anniversary now of the kind of re-segmentizing [ph] of the company and which has been very helpful to myself and the investors when they look at how to kind of track the growth of the various pieces of puzzle. But from your operational perspective, how has it helped you as a manager of the firm?

[Thomas Quinlan:]

Yeah, I think, look, we’re still - yes, I think as I said we continue to leverage the breadth of our products and services but we recognize the dynamics that exist within the platform. So I talked to you about PRS, Variable Print, as you’ve seen there, we’ve been investing both organically in weird [ph] acquisitions. This segment, they have two offerings that are also undergoing secular changes, when you think about forms and statements. But again just like the PRS segment, this offers us opportunities for us to help our customers achieve lower cost and go ahead and make them more efficient. We really liked our position with the other offerings in this segment. Services, Dan’s gone through it, at length here. We’re really happy with what’s going on with financial, logistics, sourcing and creative. This segment’s performed really well. And from an international standpoint, this segment serves our global business solutions offering and we’re very excited about the opportunities especially that we see coming out of China, great management team over there, really doing some good things with some customers. And with each one of the segments, as I’ve said in the past, if they were standalone businesses, would be ranked probably as a third largest in our industry in North America. So I think you said that the byproduct of all this is you as an investors, as analysts to compare our performance in these various segments to the performance of other public companies.

[Charles Strauzer:]

Excellent. Thank you very much.

[Thomas Quinlan:]

Thanks, Charles.

[Operator:]

Thank you, our next question James Clement of Macquarie. Please go ahead.

[James Clement:]

Good morning, gentlemen.

[Thomas Quinlan:]

Good morning, James.

[James Clement:]

I just want to get this straight, so Courier is not in your 2015 revenue guidance yet?

[Thomas Quinlan:]

Correct, that’s correct.

[James Clement:]

Now, it’s logical. I know that’s an incredibly seasonal business and you just don’t know when you’re going to close this.

[Thomas Quinlan:]

Right, as we said we have regulatory process to go through, so it’s tough to know exactly when it will close, but as soon as it does we’ll come out and we’ll let you know what means for the full year.

[James Clement:]

Very good and just on other revenue kind of items with respect to 2015, so I’m assuming at least through the first nine months or so of the year you’re going to have foreign exchange pressure. You’re probably going to have a little revenue pressure from lack of fuel pass through on logistic side and then I would assume also that at least the first six months the pass through paper might also be a little bit of headwind too, right?

[Thomas Quinlan:]

Yeah, I think your assumptions are reasonable.

[James Clement:]

Yeah - no, what I’m just getting at it that’s - it looks like a pretty good range to me when you factor all those things and the last one and then I’ll jump back in the queue. Logistics business is really grown a lot as you laid out the numbers. Is there a point in time down the road where, if you look in a kind of [indiscernible] logistic stocks traded 12 to 15 times EBITDA, I mean is it logistically feasible to go down the road potentially looking to see if that could be spun off?

[Daniel Knotts:]

Sure I think Jamie, as we look at the business and you the metric behind or madness behind the segment two is to show people what these businesses can do, show them what they are. There is interconnectivity between logistics and the rest of our business. We look as good producers [ph] should do, we look at all possible opportunities what it would mean for our investors and yeah, that’s something we look at whether it’s - what does that mean from a tax basis, what does that mean from a cost basis, but especially what does that mean for customers. So yeah, we continue to - from a strategic initiative standpoint always look at what opportunities are out there for our investors.

[James Clement:]

Okay and then last question Tom or Dan, I don’t know who wants to handle this. Obviously the December quarter had historically been Consolidated Graphics seasonally strongest, so now that that’s in the books, any kind of lessons learned from that acquisition, things that were perhaps a pleasant surprise?

[Daniel Knotts:]

Jamie, Dan Knotts here. I think we are - I think our team has done a tremendous job from the integration of Consolidated Graphics into the overall dynamic platform of products and services. As we talk about the four different go to market strategies of selling individual products and services, those facilities continue to remain very, very focused on serving the local markets. But at the same time the opportunity for us has been to incorporate their capabilities into our enterprise account approach, incorporate them into the support of our go to market segments that Tom talk about particularly in the retail and in healthcare and also play a significant role in the global business solutions growth that Dan had talked about, resourcing of the 34% or so. So Consolidated Graphics would continue to be very, very pleased with that addition to the RR Donnelley family from a capability standpoint, from an integration standpoint. In terms of key lessons learned, I think that the key lesson learned that we would all say is that it’s a tremendous fit for Donnelley and it’s a critical part of our offering for our customers going forward.

[Thomas Quinlan:]

And Jamie, just to - what Dan said and what you said about headwinds a little bit earlier. Yeah, let’s not forget last year was a pretty good political [indiscernible], I think if you look at the USPS financial report there’s almost $1 billion increase in [indiscernible]. That we managed from obviously with the acquisition of Consolidated Graphics and then numbers that we gave you today, that’s obviously not in there. But as we look at ’16 and what’s going on there, yeah there’s some opportunities that we know be down the road since we’ve had - we would have had the Consolidated Graphics property underneath our management for a couple years by then.

[James Clement:]

Yeah - no, I want to [ph], just to clarify. I was asking those questions more from a positive bias perspective because to put that guidance range out there obviously you have to have underlined strength in the business to deal with all those things. So thank you very much for your time as always.

[Thomas Quinlan:]

Thank you, Jamie.

[Operator:]

Thank you, our next question is from Edward Atorino of Benchmark. Please go ahead.

[Edward Atorino:]

Hi, good morning. Well, that gentleman’s worked for you long and I follow the company there’s something to say. A couple of things, if you look at the sort of two big chunks, we go publishing, retail services, et cetera sort of a wagon that’s moving slowly and then you’ve got the other businesses where the wagon’s moving faster and getting bigger. The math has got to start going your way, it seems to me eventually where the growth in the growth sectors occurred largely the offset or more than offset, they’ve a continued rate of decline, is that a year or two away or is it just maybe [indiscernible]?

[Thomas Quinlan:]

Yeah, thanks Ed. I think it’s a great question and if you look at our five year guidance and look at the different guidance obviously by segment as Tom said, we managed the business this way and recognized how helpful this is from a transparency perspective externally. But the guidance does result in hitting that cross over point and so you see in our five year guidance you get to that point of flattish type of revenue growth which is reflective of something’s down and a couple of segments with - one segment with very strong growth and a couple of segments with low single digit growth. And by the way we’ve seen that take place in the last couple of years where organic growth has been slightly positive, so this year at 50 basis points and the past couple of years - 2013 was that about 80 basis points.

[Daniel Knotts:]

Yeah and just to continue on, the team’s done a great job of an evolution. It’s not a transformation at Donnelley but we think about it and you’ve been around as you said long enough to know this. We’ve gone from a printer to a print services provider to an integrated communications services provider and I think when you look at this evolution, we’ve done this while continuing to serve customers, invest back into the business. We’ve acquired capabilities and businesses and we’ve given back to our investors and we’ve rewarded our employees. So the evolution is not going to stop and it never will but right now we’re in the process of supplying the current offering with deeper data analytics and looking to further optimize content while continuing to serve customer’s multichannel needs. What Dan Knotts and George Zengo and others put together with our go to market approaches, it allows us to leverage our skill and breadth, we can do targeted M&A and we can look to grow on [indiscernible] packaging prime labels and install [ph] marketing. So we feel good about what the team has put together from a strategic standpoint and now we got to execute on it.

[Thomas Quinlan:]

Yeah, I would just add one thing Ed. When we look at the 60 basis points organic growth that we had in 2013 and the 50 basis points this year and look at it broken now by segment, very consistent with the five year guidance we gave in reflective of the underlying dynamics.

[Edward Atorino:]

In terms of the margin, I imagine you continue to focus on trying to reduce cost, is there a big cost knot that offers a lot of room for reduction let’s say or is it just you got to do blocking and tackling?

[Daniel Knotts:]

There’s a lot of blocking and tackling obviously and then there are different fixed versus variable cost dynamics amongst different reporting units, different segments et cetera. So it’s something we’re constantly focused on and something that we realize in some of the offerings that have more growth and need to be fed with more capital et cetera and in some of the offerings focusing more on the efficiency play.

[Edward Atorino:]

When you mentioned the publishing, the book sector, is this a good year for the textbook business or is it sort of more of the same for that area?

[Daniel Knotts:]

Hey, Ed its Dan Knotts. I think the - as Tom talked a bit earlier about the textbook area, break that down to two parts, one is the school or kindergarten through twelve and the other one is the college - is a college textbook market or product. The opportunity there is, we feel based on the state, state funding, state spending that drives the K-12 volumes and obviously the conversation of the college side from both the offset and the digital side. We feel obviously it depends upon what happens in each of those areas but input from publishers is we feel okay about that for 2015.

[Edward Atorino:]

Okay, thanks.

[Thomas Quinlan:]

Thanks Ed. Operator we’ve got time for one more last question.

[Operator:]

Sure, our last question is from Katja Jancic of Sidoti & Company. Please go ahead.

[Katja Jancic:]

Hi, thank you for taking my call. Just a quick question regarding the Courier acquisition, are there any further plans to expand your digital prints capability?

[Thomas Quinlan:]

Look at our digital capabilities, there’s a number of trends and different product lines beyond book in which digital print plays a critical role in that and those same digital presses can be utilized across multiple product line. So if you look at migration of statements to or color, if you look at the trend of digital or direct mail moving towards the digital print side with the increased reposition [ph] of the messaging and such that’s going into those particular products. If you look at that digital print capabilities within the world of commercial printing, if you look at digital print and the growth that’s occurring within the forums in the label side of the businesses that technology continues to advance. We will very much stay on top of all of that and look to invest to support the growth opportunities in the trends that our customers are taking us.

[Katja Jancic:]

Okay, thank you.

[Thomas Quinlan:]

Thank you. As we look to wrap up, in 2014 hopefully you’ve seen that we’ve demonstrated our strategic initiatives are working and in 2015 we prepare to deliver on the plan that we set forward with you today. Hope everyone has a good couple of months and we’ll see you in 90 days. Thank you everybody.

[Operator:]

Thank you and thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.