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Why R.R. Donnelley Stock Is Plunging Today

By Lou Whiteman - Updated Apr 28, 2021 at 10:49AM

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Earnings provided a reminder the turnaround is still a work in progress.

What happened

Shares of R.R. Donnelley & Sons (RRD) have been moving higher of late on optimism that the 157-year-old printing company's push to revamp the business was beginning to take hold. But first-quarter earnings came in well below expectations, causing the stock to fall by as much as 20% on Wednesday morning.

So what

R.R. Donnelley is best known as a printing company, but with the world moving online the company has been working to move beyond paper and into a range of multichannel business communications services and marketing products.

The company has also been working to pay down its debt, hoping for more balance sheet flexibility.

A person holds a tablet with digital bars and graphs coming out of it.

Image source: Getty Images.

Investors had been warming to the turnaround, sending shares up more than 300% over the past year. But the markets were apparently not ready for a headline earnings number that was a disappointment.

R.R. Donnelley reported a first-quarter loss of $0.03 per share, compared to consensus expectations for a $0.15 profit, despite revenue that at $1.17 billion came in slightly above expectations. Gross margin declined by 130 basis points in the quarter, and organic net sales fell by 4.3%.

Now what

Despite the headline numbers CEO Dan Knotts remains upbeat, saying in a statement, "We are off to a strong start in 2021 as we continue to provide essential marketing and business communications for our clients while continuing to protect the health and safety of our global colleagues."

The pandemic continues to take a toll, especially abroad, but Knotts noted that organic sales have improved over the past three quarters and expenses are coming down. Capital expenditures in the first quarter came in at $13 million, down from $17.7 million a year ago.

The effort to repay the debt is also showing some progress, with debt at 3.9 times rolling-12-month earnings compared to 4.8 times on March 31, 2020.

Overall the long-term turnaround story is still viable, but judging by the reaction on Thursday investor excitement seems to have gotten way ahead of the progress.

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