05/08/2013 07:44 EDT | Updated 07/08/2013 05:12 EDT

Quebecor won't rule out further cost-cutting at newspaper business

MONTREAL - Quebecor won't rule out further cost-cutting efforts to address declining advertising revenues facing its newspaper business, outgoing CEO Pierre Karl Peladeau said Wednesday.

"For now our activities are profitable," he said following the company's annual meeting.

"We're not burying our heads in the sand. We are in decline, there is a significant pressure on advertising revenues."

A series of cost reductions, including 500 job cuts announced last year, are expected to generate $45 million a year in savings.

Peladeau said Quebecor is completing those cost reductions but said "a company is always attentive to the environment as it evolves."

Quebecor's overall profits were cut in half compared with a year ago, in part due to the impact of lower ad revenues in its news media segment.

The majority owner of Quebecor Media Inc. reported Thursday a profit of $35.6 million or 57 cents per share, compared with $71.4 million or $1.13 per basic share in the first quarter of 2012.

Consolidated revenue fell $9.5 million, or 0.9 per cent, to $1.05 billion.

Adjusted income from continuing operations was $33.1 million or 53 cents per share, down from $37.8 million or 60 cents per share in the prior-year period.

The company was expected to earn 62 cents per share in adjusted profits on $1.09 billion of revenues, according to analysts polled by Thomson Reuters.

Peladeau declined to say whether Quebecor would consider selling its newspapers, particularly in English Canada, where it operates Sun Media.

He said those are strategic options would be decided by the new Quebecor board.

Declining advertising revenues is a global problem facing other publishers in Canada and the United States, he told reporters.

Torstar (TSX:TS.B), Postmedia Network Canada Corp. (TSX:PNC.B) and Gannett newspapers have all recently reported lower profits caused by newspaper advertising weakness.

The publisher of the Toronto Star said Wednesday it hopes paywalls it will launch will offset some of the declining revenues.

Peladeau said those efforts have allowed its newspapers including Le Journal de Montreal, to partially offset lower ad revenues.

The company has also focused on developing its online business to give readers access to information on a variety of platforms.

He described rival La Presse's new iPad newspaper as an alternative approach to what most in the industry are following.

"It's an exception. Either they are smarter than others or they have a business model that's a bit different," he said.

Analyst Maher Yaghi of Desjardins Capital Markets said Quebecor stock holds value compared to its peers even though the first-quarter results showed the impact of increased competitive pressure.

"The newspaper business continues to be impacted by secular downward pressures; however, the stock continues to trade at a discount to peers. We expect that discount to diminish over time," he wrote in a report.

Quebecor Media through its Videotron subsidiary also includes cable television, Internet and mobile telephone services. Through Sun Media Corp, it is the largest publisher of newspapers in Canada.

Peladeau was at times emotional before shareholders as his run as chief executive of the company founded by his father ended Wednesday. He is now vice-chairman of Quebecor and next week becomes chairman of Hydro-Quebec.

"This marks the end of an important period in by personal and professional life," he said.

"I am very proud of the work we accomplished over these last 14 years...we have literally transformed this business to make it a Quebec telecommunications leader."

Peladeau pointed to the 2000 acquisition of Videotron with the support of the Caisse de depot as the move that allowed Quebecor's other successes that followed. It was followed eight years later by a spectrum auction that led to its entry into the wireless cellphone market.

Robert Depatie, who has taken over as Quebecor CEO, said its wireless business turned a slight operating profit a little more than two years after its launch.

"I think it's a bit faster than we anticipated," he told reporters, adding that it had to invest $1 billion to build a wireless network from scratch.

Revenues from all of Videotron's main services were up, led by the mobile phone service, which increased revenues by $12.4 million or 33 per cent from the same quarter of 2012. Videotron's average monthly revenue per user increased by $5.31 to $114.49.

Peladeau said the coming years will be very favourable for Quebecor Media.

He told shareholders that he believes his father would have been proud of the success, sense of leadership, innovation and special place the company has developed in the hearts of Quebecers.

"I was privileged to have been inspired by the great entrepreneur that you were," he said, speaking to his father who died in 1997. "You were the best mentor and I am eternally grateful."