Cimpress (CMPR) Maintains Core Business Focus, Risks Remain

On Sep 16, we updated a research report on business services provider, Cimpress N.V. (NASDAQ:CMPR) .

Cimpress is currently shifting its value proposition away from deep discounts and free-offer direct marketing efforts. The company plans to avail the opportunities present in the broader market, beyond the traditional base of highly price-sensitive customers. It is making steady progress with investments in new markets and is consistently focusing on high quality products and delivery, increased customer service and more transparent pricing.

In addition, Cimpress has been acquiring firms with complementary product offerings. The company expects to ramp up revenues with operating synergies through economies of scale and technological collaboration, to serve a wide spectrum of customers across the globe.

Cimpress has developed a competitive advantage over traditional graphic design and printing methods through proprietary web-based design software and advanced computer integrated printing facilities. The scale of Cimpress’ operation provides small business customers access to quality products and printing services. The company’s product line has expanded to include a wide variety of offerings for customers’ marketing needs.

Due to the high volume of orders placed through its systems each day, the company is able to execute multiple orders in one print run. In this manner, the company is able to use high-end printing presses that are normally unfeasible for small batch printing jobs, economically. The company is also focusing on digital marketing services like email, online search and social media marketing.

Management has also decided to implement a radical change in the organizational structure by decentralizing operations in order to improve accountability, simplify decision-making and improve speed of execution. With operations in about 50 locations spanning 30 countries across six continents, decentralized decision making will enable the company to be nimble and entrepreneurial.

The evolved corporate structure will lead to more accountability as the company expands footprints in new geographical locations and markets as a leading provider of mass customization business products. On completion of the process, Cimpress expects annualized pre-tax operating expense savings of approximately $55 million to $60 million and pre-tax free cash flow savings of approximately $45 million to $50 million owing to lower share-based compensation expense.

Cimpress has outperformed the industry with an average year-to-date return of 2.2% as against a loss of 9.1% for the latter.

However, headwinds in currency translation often add to the woes as Cimpress generates almost half of its revenues outside the United States. The strategic repositioning of the Cimpress brand entails a huge risk. Presently, when the economy of Europe is highly unpredictable post the Brexit referendum, it becomes difficult for the company to increase revenues and reduce costs.

In addition, the company is likely to be stifled by the renegotiated deals and restrictions imposed on trade with other European Union members. Brexit could further result in higher tariff and non-tariff barriers to trade between the U.K. and the European Union, lowering productivity of the company.

Despite enjoying a leading position in the industry, Cimpress faces significant competition from traditional graphic design and printing companies and other online suppliers. Moreover, increasingly advanced desktop publishing software and more capable desktop printers offer small businesses another cost-effective solution for their marketing needs. While these sources cannot meet the breadth of product offerings provided by Cimpress, they can handle day-to-day marketing needs of small business customers. This could harm top-line growth of the company.

Nevertheless, we remain impressed with the inherent growth potential of this Zacks Rank #3 (Hold) stock. Better-ranked stocks in the industry include CBIZ, Inc. (NYSE:CBZ) , NV5 Global, Inc. (NASDAQ:NVEE) and Stantec Inc. (TO:STN) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CBIZ topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 24.3%.

NV5 Global has a long-term earnings growth expectation of 20%. It topped earnings estimates thrice in the trailing four quarters with a positive surprise of 2.9%.

Stantec is currently trading at a forward P/E of 17.9x.

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