06/07/2012 11:21 EDT | Updated 08/07/2012 05:12 EDT

Transcontinental reports Q2 loss on writedown, revenue up from year ago

MONTREAL - Transcontinental Inc. missed expectations in the second quarter and reported a loss despite higher revenues, but the printing and publishing company said it expects results to improve by the end of this year.

The Montreal-based company reported Thursday a quarterly loss of $106.2 million or $1.31 per share, which compared with a year-earlier profit of $32.7 million or 40 cents per share. Results included a $180-million writedown related to its media business.

Revenue grew to $529.4 million, up from $498.7 million, driven primarily by the acquisition of Quad/Graphics Canada, Inc., the launch of new community newspapers in Quebec and new contracts with advertisers such as Canadian Tire.

Excluding unusual items and discontinued operations, Transcontinental reported a profit of $35.4 million or 44 cents per share, down from $39.1 million or 48 cents per share.

The company anticipates results will recover by the end of 2012, despite a volatile advertising market.

"For the balance of the year we expect our results to ramp up, especially in the fourth quarter as the previously announced synergies start to benefit our results in a more meaningful way," president and CEO Francois Olivier said during a conference call.

"Therefore we are very well-positioned to continue to transform Transcontinental to meet our customer's evolving marketing needs."

Transcontinental says its plan to launch a television production business will create content that can be cross fed with its magazine, newspaper and digital operations.

The company said it's not looking to become a broadcaster but wants to leverage the content already produced in its other platforms.

"We see TV production as another channel to distribute the content that we're already paying for, so we see that as an extension," Olivier told analysts.

The move is part of a strategic effort to diversify its offering and work with broadcasters to help offset the heavy infrastructure costs required to create stand alone video, he said.

During the latest quarter, the company's non-cash writedown, equalling $162 million after tax, included $89 million for community newspapers, $71 million for magazines and $20 million for educational publishing.

Transcontinental (TSX:TCL.B) had been expected to earn 47 cents per share in adjusted earnings on $546.6 million of revenues, according to analysts polled by Thomson Reuters.

Adjusted operating profit decreased by seven per cent to $55.8 million, due to new Quebec legislation imposing higher recycling fees, lower revenues from the Canadian census and lower volume from its educational book publishing.

Drew McReynolds of RBC Capital Markets said the results were "a modest negative" with operating results below expectations on weaker margins.

EBITDA was $86 million compared with $92 million forecasted by analysts.

The printing segment had 0.2 per cent organic growth while the media segment's earnings shrank 2.3 per cent.

"We consider (that) to be a decent result considering the difficult operating environment in the quarter," McReynolds wrote in a research note.

The Montreal-based company completed its acquisition of the Canadian assets of Quad/Graphics on March 1 — the result of an asset swap with a major U.S. printing company.

Transcontinental acquired all of Quad/Graphics' Canadian operations outside Vancouver, in exchange for its profitable Mexican operations and export-oriented black and white book publishing business.

The Quad/Graphics' Canadian plants once belonged to Quebecor World.

Transcontinental is the largest printer in Canada and fourth-largest in North America. It is a publisher of magazines, French-language educational resources and community newspapers in Quebec and the Atlantic provinces.

It has been consolidating its production in a smaller number of modern plants as it increases its digital media offering.

In March it announced that two of the six Quad/Graphics plants — one in Dartmouth, N.S., and one in suburban Montreal — would be closed.

On the Toronto Stock Exchange, its shares were down 30 cents, or three per cent, to close at $9.50.