Transcontinental says weak ad conditions could prompt more cutting

MONTREAL – Transcontinental says a persistence in difficult advertising conditions will force it to continue cutting its media sector to limit the damage to the printing and publishing company’s bottom line.

“The difficult market conditions with respect to advertising spending are still likely to affect the media sector, so we will continue our rationalization and efficiency measures in order to limit possible impacts on the sector’s profit margin,” the company said in a news release Thursday.

The media company and commercial printer reversed a large loss last year to earn $27.5 million in the second quarter on stable revenues.

Transcontinental said it earned 35 cents per share for the period ended March 31, compared to a loss of $1.31 per share or $106.2 million a year ago. Last year, it took a $180.8 million ($162.7 million) goodwill impairment charge largely in the media sector.

Adjusting for one-time items, Transcontinental’s (TSX:TCL.A) earnings dipped two per cent to $34.8 million or 44 cents per share, in line with analyst expectations.

The Montreal-based company said that recent acquisitions helped to cushion the blow from lower revenues of its existing operations.

Acquisitions contributed $23.1 million of revenues in the second quarter, offset by a $24 million decrease in the existing operations caused by the loss of Zellers flyers business, weaker advertising and incentives to renew long-term printing contracts.

Overall revenues decreased slightly to $521.3 million.

The acquisition of the printing operations of Quad/Graphics Canada in March 2012 contributed $14.1 million of revenues and $1.8 million in adjusted operating income.

The printing sector’s adjusted operating income increased 16.4 per cent to $55.3 million, largely due to synergies realized from the closure of three Quad plants and the merger of two Ontario plants.

The media sector’s operating income decreased 42.5 per cent to $7.3 million as the contribution from Redux Media and other acquisitions was more than offset by lower advertising revenues in newspaper publishing operations and investments to set up its television production house.

The company recorded $5.9 million in costs related to workforce reductions from the Quad integration, and $3.3 million in other restructuring costs.

CEO Francois Olivier said he’s pleased with the more than $30 million of synergies achieved to date from the Quad acquisition.

“In addition to the benefit they brought to the printing sector, they were realized more quickly than anticipated,” he stated.

The company said it renewed several multi-year printing contracts worth $200 million and singed new agreements worth about $30 million a year to print flyers and marketing products.

Transcontinental is Canada’s largest printer and a leading provider of media and marketing solutions. It has about 9,500 employees in Canada and the U.S.

On the Toronto Stock Exchange, Transcontinental’s shares gained one cent at $11.76 in Thursday afternoon trading.