Transcontinental says media segment will be profitable in 2015 despite ad woes

MONTREAL – Transcontinental expects its media segment will remain profitable next year as cost-cutting efforts and the sale of some consumer magazines help mitigate the effects of reduced advertising.

The printing and publishing company expects to realize $20 million in savings from its $75-million acquisition of 74 Sun Media weekly newspapers.

The sale of 15 magazines will also reduce the impact of a decline in national advertising, which has taken the biggest revenue hit.

“Going forward the media sector will focus on the local advertising market, which we believe offers us more business opportunities through our 180 newspapers in Quebec, Ontario, Saskatchewan and the Atlantic provinces,” CEO Francois Olivier said Tuesday in a conference call on Transcontinental’s its 2014 results.

The company posted better than expected results in its fourth quarter as it capped a difficult year for advertising revenue.

The printing and publishing company swung to a $9-million profit from a $94.5-million loss a year earlier when it booked a large asset impairment charge.

This year’s results included a $45.5-million charge related to the reduced value of its book publishing group. A year earlier, it had $165.3 million in asset impairments.

The three months ended Oct. 31 also included a $22.3-million charge for restructuring and other costs related to the integration of printing assets from Quad/Graphics Canada and job cuts linked to its weekly newspapers. That compared with a $3.3-million restructuring charge in the same quarter last year.

Excluding one-time items, adjusted net earnings grew to $67.4 million or 87 cents per share compared with $55.9 million or 71 cents per share a year earlier.

Revenue rose 1.7 per cent to $571.9 million, due to the acquisitions of Capri Packaging and the Quebec weekly newspapers owned by Quebecor’s (TSX:QBR.B) Sun Media Corp., along with new printing and distribution contracts. Without the acquisitions, revenue fell 3.8 per cent.

Analysts had expected Transcontinental would earn 72 cents per share in adjusted profits on $583 million of revenues, according to Thomson Reuters.

The media segment’s adjusted operating earnings increased 24 per cent to $27 million as revenues dipped slightly to $193.3 million. The printing segment earned $77.3 million, up from $71.9 million as revenues increased two per cent to $398.2 million.

Olivier said efforts to develop new sales and cut costs more than offset the impact of a challenging advertising market.

New contracts to print newspapers and flyers should help boost results next year and attract other Canadian newspaper publishers as customers. But he warned revenue will continued to be hurt by decreased advertising spending.

The Montreal-based company, which is Canada’s largest commercial printer and a significant publisher, has been undergoing a number of changes in response to a changing environment — including the shift to digital communications.

Analyst Drew McReynolds of RBC Capital Markets said the fourth-quarter results were driven by stronger margins in both the printing and media segments, as a result of cost reduction initiatives.

He said the quarterly revenue shortfall mainly reflected weaker organic revenue growth due to print advertising challenges in the media segment.

“Management’s outlook is largely unchanged, pointing to continued underlying revenue headwinds and a focus on maximizing profitability,” he wrote in a report.

For the full year, Transcontinental (TSX:TCL.A) earned $105.1 million or $1.35 per share, compared with a loss of $23.4 million or 30 cents per share in 2013.

Revenue decreased 1.3 per cent to $2.07 billion, mainly due to lower advertising revenues particularly in newspapers and consumer magazines.

Adjusted profits grew more than 13 per cent to $168.2 million or $2.16 per share, beating analyst forecasts of $2.04 per share.

Transcontinental said it will look for small acquisitions to expand the product offering of flexible packaging company Capri, which delivered $10 million of EBITDA on $42 million of revenues in the six months since its purchase.

“We feel we have enough opportunities there for the next year. We don’t intend to diversify anything else but plastic flexible packaging.”

On the Toronto Stock Exchange, Transcontinental’s shares closed up 17 cents at $14.68 on Tuesday.

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