Responding to what it said are ongoing overcapacity problems in the industry, Phoenix Color Corp. has instituted a number of initiatives to cut costs, including the closing of its Book Technology Park division. Located in Hagerstown, Md., the division employed about 200 people and manufactured one- and two-color soft- and hardcover books. As part of the closing, Phoenix has sold the plant's press and binding equipment to R.R. Donnnelley.

The closure of the BTP division removes Phoenix from the production of complete books and puts its focus squarely back on its components division, which manufactures book jackets and covers. Phoenix chairman Lou LaSorsa explained that despite a five-year effort, the BTP division "failed to achieve the critical mass required" to make it a competitive operation. As part of the deal with Donnelley, Phoenix will supply a number of its plants with book jackets, covers and other components. Donnelley may also hire some of the BTP staff, and LaSorsa said he also plans to redeploy some personnel to other Phoenix units.

Phoenix had a disappointing 2004. Sales through the first nine months of the year, the most recent period for which results are available, fell 8%, to $97.5 million, and the company had a net loss of $4.3 million, compared to earnings of $537,339 in the first nine months of 2003. In its quarterly filing with the Securities and Exchange Commission, Phoenix noted that while the number of jobs it processed was unchanged, overcapacity had resulted in price reductions, which drove down sales and profits.

The company had a particularly weak third quarter, which prompted Standard & Poor's to drop its credit rating on Phoenix from stable to negative. S&P noted that while the publishing industry is expecting sales improvements in 2005, S&P "does not expect this increase to be sufficient to alleviate the current overcapacity." But LaSorsa is confident the exit from the book-manufacturing business, as well as other cost-cutting measures, such as the sale of the corporate jet, has put Phoenix back on firmer financial footing. "I'm very optimistic about 2005," he said.