Money Talk: Industry Trends: Factors Impacting Profitability

The printing industry’s economic decline and recovery over the last 11 years, is traced and documented in the Printing Industries of America’s Ratio Survey Results (the Ratios). Here we will explore factors impacting profitability, and how they relate to the broadening gap between the industry Profit Leaders (those in the top 25 percent of profitability) and all printers (All Printers).

Profits and Firm Size:

Profits as a percentage of sales vary greatly among printing firms. As shown in the Exhibit below, the average 2011 profitability as a percentage of sales varied from 0.05 percent among All Firms to an average high of 11.6 percent among Profit Leaders.

In the All Firms category, firms with annual sales above $10 million outperformed smaller firms. The trend was not evident among Profit Leaders. In both the All Firms and the Profit Leader categories, printers with sales between $6 million to $10 million produced the lowest profitability percentages, a strong indicator that the competitiveness is highest in this sales range.

In the Profit Leader category (firms with profitability in the top 25 percent), printers with less than $3 million in sales led the charge, showing annual profit as a percentage of sales of 11.6 percent. Profit leading firms with annual sales over $18 million demonstrated profit as a percentage of sales of 10.4 percent.

Profits and Market Segment Specialty

Each year the Ratios demonstrate that profit rates also vary significantly by product specialty. Of the 10 printing product specialties covered in the Ratios survey, the top profit producing segment was Forms/Document Printers with average profit as a percentage of sales of 5.30 percent. Profits of 5.15 percent in the Packaging Segment surpassed Book Manufacturing of 4.52 percent for the first time in more than five years. Label Printers (profit of 3.22 percent) and Direct Mail Firms (profit of 1.86 percent) demonstrated average profit above the overall industry average of 1.8 percent.

The biggest leap in profit was seen in the largest segment, Commercial Print/Advertising, which jumped from 0.63 percent to 1.34 percent. Even though averages in this segment were still below industry averages, a two year upward trend is encouraging. The Magazine/Periodicals segment also showed a profit increase, going from (0.03 percent) to 0.54 percent.

The most dramatic decrease in average profit within a market segment was seen in the Quick Print segment, where profit decreased from 3.46 percent to 0.95 percent in one year.

Profits and Management

The Ratios do not attempt to quantify managerial strengths and weaknesses of firms. Through experience, we have found that strong managerial oversight, viable forecasting and good day-to-day planning help to keep profitability high, regardless of firm size or specialty. If your company is experiencing lower than expected profit, take a step back and evaluate options. Typically, sound and validated critical decision making is a necessary component of success.

Stuart Margolis, CPA and partner at MargolisBecker LLC, provides information that helps firms operate profitably. The company is the purveyor of the industry’s “Cash is King” and “Value-Added Principles of Management”, and compiles the annual Printing Industries of America Ratios, the industry’s premier financial benchmarking tool. New Direction Partners LLC has guided more than 200 printing company owners through the sales and merger process. The advisory services reflect a full set of skills to help you sell or expand your business: valuation, management consulting, financial advisory, and investment banking. The deep experience and industry expertise at New Direction makes it uniquely suited to serve printing, packaging, and allied graphic arts businesses. More information at www.MyPRINTResource.com/10164246.