Spotting Bankruptcy Risk In the Printing and Publishing Industries
It may sound like a tabloid headline, but pockets of the printing and publishing industry are indeed in a death spiral.
In the last decade, weekday newspaper circulation has fallen off a cliff, and print advertising revenue has followed. From e-books to online newspapers, magazines and mobile apps – ‘paperless’ consumer habits have disrupted the industry and created a new set of financial realities.
Today, we look at financial health in printing, publishing and related businesses, and help you to spot the hidden risks in your portfolio.
Bankruptcy Risk, As Digital Disrupts An Industry
While some traditional print companies have embraced the shift to digital, others have been slower to adapt – leading to serious revenue shortfalls and financial distress.
The FRISK® Stress Index graph, pictured below, shows aggregate bankruptcy risk in the printing, publishing and allied industries. Since the start of the Great Recession in 2008, there’s been an 84% increase in bankruptcy risk, and a persistent uptick in financial distress.
Publishing Under Threat: A Wide Range of Risk
Printing and publishing companies with legacy business models need to find another source of revenue or risk becoming obsolete. But for some, this transformation has been slow going.
Three Publishing Companies Under Threat
For example, let’s look at three companies with varying levels of financial risk:
- Newspaper group McClatchy (FRISK® score ‘1’), which publishes 30 newspapers, has struggled through a strategic transition, as digital publishing pushes out print. The print side of the business is now a shrinking share of the total, and management plans to stabilize results by focusing on the digital realm.
- RR Donnelley & Sons Co (FRISK® score ‘2’), the biggest printing company in the U.S., has spun off various parts of the business as part of an aggressive growth strategy. However, considering industry stresses, the fundamental problems remain.
Time Inc. (FRISK® score ‘5’) is also looking at declining results for their print magazine portfolio. 2017 is expected to be its sixth consecutive year of declining revenue. Under pressure, the company has reportedly been in M&A talks with various media company suitors.
… While Other Media Companies Manage to Thrive
In a disrupted industry like publishing, declining demand, price competition and margin compression make it harder to service debt in relation to revenues, and bankruptcy risk increases.
But some publishers and print advertising companies have countered the loss of print advertising and circulation revenues with new products and services. The resulting success of these survival strategies is similarly reflected in a higher FRISK® score. Consider the financial health of these publishers:
- The New York Times (FRISK® score ‘7’) and News Corp. (FRISK® score ‘8’) have pivoted more quickly, and profited from new growth opportunities. This has resulted in FRISK® bankruptcy risk scores at the upper end of the financial risk scale.
A Related Industry At Risk: Printing
Systemic industry risk is contagious, and can have a big impact on related businesses as well, causing a cascading chain of indirect risk in the ecosystem of related businesses.
For instance, printing company Cenveo Inc. (FRISK® score ‘1’), a manufacturer of paper and printing products, has been hit hard by plummeting demand. Struggling under the weight of an out-sized debt burden, Cenveo Inc.’s extremely low FRISK® score represents a bankruptcy risk at the most distressed end of our proprietary financial risk scale.
The Legacy of Cheap Money and Excessive Debt
When financial distress rises, we often uncover balance sheets loaded with debt, often piled on when money was cheap – in the aftermath of the Great Recession.
This is an important side note, as you do your credit analysis, and why heavily debt-laden companies like McClatchy fight a particular uphill battle.
For businesses in industries experiencing cyclical decline, such as print publishing and allied printing services, it's created a perfect storm: dropping sales, a string of annual losses, declining cash flow, staggering debt ratios, and finally, the inability to meet debt payments.
Especially in 2017, with interest rates rising, financial stresses are compounded. Refinancing risk builds, resulting in a more difficult path back to financial health. For an analysis of the connection between debt refinancing risk and bankruptcy risk, click here.
Analyzing the Financial Risks in Your Portfolio
For credit managers, helping your organization to maximize profit, not simply minimizing late payments and bad debt write-offs, is the name of the game.
- A timely warning of financial distress enables you to put risk mitigation strategies in place before it’s too late, and keep customers paying on terms.
- On the flip side, spotting improving financials can be just as valuable. This helps you to highlight growing opportunities for your sales team, especially in challenged businesses like printing, publishing, and related industries.
While payments-based credit risk scores can be misleading when it comes to a public company’s true financial risks, others -- such as the FRISK® score -- give a reliable warning.
We’ve published the Ultimate Checklist to Detect Financial Distress and Business Bankruptcy to help you understand the red flags that signal public company financial distress, and help you tell the difference. We hope it helps you to pinpoint your at-risk accounts, and spot new opportunities for growth.
CreditRiskMonitor is a financial news and analysis service designed to help professionals stay ahead of public company risk quickly, accurately and cost-effectively. More than 35% of the Fortune 1000, plus thousands more worldwide, rely on our commercial credit reporting and predictive risk analytics for assessing the financial stability of more than 56,000 global public companies.
At the core of CreditRiskMonitor’s service is its 96%-accurate FRISK® score, which is formulated to predict public company bankruptcy risk. One of four key components calculated in the FRISK® score is crowdsourced subscriber activity. This unique system tracks subscribers' patterns of research activity, capturing and aggregating the real-time concerns of what are essentially the key gatekeepers of corporate credit. Other features of CreditRiskMonitor’s service include timely news alerts, the Altman Z”-Score, agency ratings, financial ratios and trends. CreditRiskMonitor’s network of trade contributors provides more than $150 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.