The following report was compiled and written by MargolisBecker and Printing Industries of America’s Ratios Study Program. The Great Recession of 2007–2009 was a dramatic departure from the relatively mild recessions of the past two decades. The sluggish economy and slowing print markets picked up steam and reversed their trends in 2010. As reported, the industry incurred an average profit for 2010 of 1.4% for all printers participating the in the 2011–12 Ratios Survey. This is an increase of 2.8% from last year’s average loss of 1.4% and ends the three prior years of consecutive decreases. Looking back over the last 90 year history of the Ratio Studies, an astute business person could predict the reversal of the industries recessionary trends, as it has always happened. But with the ever changing environment, even the veteran industry leaders have expressed concern over the recovery. The Ratios report should start to alleviate some of their concerns. At this rate, the industry showed approximately $2.1 billion in total profits over the course of the year, quite the opposite from 2009’s approximate $1.9 billion in total losses. In 2010 38% of printers participating in the Ratio Study posted a financial loss for the year, down from the 55% who reported losses in 2009. The industry’s profit leaders, printers in the top 25% of profitability, saw their profits also rise significantly over the year, increasing to 9.5% from 7.0% the previous year. Considering the conditions of the economy and the overall industry results, these top performers should consider themselves fortunate. For more information on the Ratios and to order the volume that best matches your company’s business go to www.printing.org/page/6529. For further information or questions please contact Ed Gleeson at egleeson@printing.org or leave a comment on this...

The Following is a special guest post from Stuart Margolis CPA, MT. The answer:  Well-managed companies can react to dips in sales appropriately and ultimately sustain profitability. Whether we have historically managed our companies well or not, all of us are looking for creative ways to stay in the black for 2011.  We watch our ratios since solutions might be found in our own strategic tactics.  Understanding the value and use of ratios enables managers to gain a better understanding of the behavior of costs.  They can be good indicators of possible manufacturing strategies that can lead to a competitive advantage and help maximize profits. An example can be seen in the relationship between sales and profits.  Here is a scenario to demonstrate the effect of a decrease in sales, its impact on variable costs, and its impact on contributions to cover fixed overhead costs.  Let’s take a look and see why watching ratios is a common practice among well-managed companies. A printing company’s sales went from $1,000,000 sales in year A to $800,000 in year B (a decrease of 20%).  Materials decreased proportionately so value-added decreased by the same percentage of 20% or $134,000.  The variable overhead cost also decreased by the same ratio, with fixed costs remaining the same as in the previous year.  Income decreased but did not disappear completely.   Year A   Year B % of Sales Sales $1,000,000   $800,000 100% Materials      330,000     264,000   33% Value Added 670,000   536,000 67% Less: Variable Expenses      200,000     160,000   20% Marginal Contribution 470,000   376,000   47% Less: Fixed Expenses      370,000     370,000 FIXED Income Before Taxes $   100,000   $    6,000               Here’s the danger.  Had the printer taken his eye off the ratios, results could have been  disastrous.  If the decrease in cost of materials and other variable expenses were not proportionate to the decrease in sales (only decreasing 15% instead of 20%), income before taxes could have resulted in a loss of $20,500.  The mere 5% difference could have pushed the company into the red. Fortunately, there’s nothing mysterious about watching ratios.  Tracking variable costs as a percentage of sales has helped some of the most successful printing companies extract more and more profits from their sales.  By keeping an eye on ratios, we can make sure variable costs are reacting appropriately.  We can then look at fixed overhead costs and either: 1. Reduce fixed costs to a lower level or 2. Get creative and find ways to convert fixed cost into a variable cost (even if only temporarily). Want to see what ratios and margins other...

As promised in the previous blog, today we take an in depth look at Total Factory Cost of Product. In this entry we use two example printers, a profit leader and an average printer with $1.7 million in annual sales.  In future entries we will cover mid-sized and larger printers. How much does it cost an average printer and a profit leading printer with $1.7 million in sales to produce their finished product? Total Factory Cost of Product is 8.28% less for the profit leading printer than the average printer, resulting in $140,760 in savings for our $1.7 million printer. Gross profits for the average $1.7 million printer were 19.85% compared to 28.13% for the profit leader. This significant savings provides the profit leaders with additional funds to cover SG&A, interest expenses, and other expenses and achieve a profit before income taxes of 5.93% compared to a loss of 4.23% for the average $1.7 million printer. Profit leaders with sales less than $3 million averaged profits of $87,779 while the average printer had a loss of $79,778. The significant efficiencies that the profit leaders achieved in producing their product added to their bottom line and helped them remain profitable in 2009 despite the recession and declining sales. How much more efficiently does the profit leader work, and where are most of the efficiencies realized? As mentioned above the example profit-leading printer’s Total Factory Cost of Product is 8.28% or $140,760 less than the average printer of similar size. The next question is how they achieve these efficiencies. In the first line item, “Paper,” profit leaders on average spend 1.87% or $31,790 less. Some reasons for this variance include the average printers: Purchasing polices need adjustment. Improper control of waste and spoilage. Proper handling of paper is extremely important in all phases of production—shipment, storage, pressroom, bindery, etc. The type and quality of paper required by the jobs that this group of average printers produces could have an adverse effect on paper costs, as could product mix. Selling price could be too low. The effective manager will investigate these areas to find out where the problem or problems are occurring. If the manager can take corrective action, the amount of money being spent on paper will decrease. If the problem is beyond his control and cannot be corrected, he will at least understand the reasons for this high paper cost. Under “Total Other Chargeable Materials,” the profit leader printer spends $13,000 less on outside printing and $10,000 less on outside binding, which reduced their total factory cost of product by 1.37%. This may be because they have more in-house capabilities or are getting better rates from outside providers. About 30%...

Last week Printing Industries of America was honored to once again host a delegation of Japanese printing executives to our headquarters building.  During our visit, we exchanged information on our respective economies, outlooks for our industries and hopes for the future.  We naturally began our visit by expressing our deepest sympathies and concerns over the recent tragedy inJapan, extending our best wishes for a return to normalcy and health for all citizens of the country. Our Japanese friends painted a bleak picture of their industry which in many ways mirrored the conditions we have experienced during the recent recession.  They note that their industry peaked in 1997 due to a larger population, rapid economic growth and an increase in information circulation whereas it is now faltering because of an aging society and diversified media. In 2008 there noted a paradigm shift in their industry that they attribute to three things: the fall of Lehman Brothers; an initiative by their Prime Minister, Yukio Hatoyama, which aims to cut down 25% of CO2 emissions; and the revolution of electronic devices like the iPad. Ink, paper, and printing industry shipments reached their lowest point in 2009, but they are bouncing back despite the low demand for print. By 2020 the Japanese hope to emerge a leaner industry. This will mean fewer overall printers doing more printing. While commercial and publication printing is wavering, packaging, specialized, and label printing will maintain a viable option for businesses going forward while software service will see growth.   The parallels to the American industry in this regard are startling. Like many printers in America are becoming “marketing service providers,” Japanese printers have taken notice and are shifting to becoming “solution providers” themselves although it is important to note that culturally the way goods are marketed in Japan are somewhat different than here in the U.S.  The view solution providers are printers who solve the problems clients and society have by using technology and knowledge.  Printers that adapt to new technology, offer a wide array of services, and diversify themselves will be the ones leading the industry in the future.  The same of course can be said here in theUnited States. Needless to say it was a fascinating exchange and we are grateful and honored to have hosted Kenichi Soma, Atsuyoshi Kimura, Masato Usuda, Hiroyuki Shimamura, and Chie Ohlsson to Pittsburgh. Our thoughts and prayers go out with them as they continue to deal with the tsunami aftermath. If you have any questions for our visitors, please leave a comment on this post. Once we have a few we’ll post another blog with a Q&A with a member of the All Japan Federation of Printing Industry Associations....

In 2010 industry sales rebounded from the lows of 2009, increasing by 2.79% to $144.6 billion. 2009 was the first time in the 89 years that Printing Industriesof America has been tracking industry profitability via the Ratios Survey that we calculated industry losses. Losses as a percent of sales averaged 1.4% for all printers in 2009 and profit leaders (the top 25% of respondents) profit as a percentage of sales declined from 9.4% in 2008 to 7.0% in 2009. Despite the Great Recession profit leaders still earned a significant profit before taxes. How did profit leaders earn a profit in 2009 despite declining sales and the weak economy? Taking a look at the results from the 2010-2011 Ratios Survey (fiscal year 2009 results) the most impressive difference is the total Factory Cost of Product. As a percent of sales the average printer dedicated 80% of their sales on Total Factory Cost of Product expenses, which include Factory Payroll and Factory Expenses, while profit leaders only spent 73.8%. This more efficient use of both labor and capital explains 75% of the divide in profitability between the leaders and the industry average. According to our quarterly survey of printers both sales and profitability improved in 2010. On average printers sales increased by 5% and earned a reported profit on sales of 4.1%*. Total industry sales increased by 2.79% after adjusting for those firms that closed their doors in 2010. The graph below is a diffusion index of industry sales and profits for 2010. It is calculated by taking the percent of printers reporting increasing sales/profits subtracted by those reporting declining sales/profits.   We are in the process of collecting data for the 2011 Ratios Survey. If you are interested in discovering how you are performing compared to industry profit leaders and learning where your company needs to focus its efforts to increase productivity and profitability go to www.printing.org/ratios to participate.  Next time we’ll take an in depth look at the difference between the industry average and profit leaders Total Factory Cost of Product for a $3 million, $10 million and $18 million printer. *Quarterly profit as a percent of sales collected in the Quarterly Print Market Survey tends to be higher than what is collected in the Ratios Survey. This is most likely the result of the QMS figure being based on between 200 to 300 responses and the Ratios figure having a significantly larger sample size of between 400 to 500 printers. The QMS figure is a good directional indicator but in terms of magnitude tends to be...

After 23 years of examining and researching the printing industry, Dr. Ronnie Davis thought it was time to assemble the insight, knowledge, and lessons he learned about the printing industry into one resource, his new book: Competing for Print’s Thriving Future: Understanding and Taking Advantage of Emerging Economic and Industry Forces. Here, he has compiled a “soup-to-nuts” reference book on key economic and management issues for the printing industry, including how various economic and market forces have shaped competition and performance in the industry in the past and how the industry will look in the future. It also provides readers a plan to take the analysis and turn it into a sustainable competitive advantage in order to compete for print’s thriving future. By focusing on the future—the emerging printing industry—the book helps ensure readers are looking to the future potential of the industry and not at the past. It is ideal for printing firm executives, industry supplier executives, college and secondary school instructors and students, and others interested in the future direction of the printing industry and key success factors for surviving and thriving in the future. We asked Dr. Davis to share some insights, highlights, and background information on the analysis and features within his new book. To begin, what do you see as the main takeaway after reading Competing for Print’s Thriving Future? The key message of this book is that, contrary to all of the negative information about the current state of America’s printing industry, and in spite of the very serious challenges facing print at this time, there is still a lot of life and opportunity in print’s future. Indeed, a case can be made (and is made in this book) that print could undergo a reversal of fortune and grow long-run revenues in the foreseeable future. Even if this most optimistic view does not materialize, our backup future scenario is one of a thriving future for at least a significant proportion of the printing industry and printers. The overriding general theme is the need for a new focus on positive thinking regarding the printing industry. More specifically, the book addresses how printers can create their own positive future by understanding and taking advantage of emerging changes in print’s driving forces, those changes that are shaping the printing industry of today and tomorrow.  Then, how would you advise a reader to apply the information contained in this report? To fully comprehend and properly utilize the information and guidance provided in Competing for Print’s Thriving Futureprinters need to read the entire book. Indeed, the book should be read and discussed by the full management team and a plan for surviving and thriving developed.  What are the best opportunities for printers? The...