Quad/Graphics swings to Q4 net loss of US$6.9M from profit of US$26.6M in year-ago period impacted by volume and pricing pressures, higher bad debt provisions, non-recurring gains in 2010; net sales down 5.4% to US$1.31B

SUSSEX, Wisconsin , February 29, 2012 (press release) – Quad/Graphics, Inc. (NYSE: QUAD - News):

Highlights:

  • Achieves $638 million in full-year Adjusted EBITDA, exceeding guidance of $610 million to $625 million.
  • Reports fourth quarter Adjusted EBITDA margin of 15.0% and full-year Adjusted EBITDA margin of 13.7%. Excluding Canadian operations, full-year Adjusted EBITDA margin increases to 14.3%.
  • Generates $340 million in full-year Recurring Free Cash Flow, surpassing guidance of $260 million to $300 million.
  • Repays $163 million in debt during the quarter and $325 million since the Worldcolor acquisition, reducing leverage to 2.3x.
  • Increases quarterly cash dividend by 25% to $0.25 per share.
  • Receives authorization from the Canadian Competition Bureau to proceed with the sale of its Canadian business to Transcontinental.

Quad/Graphics, Inc. (NYSE: QUAD - News) (“Quad/Graphics” or the “Company”), today reported strong fourth quarter and full-year 2011 results that surpassed management's previously announced guidance. The reported results include the Company's Canadian operations, which are in the process of being sold, unless otherwise noted. References to pro forma results for 2010 treat the July 2, 2010, Worldcolor acquisition as if it occurred on January 1, 2010. For full financial results, please see the accompanying information.

“We are pleased with our 2011 fourth quarter results, which reflect our ongoing focus on improving productivity and aggressively managing costs, while continuing to pay down debt to strengthen our credit metrics and balance sheet,” said Joel Quadracci, Quad/Graphics Chairman, President & CEO. “Given our strong finish to the year, as well as the strength of our recurring free cash flow and lower risk profile that our recent leverage reduction has provided, we are pleased to declare a 25% increase in our quarterly dividend, which will be payable on March 23, 2012, to shareholders of record on March 12, 2012.”

Net sales for the fourth quarter 2011 were $1.31 billion, down from $1.39 billion for the same period in 2010. Fourth quarter 2011 Adjusted EBITDA was $197 million versus $224 million for the same period in 2010. These results were adversely impacted by volume and pricing pressures, primarily in Canada and in the U.S. retail insert and book product lines, as well as by higher bad debt provisions in 2011 and non-recurring gains in 2010. Offsetting these impacts were productivity improvements, and incremental synergy savings, which totaled $44 million during the quarter and $196 million since the Worldcolor acquisition.

For the full-year 2011, net sales were $4.67 billion versus pro forma net sales of $4.76 billion for the previous year. Adjusted EBITDA was $638 million for 2011 and, due to stronger fourth quarter performance, the Company surpassed revised 2011 guidance of $610 million to $625 million. Recurring Free Cash Flow was $340 million, exceeding original guidance of $260 million to $300 million and continuing a track record of solid cash flow generation.

The Company continues to manage its outstanding debt and pension liabilities to maintain a strong balance sheet that provides it with flexibility to adjust to changing economic conditions. “We are proud of the progress we have made to repay $163 million in debt during the fourth quarter of 2011, and $325 million since the Worldcolor acquisition,” said John Fowler, Executive Vice President & Chief Financial Officer. “Our year-end leverage ratio of 2.3x remains within our targeted range of 2.0x to 2.5x. Further, we believe our business will continue to generate significant cash flow to support our disciplined capital deployment strategy. As always, the priorities for that capital will be adjusted based on current circumstances and what we think is best for shareholder value creation. For example, our large debt paydown in the quarter, combined with our confidence in our ability to continue generating strong free cash flow, enables us to increase our cash dividend to shareholders, reinforcing our commitment to providing long-term shareholder returns.”

On February 7, 2012, the Company received authorization from the Canadian Competition Bureau to proceed with the sale of its Canadian business to Transcontinental, and expects the transaction to close shortly. Quad/Graphics entered into a definitive agreement with Transcontinental on July 12, 2011, to essentially exchange its Canadian assets (with the exception of its Vancouver, B.C., facility, which was not part of the original transaction) for Transcontinental's Mexican assets. Quad/Graphics completed the acquisition of the Mexican assets on September 8, 2011.

2012 Outlook

The Company remains cautious about 2012 given the ongoing transformation in the industry. “We anticipate our revenue to be approximately $4.0 billion, which excludes our discontinued operations in Canada that had 2011 revenues of $344 million,” Quadracci said. “In addition, we expect Adjusted EBITDA margin from continuing operations to be flat to slightly less than our 2011 Adjusted EBITDA margin of 14.3%, and Recurring Free Cash Flow to be in excess of $300 million. We will continue to aggressively manage what is within our control and make decisions that are in the best interests of our shareholders. We remain confident in our strategy to redefine print in a multichannel world. Through the dedication and hard work of our employees, we continue to transform our company, making it leaner, stronger and poised for long-term stability and success.”

Fourth Quarter 2011 Conference Call

Quad/Graphics (NYSE: QUAD - News) will hold a conference call at 10 a.m. ET on Wednesday, February 29, to discuss fourth quarter 2011 results. The call will be hosted by Quad/Graphics Chairman, President & CEO Joel Quadracci and Executive Vice President & CFO John Fowler. The full earnings release and the slide presentation will be concurrently available on the investor relations section of Quad/Graphics' website at http://investors.qg.com.

To access the conference call, it is recommended that you listen via computer at http://us.meeting-stream.com/quadgraphics_022912/.

Please test your connection prior to joining to ensure a successful user experience. The test link is http://test.meeting-stream.com.

If for any reason you are unable to stream, you can listen to the audio via the telephone by calling:

Toll-Free: (877) 217 - 9946 (US/Canada)
Toll: (702) 696 - 4824 (International)
Conference ID: 36386722

The replay will be available for 30 days following the conference call. To access the replay via phone, please call (855) 859-2056 or (404) 537-3406 and enter the Conference ID number 36386722.

To access the replay via the internet, please use the following link: http://us.meeting-stream.com/quadgraphics_022912/. Registration is required for replay.

QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended December 31, 2011 and 2010
(in millions, except per share data)
(UNAUDITED)
     
    Three Months Ended December 31,
    2011   2010
Net sales   $ 1,215.6     $ 1,258.8  
         
Cost of sales   921.4     949.4  
Selling, general and administrative expenses   108.5     99.5  
Depreciation and amortization   88.7     85.7  
Restructuring, impairment and transaction-related charges   31.9     40.5  
Total operating expenses   1,150.5     1,175.1  
         
Operating income from continuing operations   65.1     83.7  
         
Interest expense   23.5     31.5  
         
Earnings from continuing operations before income taxes and equity in earnings of unconsolidated entities   41.6     52.2  
         
Income tax expense   34.1     26.0  
         
Earnings from continuing operations before equity in earnings of unconsolidated entities   7.5     26.2  
         
Equity in earnings of unconsolidated entities   1.4     2.8  
         
Net earnings from continuing operations   $ 8.9     $ 29.0  
         
Loss from discontinued operations, net of tax (1)   (15.7 )   (2.5 )
         
Net earnings (loss)   $ (6.8 )   $ 26.5  
         
Net (earnings) loss attributable to noncontrolling interests   (0.1 )   0.1  
         
Net earnings (loss) attributable to Quad/Graphics common shareholders   $ (6.9 )   $ 26.6  

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