Q2 reports are out and provide an opportunity to compare the usual DRUPA hype with the numbers. Conversations at the show appeared to confirm that the future is digital and the present is offset, however the absence of any web press confirmed the rather sobering outlook for that segment of the industry. Of course, this week's report of further drops in global newspaper ad spending will not fuel optimism for high volume printers.
Jefferies predicts an even steeper drop. For Gannett and News Corp, they estimate combined print and digital ad revenues will decline 12.5% and 7%, respectively. According to GroupM, magazine ads will fair better and only drop 2.9%. Oh well... (Of course, this also means that printers will work on reducing cost, and, while not adding press capacity, will probably invest in automation for material handling etc.)
But back to DRUPA. Business for the sheetfed manufacturers appeared to be solid at the show, driven mostly by packaging. The graph below shows total orders for the main players in sheetfed, but should be taken with a few caveats. KBA orders include the web and special segments. Sheetfed orders are about 44% of the total. Ryobi/Mitsubishi, now rebranded as RMGT (RYOBI MHI Graphic Technology is a mouthful...), only reports sales and Manroland sheetfed provides only limited insights, so I had to apply some estimates.
Yes, the quarter is up, but does this mean better times ahead? Heidelberg's long-term quarterly orders have always provided a clear illustration of the DRUPA effect, and it is also visible in 2016. However, it should be noted that the DRUPA peaks are lower and lower, and this year Q2 orders were about 10% lower than at DRUPA 2012. For equipment alone, the drop from last DRUPA was a sizeable Euro 100 million!
Heidelberg Orders by Quarter
Obviously, quarterly orders have stabilized for Heidelberg over the last few years, but it remains to be seen if the next quarters will continue to come in around the 600 million Euro level or will be lower again. The well known weakness in China is certainly holding all manufacturers back, as illustrated clearly in the graph from Komori's quarterly report below.
Following DRUPA, Heidelberg reports "Incoming orders of € 804 million boost order backlog by 67 percent." True, but equipment shipments for the quarter were low at Euro 215 million, or 54% of the previous quarter, which happened to be last quarter in the fiscal year and resulted in a low beginning backlog. As pointed out before, HD equipment orders were actually Euro 100 million lower than in the DRUPA 2012 quarter, clearly a sign for concern. On the positive side though, compared to the average of the preceeding four quarters, equipment orders were up over 40%. The same cannot be said about HD's competitors.
A look at KBA's recent quarters indicates that the market remains challenging. While overall orders were up 20% over the average previous four quarters, sheetfed orders were actually down some 6.5%, not exactly what one would expect in a DRUPA quarter. (KBA expects that 2/3 of DRUPA orders will be booked in Q3.)
Using the same measure, Komori's sheetfed orders were down almost 14%. The company also reported its first quarterly loss in 3 years. So did its smaller rival RMGT, suggesting that pricing for the Japanese suppliers is more difficult in a strong Yen environment.
All in all, I will not be surprised if, in a couple of years, we will look at DRUPA 2016 as the beginning of the next down cycle for printing equipment. I hope that I am wrong.