New age in inserts

Vertis struggles to keep up with newspaper changes

June 13, 2007|By Hanah Cho | Hanah Cho,Sun reporter

Back when newspapers were still the dominant way people got their news, Vertis Communications was the largest U.S. producer of retail circulars, comics and television guides typically found tucked inside Sunday papers.

And the Baltimore company expected even better days to come, estimating that the ad inserts industry would generate $9 billion annually and that national advertisers and retailers would keep spending more for print marketing.

That was 10 years ago.

Today, Vertis is a study in how difficult it can be for a company to adjust to a declining and rapidly changing marketplace.

FOR THE RECORD - Vertis Inc. had $1.47 billion in revenue for 2006. A chart in Tuesday's (should be wednesday's ) Business section incorrectly stated that number as being in the millions.

Newspaper circulation has been steadily eroding for a decade, while competition in the inserts business is becoming fierce.

Shoppers no longer have to flip through circulars to find the latest sales or clip coupons - they can turn to the Web and other places to find coupons or use a retailer's shopping card. And as the news audience increasingly turns to the Internet and other forms of media, advertisers, too, are shifting their spending to alternative channels.

"That's pressuring the negotiations when retail insert suppliers like Vertis sit down with customers." said Emile Courtney, a printing analyst at Standard & Poor's, which has placed Vertis credit rating under review. Vertis is a private company, but its debts are traded in the public market.

The company continues to strain under a heavy debt load from 1999 when it financed a leveraged buyout to privatize the company, then known as Big Flower Holdings. The company has had negative cash flow in each of the past two years and has lost about $200 million during that period, while sales are off 25 percent since 2000.

The work force has been cut nearly 30 percent over the past three years to 5,800. Printing presses have been idled. Divisions have been sold. When orders bounced back during the fourth quarter holiday season, the much-reduced printing staff was overwhelmed. Some dissatisfied clients cut orders or left altogether.

Now, Vertis is trying again to right its course under chief executive Michael T. DuBose who was hired in December for his experience in turning around companies. DuBose has hired more sales and support staff, implemented quality-control measures, and worked face to face to bring back customers - one at a time.

"I'm used to participating in difficult industries," DuBose said. "It really mandates that you have a finely-tuned management and process system in place in the challenging industry."

Plans for improvement include building up business in other divisions to help clients to find new ways to reach consumers beyond traditional print advertising that pays most of Vertis' bills.

While many national newspapers are struggling with advertising and revenue declines, Vertis believes it can still increase its insert business by focusing on local and niche publications, which are growing.

Vertis clients include grocery stores, drugstores and other retail chains, as well as newspapers and advertising agencies.

DuBose spent the first two months of his tenure visiting the company's printing facilities across the country and speaking with employees and current and former customers as well as others. DuBose replaced Dean D. Durbin, who was CEO for 10 months after serving as president since November 2004.

"I came here because I believe good execution and good management practices along with a relentless focus on our customers can change this," DuBose told analysts in a conference call in April.

Sales have fallen 25 percent since 2000, to about $1.5 billion in each of the past two years, taking the company off the Fortune 1000 list of top companies.

While the printing of advertising inserts has managed to stay flat, production of TV listing books dropped to 524 million in 2006, from 750 million the previous year. The number of Sunday comics declined by 100 million to 1.4 billion in 2006.

DuBose identified the company's issues and mistakes, such as cutting the work force last year without adding better technology to improve efficiency. During a plant visit in Salt Lake City, DuBose said he convinced one former salesperson to come back.

Since December, the company has hired 35 sales, customer and sales support personnel, DuBose said recently. It has brought experts to improve customer service and quality. And the company also has made management hires in key segments, such as advertising inserts, media services, manufacturing and sales.

Under DuBose's turnaround plan, Vertis is also adopting quality-improvement measures that are similar to those at automaker Toyota. DuBose said those tools can help Vertis reduce inventory and floor space, while improving productivity and on-time delivery.

By evaluating different processes and functions, DuBose said the company can improve, say, customer service by improving the steps between when the order is taken and when the client receives the advertising prints.

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