Cenveo is a Connecticut based company engaged in the manufacture of various print-related products. The company filed for bankruptcy protection on February 2nd, 2018, with a FHR of 21, High Risk. They had been struggling due to lower consumer demand for paper-based envelopes and debt from its past acquisitions as a printing industry roll-up consolidator. While Cenveo generated gross revenues of about $1.59 billion in 2017, it had more than $1 billion in debts, and its annual debt payments of about $99.4 million ate up most of its net income.
FHR at default: 21, High Risk
Cenveo Inc cited 'negative industry trends' and an 'unsustainable capital structure' as reasons for filing for bankruptcy. The growth of the internet has posed a significant challenge for the firm, resulting in declining sales and poor profitability, which simply is not sustainable when carrying a debt burden higher than your total assets.
The past few years have also been a wild ride on Wall Street, as Cenveo tried to negotiate senior note debt refinancing and amendments to its revolving credit facilities. The printer launched a two-year profitability plan in late 2016 that it believed would yield $50 million of combined cost savings and margin improvement - $25 million of which it had hoped to realize in 2017. It did not achieve those goals.
What the ratings tell you.
Cenveo's FHR of 21 is right at the bottom of High Risk, and comes with a probability of default (PD) of 9.84%. To put this in perspective, this PD is more than 100x greater than the global sector average, 0.089%. This is a clear signal to mitigate risk, which might include requiring security for financial exposures or reducing reliance in partnerships. If this was your supplier or vendor, the High Risk rating combined with the commodity nature of their services suggests migrating to alternative providers should be considered.
Where our analysis tells the story.
The financials for this company paint a pretty grim picture across most of our reports. We reported sustained weakness in profitability, leverage and liquidity. In terms of a call to action, the Financial Dialogue was very clear:
|"Companies with this rating should be able to discuss their plan to deliver significant improvement/relief in some or all of the areas discussed in this report within a reasonable time frame."
The Financial Dialogue identifies the five most important items for review given a company's rating and financial characteristics. Consistent with the above commentary, the top three concerns identified are a low Cash Ratio, unsustainable Leverage, and unfavorable Change In Sales.
Pro Tip: The Financial Dialogue can be used by those with limited analysis experience to guide a discussion with a counterparty, and can be used by finance pros as a checklist for guiding their own analysis.
In cases where you have the option to exit a relationship and work with an alternative, this can be the safest way to reduce risk. How do you ensure you're switching to a better option? The Comparison Report allows you to select and compare peers in detail side by side, including FHRs, financials and key ratios, and is a great tool for supplier selection.