Sales Up, Profitability Down for Quick/Small Printers

Although more than half (58 percent) of the quick and small commercial printers surveyed experienced increased sales during the first quarter of 2011--up at least 10 percent for a quarter of the group--increases in paper, energy and employee healthcare costs have wiped out the gains, according to the latest issue of the National Association for Printing Leadership (NAPL) “Quick and Small Commercial Printers Trends Report.”

The report, sponsored by Xerox, found that total costs for those surveyed now average 93.9 percent of sales, up from 92.9 percent during the first quarter of 2010, but owner’s compensation fell to 6.1 percent of sales during the 2011 quarter, down from 9.6 percent in full year 2010. Individual compensation varied widely, however, between the segment leaders--sales up 16.4 percent and compensation at 18.2 percent--and those in the bottom 20 percent, where sales fell 6.8 percent and compensation was in negative numbers (-1.3 percent).

Rising costs in many areas appear to be taking the greatest toll on profits, according to the report, which finds that cost of goods sold for the survey group jumped 4.2 percent in the first quarter of 2011, and now average 32.7 percent of sales. In addition, although employment fell 4.3 percent last quarter, payroll costs rose 2.3 percent, primarily the result of increases in employee healthcare benefits. Survey respondents cited rising costs of paper, energy, taxes and regulations, ink, toner, and other materials.

Cost increases in these areas are offsetting the gains made by the group’s aggressive moves to cut overhead, down by 5 percent during the first three months of 2011, following a 5.5 percent reduction last year, and its improvements in sales per payroll hour, up from $63.36 in the first quarter of 2010 to $73.88 this year.

“When we asked quick and small commercial printers about their biggest obstacles to profitability, rising healthcare costs was cited most frequently--by 60.6 percent, followed by a weak economy and markets for their services and products, and a limited ability to raise their prices,” note report authors Andrew Paparozzi, NAPL senior vice president and chief economist, and Joseph Vincenzino, senior economist.

The report points out a number of steps companies are now taking to improve operational efficiency, detailing strategies and practical tactics that will improve profitability without relying exclusively on increasing sales. “According to our survey participants, fewer than one in five companies are no longer just focusing on the top line,” note Paparozzi and Vincenzino. “Poor profitability results indicate that it might be wise for more companies to seriously consider adopting this strategy.”