BUSINESS

Transcontinental foresees stable Canadian flyer business despite Target departure

03/17/2015 07:14 EDT | Updated 05/17/2015 05:12 EDT
MONTREAL - Transcontinental expects its retail flyer business will be relatively stable in the coming months despite a soft start to the year resulting from the departure of Target from Canada.

The Montreal-based printing and publishing company said the first quarter was softer than a year ago as some customers trimmed back on spending that was ramped up to compete with the U.S. retailer.

But CEO Francois Olivier said he doesn't foresee volumes dipping further and 2015 ultimately won't be any different than the past few years.

"A lot of our customers have announced store openings and all of that, so we expect the year to unfold normally here in the Canadian retail landscape for us as far as printing flyers — even though January was a little bit more soft," he said Tuesday during a conference call to discuss first-quarter results.

He said Transcontinental (TSX:TCL.A) losese "a very big opportunity" with Target's exit from Canada. The company earned a couple of million dollars annually from distributing the Target flyers material in Quebec and Atlantic Canada and hoped to eventually win back the flyer printing business that it lost when Zellers closed and Target took over most of its locations.

In the United States, Transcontinental's first quarter results were affected by the loss of one customer, which was subsequently replaced by another retailer.

Transcontinental announced it is raising its dividend rate by six per cent and will look at other ways to reward shareholders if it doesn't complete a sizeable acquisition in the next 12 to 18 months.

The quarterly dividend hike to 17 cents per share were announced with financial results that showed substantially higher first-quarter profits.

Its adjusted earnings rose 36.7 per cent to $36.1 million, or 46 cents per share. Net income more than doubled to $37.9 million or 49 cents per share. Revenue grew 1.1 per cent to $504.6 million.

Analysts had estimated 38 cents per share of earnings and $515.78 million of revenue.

On the Toronto Stock Exchange, Transcontinental's shares rose above the previous 52-week high of $17.20. They were up 5.7 per cent or 94 cents at $17.52 in later morning trading.

Olivier said the results demonstrate the successful strategy of consolidating the weekly newspaper market in Quebec and diversifying into flexible packaging despite the ongoing challenge of lower advertising revenues.

It has received regulatory approval to sell its consumer magazine business in the coming weeks to Quebecor's TVA Group (TSX:TVA.B) for $55.5 million. It previously bought Quebecor's weekly newspapers in Quebec.

"Going forward, the media sector will focus on the local market which we believe offers us more business opportunities to our 180 newspapers and Quebec, Ontario, Saskatchewan and the Atlantic provinces," he told analysts. It will also seek to grow its educational publishing business annd interactive marketing services.

Olivier told analysts that the company is considering ways to expand its flexible packaging business that was added last year with the acquisition of Capri. It is focused on winning new contracts to increase the utilization of its existing plant, while also eying more acquisitions.

"We want this second and third move to make sense and integrate well with what we have acquired to create a little bit of a network of factories."

Meanwhile, he said the company could conclude another deal this year to print the newspapers of an undisclosed Canadian media publisher. Olivier said the timing is difficult to predict because it's a very big decision for publishers to let go of people when it no longer prints its paper internally.