Transcontinental missed expectations in the second quarter and reported a loss despite higher revenues after the printing and publishing company recorded a $180-million writedown related to its media business.
The loss was $106.2 million or $1.31 per share, which compared with a year-earlier profit of $32.7 million or 40 cents per share. Its revenue grew to $529.4 million up from $498.7 million.
The higher revenue was driven primarily by the acquisition of Quad/Graphics Canada, Inc., the launch of new community newspapers in Quebec and new contracts with advertisers such as Canadian Tire.
Excluding unusual items and discontinued operations, Transcontinental reported a profit of $35.4 million or 44 cents per share, down from $39.1 million or 48 cents per share.
“Our second-quarter results are in line with our strategy to strengthen our existing assets and develop our new media and marketing services,” president and chief executive Francois Olivier said in a statement.
“We are in the process of integrating our Quad/Graphics Canada, Inc. acquisition and we are on track to generate more than $40 million in synergies and therefore become even more efficient.”
The non-cash writedown, equalling $162 million after tax, comprised $89 million for community newspapers, $71 million for magazines and $20 million for educational publishing.
Transcontinental had been expected to earn 47 cents per share in adjusted earnings on $546.6 million of revenues, according to analysts polled by Thomson Reuters.
Adjusted operating profit decreased by 7% to $55.8 million, due to new Quebec legislation imposing higher recycling fees, lower revenues from the Canadian census and lower volume from its educational book publishing.
Drew McReynolds of RBC Capital Markets said the results were “a modest negative” with operating results below expectations on weaker margins.
EBITDA was $86 million compared with $92 million forecasted by analysts.
The printing segment had 0.2% organic growth while the media segment’s earnings shrank 2.3%.
“We consider (that) to be a decent result considering the difficult operating environment in the quarter,” McReynolds wrote in a research note.
The Montreal-based company completed its acquisition of the Canadian assets of Quad/Graphics on March 1 – the result of an asset swap with a major U.S. printing company.
Transcontinental acquired all of Quad/Graphics’ Canadian operations outside Vancouver, in exchange for its profitable Mexican operations and export-oriented black and white book publishing business.
Transcontinental is the largest printer in Canada and fourth-largest in North America. It is a publisher of magazines, French-language educational resources and community newspapers in Quebec and the Atlantic provinces.
It has been consolidating its production in a smaller number of modern plants as it increases its digital media offering.
In March it announced that two of the six Quad/Graphics plants – one in Dartmouth, N.S., and one in suburban Montreal – would be closed.
