The company announced key actions to accelerate its transformation, including plans to divest its book business that generates annual sales of $200 million as part of ongoing portfolio optimization. It is also expanding its cost reduction program to $50 million in annual savings.
The company reset its quarterly dividend to $0.15 per share to provide additional financial flexibility to continue to scale its Quad 3.0 strategy and maintain a strong long-term balance sheet.
“We are making bold decisions to accelerate our transformation through investments in our business that will drive long-term growth and shareholder value, and provide us with the ability to take advantage of opportunities in the rapidly changing print industry,” said Joel Quadracci, chairman, president and CEO. “Our Quad 3.0 transformation strategy is working as evidenced by $125 million of expected organic incremental sales growth in 2019, which helps offset over 3 percentage points of annual print sales decline. Our Quad 3.0 strategy is centered on our unique integrated marketing solutions platform that includes customer analytics, campaign strategies, media optimization and global production.
“We have made the strategic decision to divest our book business, which follows our recent sale of our non-core industrial wood crating business, Transpak,” added Quadracci. “We will continue to optimize our product portfolio for the long-term to advance our Quad 3.0 transformation strategy. We’ve also made the decision to further streamline costs through our $50 million cost reduction program and proactively reset the dividend to provide additional financial flexibility for growth-focused opportunities that address our clients’ evolving needs and to maintain a strong balance sheet over the long term.”
Net sales during 3Q 2019 were $944 million in 2019 compared to $974 million in 2018, down 3.1%. Organic sales declined 4.3% during the quarter, after excluding sales related to the January 2019 acquisition of Periscope.
Net loss attributable to Quad common shareholders was $126 million in 2019, or $2.52 diluted loss per share, as compared to net earnings of $23 million in 2018, or $0.46 diluted earnings per share, and includes a $79 million loss on discontinued operations.
Adjusted EBITDA was $80 million in 2019, as compared to $107 million in 2018, and Adjusted EBITDA margin was 8.4% in 2019, as compared to 11.0% in 2018. The variance to prior year primarily reflects $8 million of strategic investments made to increase hourly production employees’ wages, $8 million from the reduction in market price for paper byproduct recoveries, and the impact from the organic sales decline of 4.3%.
Results for the nine months ended Sept. 30, 2019 showed net sales of $2.9 billion in both 2019 and 2018. Organic sales declined 2.6% after excluding sales related to the acquisitions of Ivie and Periscope, and an investment in Rise Interactive.
Net loss attributable to Quad common shareholders for the first nine months of 2019 was $164 million in 2019, or $3.28 diluted loss per share, as compared to net earnings of $29 million in 2018, or $0.57 diluted earnings per share, and includes a $101 million loss from discontinued operations. Adjusted EBITDA was $239 million, as compared to $310 million in 2018, and Adjusted EBITDA margin was 8.4% in 2019, as compared to 10.8% in 2018.
Net cash provided by operating activities was $4 million in 2019, as compared to $47 million in 2018, primarily due a $45 million reverse termination fee paid to LSC Communications during the third quarter 2019 and lower net earnings, partially offset by an improvement in cash provided from working capital. Free cash flow, after excluding $60 million in LSC-related payments, was negative $35 million in 2019, as compared to negative $38 million in 2018.
As part of the company’s commitment to effective capital allocation, and to provide ample resources and additional financial flexibility to drive Quad’s continued transformation, the company made the proactive decision to reset its dividend policy. Quad’s next quarterly dividend of $0.15 per share will be payable on Dec. 6, 2019, to shareholders of record as of Nov. 18, 2019.