Quad/Graphics Reports Slight Gains and Declares First Cash DividendMay 10, 2011
To date, the company has announced or completed 10 North American plant closures, including three announced since the beginning of 2011: St. Laurent, Quebec; Mt. Morris, IL; and Buffalo, NY. The impact of these and other restructuring actions will result in the closure of more than five million square feet of manufacturing, warehousing and office space, and a gross reduction of 5,000 employees. Currently, the company has realized a net reduction of approximately 3,300 full-time equivalent employees.
Quadracci said the company is balancing time spent on integration and productivity efforts with pursuing growth opportunities. “With the integration firmly on track, we are looking to where we grow from here—organically and through acquisitions, both here in the United States and abroad,” he said. “We are very disciplined in our approach to growth, taking great care to seek opportunities which we believe have the greatest likelihood of creating profitable growth and increasing shareholder value.”
John Fowler, executive vice president and CFO, reiterated that the quarter’s results met company expectations. “Our sales increase was driven by increases in volumes from legacy Quad/Graphics as well as increases in paper and byproduct revenues,” he said. “Adjusted EBITDA of $140.7 million was slightly ahead of last year, and Adjusted EBITDA margin was 12.8 percent. We credit this to our ability to manage costs while also addressing declines in legacy Worldcolor volumes, lower contractual pricing inherited with the acquisition, and ongoing pricing headwinds due to overcapacity in the industry.
“As 2011 unfolds, we know we must maintain our focus on sustainable cost reduction while pursuing profitable growth opportunities to carry the company forward. It’s important to note that Worldcolor had strong first and second quarters in 2010 created by cost reduction activities, primarily initiated during its bankruptcy, that were unsustainable. Given normal seasonality and the strength of Worldcolor’s first half of 2010, we expect to see improvement to period-over-period comparisons in the second half of the year.”
The company reaffirmed its Adjusted EBITDA guidance for 2011.
“We continue to anticipate full year 2011 Adjusted EBITDA to be slightly in excess of $700 million,” Fowler said. “We believe this number to be achievable, although we have a lot of work ahead of us this year. Our projection remains dependent on the competitive environment in the print market, our ability to manage the costs incurred during ongoing integration activities and the degree to which increasing commodity costs affect our cost structure as well as our customers. We remain confident in our ability to address current business realities while moving the business forward.”
Quad/Graphics continues its commitment to making strategic investments that strengthen its core competencies, including:
• A $15 million investment over the next several months to strengthen its Book platform in Martinsburg, W.Va. This investment is in addition to previously announced capital expenditures to enhance its book-component manufacturing capabilities in Leominster, MA, as well as recent multimillion-dollar investments in digital press technology at the company’s Fairfield, PA, and Dubuque, IA, book facilities to meet publishers’ increasing demands for shorter runs.
• Investments in its Direct Mail platform as part of an ongoing $40 million capital spending plan to strengthen its data-through-delivery service offering for helping marketers drive top-line growth. Last month the company’s Pewaukee, Wis., facility expanded its 1-to-1 direct mail customization capabilities with the startup of a new press with sophisticated inline personalization. This high-speed press efficiently produces response-driven formats popular with today’s marketers and further fortifies the company’s mission to redefine print as a key element of multichannel marketing campaigns.
• Ongoing investments in its Commercial and Specialty platform. The company has expanded its Burlington, WI, facility to accommodate additional state-of-the-art sheetfed printing presses and related equipment with advanced capabilities that will drive greater flexibility, quality, efficiency and reduced turnaround times for its clients. Complementing these capabilities is a lineup of digital and conventional web presses and comprehensive fulfillment services that support a wide range of quick-turn commercial products.
“We are focused on reinvesting in the platform to advance our capabilities so we can continue to meet and exceed our customers’ needs in a rapidly changing marketplace,” Quadracci said. “In terms of the overall business, we are focused on profitable growth and will remain very disciplined in our approach to ensure we make the right moves at the right time and for the right reasons. We believe this focus— along with our ability to effectively manage costs—will keep us successful, creating opportunities for employees, advancing our clients’ ability to succeed and creating increased value for our shareholders.”
For the three months ended March 31, 2011, as-reported* net sales were $1.102 billion compared to pro forma net sales of $1.096 billion and as-reported net sales of $403.6 million in the same period in 2010.
As-reported Adjusted EBITDA and Adjusted EBITDA margin were $140.7 million and 12.8 percent for the three months ended March 31, 2011, compared to pro forma Adjusted EBITDA and pro forma Adjusted EBITDA margin of $140.2 million and 12.8 percent in the same period in 2010. On an as-reported basis, Adjusted EBITDA was $140.7 million compared to $62.2 million in the same period in 2010.
As-reported 2011 net loss attributable to common shareholders in the three months was $7.3 million vs. a net loss of $8.5 million in the same period in 2010. The first quarter results include restructuring, impairment and transaction-related charges of $34.8 million and $6.3 million in 2011 and 2010, respectively. Excluding the effects of restructuring, impairment and transaction-related charges and utilizing a 47 percent first quarter effective tax rate in both periods, net earnings would have been $11.1 million in the three months ended March 31, 2011, vs. net earnings of $0.1 million in the same period last year.
Quad/Graphics (NYSE: QUAD) is a global provider of print and related multichannel solutions for consumer magazines, special interest publications, catalogs, retail inserts/circulars, direct mail, books, directories, commercial and specialty products, including in-store signage. Headquartered in Sussex, Wis. (just west of Milwaukee), the company has approximately 25,000 full-time equivalent employees working from approximately 60 print-production facilities as well as other support locations throughout the United States, Canada, Latin America and Europe. As a printing industry innovator, Quad/Graphics (www.QG.com) is redefining the power of print in today’s multimedia world by helping its clients use print as the foundation of multichannel communications strategies to drive their top-line revenues.
* Unless otherwise noted, all comparisons are to pro forma measures that assume the July 2, 2010, acquisition of World Color Press Inc. was completed on January 1, 2010.