Quad/Graphics Reports 3Q, Year-to-Date 2018 Results

Quad/Graphics, Inc. reported results for its third quarter ending September 30, 2018.
 
Net sales increased 2.4% during the third quarter of 2018 to $1 billion, reflecting the impact of the Ivie & Associates and Rise Interactive investments. Organic sales declined 3.2% after excluding acquisition sales impact of 4.6%, increased pass-through paper sales of 1.6% and a 0.6% unfavorable foreign exchange impact. The organic results reflect ongoing print industry volume and pricing pressures and are consistent with the company’s expectations.
 
Net earnings attributable to Quad/Graphics common shareholders increased 18% during the third quarter 2018 to $23 million, and diluted earnings per share improved by $0.08 to $0.46 compared to $0.38 in 2017. Third quarter 2018 Non-GAAP Adjusted EBITDA was $105 million compared to $113 million in the third quarter of 2017, and the Adjusted EBITDA Margin was 10.2% compared to 11.2% in 2017.
 
Net sales increased 1.5% during the nine months ended Sept. 30, 2018. Organic sales declined 3.6% after excluding acquisition sales impact of 4.3%, increased pass-through paper sales of 1.0% and a 0.2% unfavorable foreign exchange impact, reflecting ongoing print industry volume and pricing pressures.
 
Net earnings attributable to Quad/Graphics common shareholders for the nine months ended September 30, 2018, decreased $23 million to $29 million, or $0.57 per share, and included a special non-cash charge of $22 million for an employee stock ownership plan contribution as part of the benefit of tax reform and $18 million in higher restructuring charges.
 
“Our third quarter results were in-line with our expectations, and reflect our consistent, disciplined focus to sustainably reduce costs, win profitable new business and expand our relationships with existing clients as we continue to strengthen our integrated marketing solutions offering,” said Joel Quadracci, chairman, president and CEO of Quad/Graphics. “The acquisition of LSC is a natural and strategic fit and will help us further strengthen the role of print, which is a proven and trusted media form in today’s multichannel world. When combined, our companies’ complementary platforms will be operated by the printing industry’s most experienced operators and innovators, providing our clients with flexibility and enhanced production and distribution efficiencies.
 
“As we move forward, we will continue to leverage our strong print foundation as part of a much larger, more robust integrated marketing solutions offering that not only helps clients plan and produce programs but also physically execute and measure them across traditional and digital channels,” Quadracci added.
 
Net cash provided by operating activities was $47 million for the first nine months of 2018 compared to $180 million in 2017, and free cash flow was negative $38 million. The year-over-year decline was primarily attributable to expected timing differences in 2018 versus 2017 for cash generated from working capital which includes an intentional build-up of paper inventories that will be reduced in the fourth quarter. As a reminder, the company generates the majority of its free cash flow in the fourth quarter of the year, which is its seasonal peak.
 
“Our third-quarter results were in-line with expectations as we continue executing on our strategic priorities to achieve our narrowed full-year 2018 guidance,” said Dave Honan, EVP and CFO. “We expect our debt leverage ratio of 2.46x as of Sept. 30 to decrease to the low end of our long-term targeted range of 2.0x to 2.5x by the end of the year due to our anticipated strong fourth quarter free cash flow. The strength of our balance sheet provides us with the ability to deploy our capital between investing back into our business, making strategic acquisitions like LSC and returning capital to our shareholders through our consistent dividend and share repurchases.”