Quad/Graphics Reports Fourth Quarter And Full-Year 2016 Results
SUSSEX, Wis. — February 22, 2017 — Quad/Graphics, Inc. today reported fourth quarter and full-year 2016 results.
Earnings Highlights
- Delivered fourth quarter 2016 net sales of $1.2 billion and full-year 2016 net sales of$4.3 billion.
- Reported fourth quarter 2016 GAAP net earnings of $38 million and full-year 2016 GAAP net earnings of $45 million.
- Achieved fourth quarter 2016 Adjusted EBITDA of $140 million and Adjusted EBITDA margin of 11.7%.
- Increased full-year 2016 Adjusted EBITDA by $11 million to $480 million and increased Adjusted EBITDA margin by 90 basis points to 11.1%.
- Increased full-year 2016 Adjusted Diluted Earnings Per Share by $0.85 per share to$1.52 per share.
Cash Flow & Balance Sheet Highlights
- Increased full-year 2016 GAAP cash flow from operations by $4 million to $353 million, and increased full-year 2016 Free Cash Flow by $31 million to $246 million.
- Reduced debt and capital leases by $218 million during 2016.
- Amended and extended the Company’s $1.1 billion revolving credit facility and Term Loan A to 2021, and swapped $250 million of variable-rate debt into fixed-rate debt to lock in 62% of the Company’s debt as fixed-rate debt.
Other Financial Highlights
- Declares quarterly dividend of $0.30 per share.
- Provides 2017 financial guidance ranges for net sales of $4.1 billion to $4.3 billion, Adjusted EBITDA of $440 million to $480 million, and Free Cash Flow of $225 million to $275 million.
“We are pleased with our fourth quarter and full-year 2016 results, which exceeded our expectations and show that we more than accomplished what we set out to achieve at the start of the year,” said Joel Quadracci, Quad/Graphics Chairman, President & Chief Executive Officer. “Throughout 2016, we continued to transform both our business and the industry through strategic investment in our assets and through the creation of new and innovative solutions designed to drive greater value for our clients. We also continued to implement sustainable cost reductions and productivity improvements while maintaining our focus on revenue to drive EBITDA enhancement.”
Quadracci added: “As we look forward to 2017, we plan to continue to take advantage of our unique position in the industry as both a global printer and a marketing services provider. We will leverage our growing BlueSoho integrated marketing agency, as well as our strategic investment in Rise Interactive, to create innovative, end-to-end solutions for our customers that will allow them to improve both the efficiency and effectiveness of their media spend across multiple channels. Further, we will remain diligent in our aggressive management of costs and productivity to hold the line on Adjusted EBITDA margins. This will allow us to meet our goal of being the industry’s high-quality, low-cost producer, and generate strong Free Cash Flow to support value-creating opportunities as part of our company’s ongoing transformation as a global marketing services provider.”
Summary Results
Net sales for the three months ended December 31, 2016, were $1.2 billion, an 8.8% decrease from the three months ended December 31, 2015. Organic sales decreased 6.3% due to ongoing industry volume and pricing pressures, after excluding foreign exchange (-0.3% impact) and pass-through paper sales (-2.2%). The organic sales decrease is consistent with the Company’s previous guidance. GAAP net earnings improved to $38 million and GAAP diluted earnings per share improved to $0.73 per share during the three months ended December 31, 2016. The improvement in earnings and diluted earnings per share was due to better operating performance from ongoing improvements in manufacturing productivity and labor management, sustainable cost reductions, lower depreciation and amortization expense and lower restructuring and non-cash impairment charges. Fourth quarter 2016 Adjusted EBITDA decreased $14 million to $140 million compared to $154 million in 2015 due to lower net sales, and Adjusted EBITDA margin remained flat at 11.7% year-over-year due to lower cost of sales and selling, general and administrative expenses driven by enhanced efficiency and sustainable cost reductions.
Net sales for the year ended December 31, 2016, were $4.3 billion, a 5.8% decrease from the year ended December 31, 2015. Organic sales declined 4.5% due to ongoing industry volume and pricing pressures, after excluding acquisitions (1.4% impact), foreign exchange (-0.6% impact) and pass-through paper sales (-2.1% impact). GAAP net earnings improved to $45 million and GAAP diluted earnings per share improved to $0.90 per share during the year ended December 31, 2016. Full-year 2016 Adjusted EBITDA increased $11 million to $480 million compared to $469 million in 2015, and Adjusted EBITDA margin increased to 11.1% in 2016 compared to 10.2% for the previous year. Adjusted Diluted Earnings Per Share improved by $0.85 per share during the year ended December 31, 2016 to $1.52 per share. The increases in Adjusted EBITDA, Adjusted EBITDA margin and Adjusted Diluted Earnings Per Share primarily reflect enhanced efficiency and sustainable cost reductions and, for Adjusted Diluted Earnings Per Share, lower depreciation and amortization.
GAAP net cash provided by operating activities was $353 million for the year endedDecember 31, 2016, an increase of $4 million, or 1%, over 2015. Free Cash Flow was $246 million compared to $215 million for the previous year. The $31 million, or 14% increase over the prior year was due to lower capital expenditures, increased earnings, and sustainable ongoing improvement in working capital levels.
“Quad/Graphics continues to generate significant Free Cash Flow, which is important to maintaining a strong and flexible balance sheet that supports our disciplined capital deployment strategy,” said Dave Honan, Quad/Graphics Executive Vice President & Chief Financial Officer. “Our strong Adjusted EBITDA and Free Cash Flow throughout 2016 allowed us to reduce debt by $218 million and improve our year-end Debt Leverage Ratio to 2.36x, which is well within our long-term targeted range of 2.0x to 2.5x. In addition, the significant Free Cash Flow allows the Company to continue to strategically invest in our business and maintain an affordable and sustainable annual dividend of $1.20 per share, representing approximately 25% of Free Cash Flow.”
Debt Capital Structure Update
The Company amended and extended its $1.1 billion revolving credit facility and Term Loan A on February 10, 2017, to extend the Company’s debt maturity profile by two years to 2021, while maintaining the Company’s current cost of borrowing and covenant structure. The amendment included the lowering of the maximum borrowing capacity under the revolving credit facility to $725 million (previously was $850 million) and replacing its current Term Loan A with a new $375 million Term Loan A.
Additionally, the Company also entered into a 5-year interest rate swap in February 2017, to swap $250 million of variable-rate debt into fixed-rate debt at 3.9%. The swap locks in 62% of the Company’s debt rate structure as fixed-rate debt with an overall blended average interest rate of 5.0%.
“The amendment to our credit facility and interest rate swap has allowed us to extend our maturities out to 2021, maintain our current covenant package and reduce interest rate risk to maintain an advantageous 5% total cost of borrowings,” said Honan. “We believe that locking in a portion of our variable-rate debt structure at a low fixed interest rate is a prudent way of taking additional risk off our balance sheet in a potentially rising interest rate environment. These transactions and our continued focus on reducing debt levels is consistent with our ongoing disciplined approach to maintain a strong and flexible balance sheet.”
Outlook
Quad/Graphics provides the following 2017 financial guidance:
Honan concluded: “We expect 2017 Adjusted EBITDA margin and Free Cash Flow to be flat with 2016 at the midpoints of our guidance ranges due to our ongoing efforts to implement permanent improvements to Quad/Graphics’ cost structure and working capital levels. We believe these results will give us the ability to continue to invest in our business and accelerate the transformation of our go-to-market strategy, as well as continuing to return capital to our shareholders through our quarterly dividend, among other priorities.”
