BUSINESS

Transcontinental seeking efficiency, not job cuts, to deal with weak advertising

06/06/2013 11:43 EDT | Updated 08/06/2013 05:12 EDT
MONTREAL - Transcontinental says persistently tough advertising conditions are forcing the company to improve the efficiency of its media sector, but the job cutting is done.

"Going forward, there's nothing special, there's no cut of people planned," chief executive Francois Olivier said Thursday during a conference call.

Instead, the company is working to streamline its structure, including how its sales force operates, as it integrates the magazine, community newspaper and digital platforms.

Changes would allow the billing department, for example, to invoice ads at one time for several products instead of individually for each product.

"There are all sorts of things we need to reinvest in our system and bring some efficiency to successfully move from a single product organization to a multiple product organization."

Olivier said the changes won't generate substantial cost savings.

"We're running the business every quarter and trying to make it more efficient all the time, but there's no big program of special cost reductions planned for the rest of the year."

The media company and commercial printer reversed a large loss last year to earn $27.5 million in the second quarter on stable revenues.

Transcontinental said it earned 35 cents per share for the period ended March 31, compared to a loss of $1.31 per share or $106.2 million a year ago.

Last year, it took a $180.8 million, or $162.7 million after-tax, goodwill impairment charge largely in the media sector.

Adjusting for one-time items, Transcontinental's (TSX:TCL.A) earnings dipped two per cent to $34.8 million, or 44 cents per share, in line with analyst expectations.

The Montreal-based company said recent acquisitions helped to cushion the blow from lower revenues of its existing operations.

Acquisitions contributed $23.1 million of revenues in the second quarter, offset by a $24 million decrease in the existing operations caused by the loss of Zellers flyers business, weaker advertising and incentives to renew long-term printing contracts.

Overall revenues decreased slightly to $521.3 million.

Olivier said its local advertising has been hardest hit by the softness.

"The principal reason for the soft advertising market we believe is not driven by a shift in dollars to other media platforms but really a cut back in spending by customers," he told analysts.

The acquisition of the printing operations of Quad/Graphics Canada in March 2012 contributed $14.1 million of revenues and $1.8 million in adjusted operating income.

The printing sector's adjusted operating income increased 16.4 per cent to $55.3 million, largely due to synergies realized from the closure of three Quad plants and the merger of two Ontario plants.

The media sector's operating income decreased 42.5 per cent to $7.3 million as the contribution from Redux Media and other acquisitions was more than offset by lower advertising revenues in newspaper publishing operations and investments to set up its television production house.

The company recorded $5.9 million in costs related to workforce reductions from the Quad integration, and $3.3 million in other restructuring costs.

Olivier said he's pleased with the more than $30 million of synergies achieved to date from the Quad acquisition, including $12 million in the quarter.

"The Quad Canada integration is progressing very well and in fact we have surpassed the synergies we were expecting to generate at this stage," he said.

A final phase of integration early next year, primarily in Western Canada and Ontario, should raise total cost savings above $40 million.

The company said it renewed several multi-year printing contracts worth $200 million and signed new agreements worth about $30 million a year to print flyers and marketing products.

Transcontinental is Canada's largest printer and a leading provider of media and marketing solutions. It has about 9,500 employees in Canada and the U.S.

On the Toronto Stock Exchange, Transcontinental's shares closed down five cents at $11.70 in Thursday trading.