LSC Reports Decrease in Net Sales for Q2

CHICAGO — August 3, 2017 — LSC Communications, Inc. reported financial results for the second quarter of 2017.

2Q 2017 Highlights:

• Net sales of $848 million compared to $906 million in the second quarter of 2016
• GAAP net income of $5 million, or $0.12 per diluted share
• Non-GAAP net income of $21 million, or $0.59 per diluted share
• Non-GAAP adjusted EBITDA of $82 million, or 9.7% of net sales, compared to $93 million, or 10.3% of net sales, in the second quarter of 2016
• Company updates full-year 2017 guidance

Thomas J. Quinlan III, chairman and CEO of LSC Communications

“In spite of disappointing educational book demand, we are pleased with our overall operating performance in the second quarter, which reflects our strong focus on productivity and cost control. As expected, we saw a significant improvement in our earnings trend compared to recent quarters,” says Thomas J. Quinlan III, LSC Communications’ chairman and CEO. “We are excited to have the talented people of Fairrington Transportation on board and look forward to CREEL Printing joining LSC Communications in the near future. We are updating our full year guidance to reflect the expected impact of these acquisitions and ongoing trends in our business.”

Net Sales
Second quarter net sales were $848 million, down $58 million, or 6.4%, from the second quarter of 2016. After adjusting for the December 2, 2016 acquisition of Continuum and the March 1, 2017 acquisition of Hudson Yards, changes in foreign exchange rates, and pass-through paper sales, organic net sales decreased 6.8% from the second quarter of 2016. The decrease in organic net sales was due to lower volume and price declines in both the Print and Office Products segments.

GAAP Net Income
Second quarter 2017 net income was $5 million, or $0.12 per diluted share, compared to net income of $28 million, or $0.87 per diluted share, in the second quarter of 2016. The second quarter of 2017 included $17 million of interest expense primarily related to debt issued in connection with the October 1 separation from RR Donnelley & Sons Company, while no interest expense was allocated to LSC Communications in the second quarter of 2016. The effective tax rate for the second quarter of 2017 reflected tax benefits associated with the reorganization of certain entities. Also, second quarter net income included net of tax charges of $16 million and $3 million in 2017 and 2016, respectively, both of which are excluded from the presentation of non-GAAP net income. Additional details regarding the amount and nature of these adjustments and other items are included in the attached schedules.

Non-GAAP Adjusted EBITDA and Non-GAAP Net Income
Non-GAAP adjusted EBITDA in the second quarter of 2017 was $82 million, or 9.7% of net sales, compared to $93 million, or 10.3% of net sales, in the second quarter of 2016. The decrease in non-GAAP adjusted EBITDA was primarily due to volume declines and price pressure in the Print and Office Products segments as well as product mix within the Print segment, partially offset by ongoing productivity and cost control initiatives.

Non-GAAP net income totaled $21 million, or $0.59 per diluted share, in the second quarter of 2017 compared to non-GAAP net income in the second quarter of 2016 of $31 million, or $0.97 per diluted share. The second quarter of 2017 included $17 million of interest expense primarily related to debt issued in connection with the separation from RR Donnelley, while no interest expense was allocated to LSC Communications in the second quarter of 2016. The non-GAAP effective tax rate for the second quarter of 2017 reflected tax benefits associated with the reorganization of certain entities. Reconciliations of net income to non-GAAP adjusted EBITDA and non-GAAP net income are presented in the attached schedules.

2017 Guidance

The Company’s updated full-year guidance for 2017, in the table below, includes the impact of its announced acquisitions:

(Click on the chart to enlarge)

Certain components of the guidance given in the table above are provided on a non-GAAP basis only, without providing a reconciliation to guidance provided on a GAAP basis. Information is presented in this manner, consistent with SEC rules, because the preparation of such a reconciliation could not be accomplished without "unreasonable efforts." The Company does not have access to certain information that would be necessary to provide such a reconciliation, including non-recurring items that are not indicative of the Company's ongoing operations. Such items include, but are not limited to, restructuring charges, impairment charges, pension settlement charges, acquisition-related expenses, gains or losses on investments and business disposals, losses on debt extinguishment and other similar gains or losses not reflective of the Company's ongoing operations. The Company does not believe that excluding such items is likely to be significant to an assessment of the Company's ongoing operations, given that such excluded items are not indicators of business performance.

Source: LSC Communications.

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 Printing Impressions.