"For us it was a pretty soft quarter, much softer than we had anticipated," CEO Francois Olivier said Thursday during a conference call about its latest results.
He said national advertising was down 10 to 15 per cent for most of its publications in the quarter, but flyer distribution and acquisitions helped push up overall revenue by 1.9 per cent to $500 million from 490.7 million a year earlier.
The Montreal-based company (TSX:TCL.A, TSX:TCL.B) had $44.2 million in net income in the third quarter or 56 cents per diluted share for the quarter ended July 31, up from $30.1 million or 39 cents per share a year earlier.
Adjusting for one-time items, earnings grew 12.6 per cent to $37.6 million or 48 cents per share from $33.4 million or 43 cents per share a year earlier. The general analyst estimate was 46 cents per share, according to Thomson Reuters data.
Excluding revenues from the acquistion of Capri Packaging and Sun Media newspapers in Quebec, Transcontinental's revenue declined 2.7 per cent.
"We are indeed pleased with the continued improvement in the profitability of our media sector despite a very challenging advertising market," Olivier told analysts.
The printing segment's adjusted operating profit increased to $49.6 million. Printing revenue was up 2.4 per cent to $345.8 million in the quarter, but down 1.9 per cent excluding acquisitions.
Media profits increased 55 per cent to $12.1 million Transcontinental benefited from cost reductions and new distribution agreements with Postmedia (TSX:PNC.B) publications in Calgary and Montreal, and three Quebec weeklies acquired from Quebecor (TSX:QBR.B).
Media revenues increased 1.3 per cent to $174.7 million, but excluding acqusitions they fell 3.5 per cent due to lower newspaper and magazine advertising, partially offset by new flyer distribution agreements with Target, Sears and Jean Coutu (TSX:PJC.A).
Transcontinental said it's in discussions with several Canadian newspaper publishers to offer cost savings by taking over the printing of their publications.
"It's not a secret for anybody, the advertising dollar for big metropolitan newspapers last year was really challenging and the more challenge they have on the revenue side, the more you have to look at how you could save money," Olivier added.
"And I think our network across Canada of newspaper printing operations are a way to, in my opinion, to reduce a publisher's cost."
The purchase of Capri Packaging added $19.1 million in revenues and $4.2 million in pre-tax operating earnings (EBITDA).
Transcontinental said it expects about $20 million in additional EBITDA from the Sun Media transactions, but that cost savings may take slightly longer to realize because of delays in receiving approval from the federal Competition Bureau.
Last week, Transcontinental announced the closing of 20 publications and the sale of 14 others following acquisition of Sun Media weekly newspaper portfolio in Quebec from Quebecor.
The decision to close the papers was made after buyers could only be found for 14 of 33 publications that the Competition Bureau said had to be sold before it would allow Transcontinental to buy 74 weekly newspapers from Quebecor's Sun Media.
Transcontinental publishes more than 30 magazines, including Canadian Living and Elle Canada, as well as books and flyers. It also has a network of community newspapers in the Atlantic provinces and websites such as AutoGo.ca and JobGo.ca, and is the owner of the Metro weekday daily in Montreal and co-owner of Metro Halifax.
On the Toronto Stock Exchange, Transcontinental's shares closed up two cents to $15.54 in Thursday trading.