Transcontinental media business showing signs of improved profit, CEO says

MONTREAL - There are finally signs of sustainable improvements at Transcontinental's media business, president and CEO Francois Olivier told analysts Thursday after the printing and publishing company announced a $36.8 million adjusted quarterly profit.

"After numerous quarters of year-over-your profitability declines, the sector is finally showing signs of improvement," Olivier said shortly after the Toronto stock market closed.

"We made some difficult decisions in order to reduce costs over the past several months and we're starting to yield some dependable results."

Advertising sales remain soft but should continue to improve for the balance of the year, he said.

Transcontinental's profit margins should also improve due to new contracts, the acquisition of dozens of weekly newspapers in Quebec from Sun Media and the introduction of new digital products.

The Montreal-based company said this week that it has completed its acquisition of 74 weekly newspapers from Sun Media, part of Quebecor Inc. (TSX:QBR.B). Transcontinental agreed last week to put 34 out of their 154 newspapers up for sale for 60 days to win approval from the federal Competition Bureau for the sale to go ahead.

Olivier told analysts that some of the papers that are up for sale have been profitable but as a group, they've been losing money. He declined to speculate on potential buyers.

He said the Sun Media deal will show some positive impact for Transcontinental's margins in the fourth quarter in 2013-14 but more so in 2014-15. There will be similar positive momentum from Transcontinental's digital products, which have been introduced to offset a decline in demand for paper-based products.

"We have some very good success with some of our local digital products that not only started to yield significant sales but also very good margin," Olivier said.

The company beat analyst earnings estimates in the second quarter, which ended April 30. The adjusted earnings were up 12.9 per cent from $32.6 million in the comparable period last year. Net income under standard accounting was $34.7 million, up 37.2 per cent from $25.3 million in the second quarter of 2013.

On a per-share basis, Transcontinental earned 47 cents per share of adjusted profit, up from 42 cents a year, and four cents per share above estimates compiled by Thomson Reuters.

Transcontinental — which produces newspapers, magazines and books in addition to its main business of printing and distribution — said its overall revenue fell 3.8 per cent to $498.2 million from $517.8 million.

The Sun Media deal closed after the quarter ended and won't show up until the company's third quarter, which began May 1.

Transcontinental also completed the acquisition of Capri Packaging on May 3, which manufacturers food packages. The company says it sees the acquisition as its entry into a new industry segment that will provide growth opportunities. Capri will add about US$72 million to Transcontinental's revenues, with about 75 per cent of that coming from the seller, Schreiber Foods Inc.

Printed newspapers are a dwindling source of revenue due to a global change in consumer and advertiser preferences. However, Transcontinental has been offsetting that by providing outsourcing services to newspaper publishers and diversifying into non-print products.

Transcontinental announced on May 5 that it will begin printing the Montreal Gazette starting in August under an outsourcing agreement with Postmedia Network Canada Corp. (TSX:PNC.B), which also publishes the National Post and other major city newspapers in Ontario and Western Canada.

During the second quarter, Transcontinental announced it would receive a $31 million payment after agreeing to adjust a printing contract with Montreal La Presse, Canada's largest French-language newspaper. The contract, originally signed in 2003, still expires in 2018 but Transcontinental had agreed to price reductions on future services and changes that allow the paper's owner to reduce the amount of material printed.

La Presse is owned by Gesca Ltd., which is part of the Power group of companies and a part-owner of The Canadian Press.

Transcontinental's A shares closed Thursday at $15.41, up 32 cents or about two per cent at the Toronto Stock Exchange.