08/09/2012 06:52 EDT | Updated 10/09/2012 05:12 EDT

Quebecor's Q2 profits hurt by weak newspaper advertising despite telecom gains

MONTREAL - Quebecor reported Thursday lower than expected earnings for the second quarter as it was hurt by a weak advertising market for its news media business.

The Montreal-based media company earned a profit attributable to shareholders of $67 million or $1.05 per diluted share for the period ended June 30 compared with $55.2 million or 85 cents per share a year ago.

However, the results were boosted by $64.5 million in one-time gains related to financial instruments and a restructuring, offset by a $22.7-million increase in amoritization for the most recent quarter.

The company's adjusted profit from continuing operations fell to $48.7 million or 77 cents per share from $60 million or 93 cents per share a year earlier.

Revenue increased by $33 million to just under $1.09 billion.

Analysts had been expecting 97 cents per share of adjusted earnings on $1.1 billion of revenues, according to analysts polled by Thomson Reuters.

"Our news media segment continued to be significantly impacted by soft advertising conditions," president and CEO Pierre Karl Peladeau said Thursday during a conference call.

"We are facing these challenges head-on by investing in our sales force, in our product and in promotion and marketing efforts, as well as by actively tightening our cost structure to reflect the current market conditions."

Quebecor (TSX:QBR.B) saved $5 million in the quarter from an earlier decision to layoff more than 400 employees. It has also closed several publications it considered non-core.

The news division's earnings fell 20 per cent to $36 million, while revenues fell 4.75 per cent to $255 million.

Despite a seasonally weak quarter for the telecom segment and intense competition, Videotron continued to have a "solid financial performance," he told analysts.

Revenue grew 8.4 per cent to $652 million while EBITDA was up 10 per cent to $301.7 million.

"Videotron remains the highest growth telco in the Canadian telecom and cable industry," he said.

It added 31,000 net subscribers after losing 5,000 wireline customers during the busy July 1 moving season in Quebec. Over the last year, Videotron has added 330,000 revenue generating units.

Quebecor has joined Cogeco Cable Inc. (TSX:CCA) and Eastlink to launch a campaign to oppose BCE Inc.'s (TSX:BCE) planned purchase of Astral Media Inc. (TSX:ACM.A), saying the deal would give Bell too much control over the country's broadcasting landscape.

"Nowhere else in the G8, apart from Italy, has such a vertically integrated company been allowed to dominate the broadcasting industry," he said.

He said Bell would be able to impose rates on advertisers and put even more pressure on conventional television that would further reduce competition.

"If this transaction goes ahead as planned it will mark the beginning of the end of competition in the Canadian broadcasting industry. This kind of monopoly would certainly not be in the best interest of any component of the industry or least of all consumers."

The deal still needs approval by the Canadian Radio-television and Telecommunications Commission and the Competition Bureau.

Maher Yaghi of Desjardins Capital Markets said the results reinforce that Quebecor is facing more intense competition from Bell's IPTV and the need to subsidize cable boxes that put pressure on cash flows.

"While the wireless subscriber base continues to grow, the company does not appear to be benefiting from data growth as average revenue per user remains weak," he wrote in a report.

Quebecor Inc. is a holding company with a 54.7 per cent interest in Quebecor Media Inc., one of Canada's largest media groups, with more than 16,000 employees.

Quebecor Media Inc., through its subsidiary Videotron Ltd., is an integrated communications company that includes cable television, interactive multimedia development and Internet services as well as cable telephony and mobile wireless services.

Through Sun Media Corp., Quebecor Media Inc. is the largest publisher of newspapers in Canada and also operates and its network of English- and French-language Internet properties in Canada.

On the Toronto Stock Exchange its shares lost $1.50 or 4.26 per cent at $33.75 in afternoon trading.