Transcontinental Inc. Reports 3Q 2013 Results

Transcontinental Inc.’s third-quarter revenues decreased from $517.0 million in 2012 to $493.8 million in 2013, mainly due to the end of the contract to print and distribute Zellers flyers after its store closures. Other factors were the change in the format and type of paper used by some of our major customers, difficult market conditions affecting magazine, book and catalogue printing business, and a soft advertising market which continued to impact its Media Sector, particularly with respect to local markets. The decrease was partially offset by new printing contracts, higher volume in educational book publishing and the acquisitions of Modulo and Redux Media, among others.

Third quarter adjusted operating income rose 10.4%, from $49.9 million to $55.1 million. This growth stems mainly from additional synergies from the integration of Quad/Graphics Canada, Inc. and higher volume in our educational book publishing business. It was partially offset by the above-noted soft advertising market and lower volume in our custom content creation business.

Net income applicable to participating shares rose from $8.1 million, or $0.10 per share, to $32.4 million, or $0.42 per share. Excluding unusual items, adjusted net income applicable to participating shares rose 43.4%, from $24.9 million to $35.7 million. On a per-share basis, it rose from $0.31 to $0.46.

“Our third quarter results clearly outperformed in our industry,” said François Olivier, president and CEO. “The growth in adjusted operating income is due mainly to the excellent work by our Printing Sector in achieving synergies from the acquisition of Quad/Graphics Canada, Inc., and our strategy to optimize our cost structure. Efforts to leverage our relationships with our major retail customers also continued to produce results.

“Despite the pressure we are facing with regards to the advertising market in our Media Sector, we have continued to roll out our digital offering and have launched several new products and services,” Mr. Olivier added. “For upcoming quarters, our solid financial position in conjunction with our capacity to generate significant cash flows, gives us the flexibility we need to continue to invest in our development and transform our operations in order to better meet the continually evolving needs of our customers.”

To date, TC Transcontinental has achieved more than $35 million in synergies from the acquisition of Quad/Graphics Canada, Inc. The corporation is on track to reach its initial objective of $40 million in synergies by the end of fiscal 2013 and plans to generate additional synergies in fiscal 2014.

For the first nine months of 2013, TC Transcontinental’s revenues were up 1.1%, from $1,527.0 million to $1,543.8 million. The increase stems mainly from the acquisition of Quad/Graphics Canada, Inc. and acquisitions in the Media Sector. It was partially offset by the end of the contract to print and distribute Zellers flyers, by a difficult advertising environment and by the incentives granted for the early renewal of some contracts in 2012.

Adjusted operating income grew 6.0%, from $148.8 million to $157.7 million, principally due to the synergies achieved from the acquisition of Quad/Graphics Canada, Inc. The increase was partially offset by the same factors as indicated above. Net income applicable to participating shares rose from a loss of $131.4 million, or $1.62 per share, to a profit of $77.7 million, or $1.00 per share. Excluding unusual items, adjusted net income applicable to participating shares rose 13.1%, from $87.5 million, or $1.08 per share, to $99.0 million, or $1.27 per share.

Further synergies from the second phase of the integration of the operations of Quad/Graphics Canada, Inc. will be generated in the fourth quarter of 2013, but to a lesser degree than in past quarters. Furthermore, the Printing Sector plans to begin the final phase of the integration of these operations early in fiscal 2014, which should generate additional synergies.

Since the start of fiscal 2013, Transcontinental has signed new agreements to print flyers and marketing products worth about $30 million on an annualized basis whose contribution should be noted more significantly in the fourth quarter of 2013. However, such contributions will be partially offset by the closing of Zellers stores and by lower volume in our magazine, book and catalogue printing business.

The difficult market conditions with respect to advertising spending in local and national markets are likely to continue and also affect its newspaper and magazine publishing operations. As a result, Transcontinental will continue to focus on efficiency gains in order to limit potential repercussions on its profit margin, and will also continue to invest in the development of new products and services to ensure further diversification of services.