Can R.R. Donnelley & Sons Company (RRD) Still Print Profits?

Donnelley also bought XPO International, a meaningful addition to its logistics services, but one that bulks up its ability to deliver letters and packages and moves it further into territory occupied by United Parcel Service, Inc. (NYSE:UPS) and FedEx Corporation (NYSE:FDX).

Where the digital realm hasn’t yet had an impact is in its educational and specialty division, as physical textbooks are still the preferred choice. Not that the industry isn’t struggling, though. The educational materials segment of schoolbook publisher Scholastic Corp (NASDAQ: SCHL) has yet to regain its 2010 sales levels while revenues are only inching up at reference book publisher John Wiley & Sons Inc (NYSE: JW-A) , with sales growing just over 2% in 2012. Still, it will be hard for Donnelley to mount a meaningful turnaround by concentrating on publishing schoolbooks.

The weight of the world

One major concern is that Donnelley carries a lot of debt, born of the numerous acquisitions it’s made. With a debt-to-equity ratio of 3.5, the business services specialist is well above the relatively negligible amounts carried by Scholastic or Thomson Reuters Corporation (USA) (NYSE:TRI). It does generate sufficient positive free cash flow and management plans to use it to pay down debt, but investors who eye its juicy 11% dividend yield will want to know how safe the payout is if it can’t gain traction.

Despite the stock trading at just five times earnings estimates, I have difficulty viewing the business services leader as cheap. The secular decline of its primary business lines suggests we’ll continue to see weakening fundamentals despite making acquisitions to help transition to the digital age. I see it having further yet to fall before we see a true recovery taking form.

The article Can R.R. Donnelley Still Print Profits? originally appeared on Fool.com and is written by Rich Duprey.