Why Shares of R.R. Donnelly & Sons Tumbled Today

What happened

Shares of R.R. Donnelley & Sons (NYSE: RRD) slumped on Thursday after the business communications and marketing company reported lackluster second-quarter results. While revenue grew compared to the prior-year period, the bottom line tumbled and badly missed analyst expectations. RRD also slashed its quarterly dividend. The stock was down about 17.6% at 11:30 a.m. EDT.

So what

RRD reported second-quarter revenue of $1.68 billion, up 3.7% year over year and $40 million ahead of the average analyst estimate. Organic revenue grew by 2.7%, marking the third consecutive quarter of organic growth. Higher volume and fuel surcharges in the business services segment more than offset price pressure, while growth in packaging, logistics, and direct mail overcame lower commercial print sales.

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While revenue marched higher, the bottom line moved in the opposite direction. Non-GAAP earnings per share came in at a loss of $0.09, down from a loss of $0.06 in the prior-year period and $0.05 below analyst expectations. Gross margin plunged 1.3 percentage points to 17.3%, driven by foreign exchange rates and price pressure. Operating expenses declined thanks to cost-cutting initiatives, but it wasn’t enough to prevent earnings from tumbling.

Now what

Along with reporting mixed results, RRD reduced its full-year guidance. The company now sees revenue between $6.75 billion and $6.90 billion, down from a previous range of $6.8 billion to $7.0 billion. It now expects non-GAAP EPS to be between $0.80 and $1.10, down from a previous range of $0.90 and $1.20. The guidance reduction is partly due to the sale of the print logistics business.

RRD declared a quarterly dividend of just $0.03 per share, down from the previous dividend of $0.14 per share. The once-impressive dividend yield is no more. “We believe the revised dividend amount continues to provide a competitive return to our stockholders while allowing us to accelerate the pace at which we reposition our balance sheet and improve our financial flexibility to support our strategy,” said RRD CEO Dan Knotts.

An earnings miss, lowered guidance, and a greatly reduced dividend was enough bad news to send shares of RRD plunging.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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