Transcon Reports Financials for Q2 of Fiscal 2017 with $1.5M Increase

MONTREAL — June 8, 2017 — Transcontinental Inc.announces its results for the second quarter of Fiscal 2017, which ended April 30, 2017.

"We had a very satisfying quarter that reflects once again the soundness of our strategy, and we diligently continue the transformation of the Corporation," said François Olivier, president and CEO of TC Transcontinental. "In the printing division, the results of our retailer-related services were solid, and we began to provide the new services under the terms of the expanded agreement with Lowe's Canada. Within our packaging activities, we continued to generate organic growth and develop our North American sales force."

Olivier continues "In addition, we successfully completed the integration of Flexstar Packaging. As for the Media Sector, the announcement of a process to sell our local newspapers is a turning point in our transformation. This ongoing process generates considerable interest in all the markets where we are present.

"With our excellent financial position and our significant cash flows, we are continuing to focus on our transformation. We are well positioned to ensure our growth and remain very active in our acquisition-based approach to building our North American flexible packaging platform."

Financial Highlights

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2017 Second Quarter Results

Revenues went from $497.2 million in the second quarter of 2016 to $498.7 million in the second quarter of 2017, an increase of 0.3%. The contribution from acquisitions, in particular in the packaging division, more than offset the loss of revenues related to disposals and closures in the Media Sector, as well as the organic decline in revenues. In the printing division, the organic decline in revenues was mitigated by an increase in demand from Canadian retailers for printed flyers, premedia services and in-store marketing printing services, as well as the stable volume for door-to-door distribution services. The additional volume associated with the new expanded agreement with Lowe's Canada was integrated into our platform only at the end of the second quarter of 2017. In addition, the agreement to print the Toronto Star mitigated the organic decline by partially offsetting the lower volume in several niches caused by the decline in advertising spending and the completion of the agreement to print Canada's Census forms in 2016. The packaging division, once again, recorded an organic increase in revenues. In the Media Sector, the decline in advertising revenues continued to contribute to the organic decline in revenues of the local newspaper publishing activities.

Operating earnings increased by $51.5 million, from $16.3 million in the second quarter of 2016 to $67.8 million in the second quarter of 2017. Adjusted operating earnings went from $56.2 million in the second quarter of 2016 to $63.7 million in the second quarter of 2017, an increase of 13.3%. This increase is attributable to the contribution from acquisitions, the favorable exchange rate effect and the organic growth in adjusted operating earnings. This organic growth is mostly attributable to the increase in demand from Canadian retailers for above-mentioned services and the agreement to print the Toronto Star, the organic growth in revenues from the packaging division, as well as the favorable impact of Corporation-wide cost reduction initiatives. However, the contribution from these items was partially offset by the above-mentioned decrease in revenues and investments made to develop the packaging division's platform and strengthen this division's sales force.

Net earnings increased by $41.0 million, from $5.4 million in the second quarter of 2016 to $46.4 million in the second quarter of 2017. This increase is mostly attributable to a decrease in the asset impairment charge and in restructuring and other costs (revenues) and, to a lesser extent, an increase in adjusted operating earnings, partially offset by the increase in income taxes. On a per share basis, net earnings increased from $0.07 to $0.60. Excluding restructuring and other costs (revenues) and impairment of assets, net of related income taxes, adjusted net earnings increased by $8.3 million, or 24.3%, from $34.2 million in the second quarter of 2016 to $42.5 million in the second quarter of 2017. On a per share basis, adjusted net earnings increased from $0.44 to $0.55.

2017 First Six Months Results

Revenues went from $996.1 million in the first six months of 2016 to $1,002.3 million in the first six months of 2017, an increase of 0.6%. The contribution from acquisitions, in particular in the packaging division, and the favorable exchange rate effect more than offset the loss of revenues related to disposals and closures in the Media Sector, as well as the organic decline in revenues. In the printing division, the organic decline in revenues was mitigated by an increase in demand from Canadian retailers for printed flyers, premedia services and in-store marketing printing services, as well as the stable volume for door-to-door distribution services. In addition, the agreement to print the Toronto Star mitigated the organic decline by partially offsetting the lower volume in several niches caused by the decline in advertising spending and the completion of the agreement to print Canada's Census forms in 2016. The packaging division recorded an organic increase in revenues. In the Media Sector, the decline in advertising revenues continued to contribute to the organic decline in revenues of the local newspaper publishing activities.

Operating earnings increased $62.3 million, from $67.9 million in the first six months of 2016 to $130.2 million in the corresponding period in 2017. Adjusted operating earnings went from $113.3 million in the first six months of 2016 to $125.0 million in the first six months of 2017, an increase of 10.3%. Excluding the $9.0 million unfavorable effect of the stock-based compensation expense as a result of the change in the share price in the first six months of 2017 compared to the same period in 2016, adjusted operating earnings increased 18.3%. The contribution from acquisitions, the favorable exchange rate effect and the organic growth in adjusted operating earnings sustained this increase. This organic growth is attributable to the increase in demand from Canadian retailers for above-mentioned services and the agreement to print the Toronto Star, the organic growth in revenues from the packaging division, as well as the favorable impact of Corporation-wide cost reduction initiatives. However, the contribution from these items was partially offset by the above-mentioned decrease in revenues and investments made to develop the packaging division's platform and strengthen this division's sales force.

Net earnings increased by $46.4 million, from $42.7 million in the first six months of 2016 to $89.1 million in the corresponding period in 2017. This increase is mostly attributable to a decrease in the asset impairment charge and in restructuring and other costs (revenues) and, to a lesser extent, an increase in adjusted operating earnings, partially offset by the increase in income taxes. On a per share basis, net earnings increased from $0.55 to $1.15. Excluding restructuring and other costs (revenues) and impairment of assets, net of related income taxes, adjusted net earnings increased by $8.2 million, or 10.8%, from $75.6 million in the first six months of 2016 to $83.8 million in the corresponding period in 2017. On a per share basis, adjusted net earnings increased from $0.97 to $1.08.

Outlook for 2017

In the printing division, considering the additional contribution from the expanded agreement with Lowe's Canada, we expect a slight increase in revenues from our services to retailers, in particular flyer and in-store marketing printing, and door-to-door distribution and premedia services. We will also benefit, in part, from the contribution from the agreement to print the Toronto Star, which started in July 2016, and we are pursuing, as part of our long-term strategy, our initiatives to secure new newspaper printing outsourcing contracts. Our newspaper and magazine printing revenues will continue to be affected by a decrease in volume resulting from the decrease in circulation and number of printed pages for the publications of several publishers. Furthermore, our commercial printing activities will continue to be affected by the reduction in print advertising. To offset these decreases, we will benefit, in the short term, from the impact of the closure of the Saskatoon and Dartmouth printing plants, which occurred in May and July 2016 respectively, and we will continue our operational efficiency initiatives.

In our packaging division, we will benefit from the contribution from the acquisition of Robbie Manufacturing, which was completed at the end of June 2016, and from the acquisition of Flexstar Packaging, completed in mid-October of last year. Furthermore, once fully integrated, these acquisitions will also generate synergies. We also expect that the investments we made to develop our platform and strengthen our sales force will further contribute to organic growth. Lastly, we will maintain our disciplined acquisition approach in this promising market in order to invest in quality assets that meet our strategic criteria.

In the Media Sector, the sale of our media assets in Atlantic Canada and the continuation of the process to sell our local newspapers in Quebec and Ontario will result in the decrease of the share of our local newspaper publishing activities in our business portfolio. However, we believe that the negative impact of the transformation of the advertising market on our portfolio of publications unsold by the end of the fiscal year will continue, but will be partially offset by changes that would be made to the organizational structure. With respect to the Business and Education group, we will benefit from our acquisition of financial brands and we expect that the organic growth in revenues and adjusted operating earnings of this group will remain strong.

To conclude, we expect to generate significant cash flows and maintain our excellent financial position, which should enable us to continue investing to support our transformation into flexible packaging.

Source: Transcontinental.

The preceding press release was provided by a company unaffiliated with Printing Impressions. The views expressed within do not directly reflect the thoughts or opinions of the staff of Printing Impressions.