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Transcontinental benefits from short-term wage subsidy

Most of its revenue decline was in printing, which services newspaper and flyer producers.

September 10, 2020   by David Paddon

MONTREAL — Transcontinental Inc. had a $48.3 million net profit in its fiscal third quarter, as cost cutting and a COVID-related wage subsidy offset a 19.4% drop in revenue for the printing and packaging company.

Revenue for the three months ended July 26 was $587.4 million, down from $728.9 million in last year’s third quarter.

Most of the revenue decline was in Transcontinental’s printing segment, which services newspaper and flyer producers that were significantly affected by a decline in advertising due to the pandemic.

Transcontinental chief executive Francois Olivier said it was asked by government and medical authorities to shut down a bit more than half of its printing operations as part of early COVID containment efforts.

“Since then, it’s a slow recovery,” Olivier said in a phone interview. “As the economy is reopening slowly and gradually ? we’re actually coming back.”

Transcontinental said the gradual recovery in printing volume enabled the company to recall close to 60% of the employees who were temporarily laid off at the end of March.

The company said it expects its fourth quarter will include less from a federal program to help employers through the pandemic.

Transcontinental received $35.9 million from the Canada Emergency Wage Subsidy in its third quarter and $44 million in total since the federal program was created in the company’s fiscal second quarter.

The COVID pandemic was less of a problem for Transcontinental’s packaging segment, which began in 2014, because much of its business is for food processors who supply retailers that saw shoppers increase purchases during lockdowns.

“We’ve been growing and meeting the objectives that we put in our (long-term) plan and this year’s plan,” Olivier said. “I’m pretty happy about the results of flexible packaging so far.”

The packaging segment generated $348.7 million in revenue in the quarter, compared with $223.8 million from printing sector and $14.9 million from other sources, including books.

A year earlier, revenue was more evenly split between packaging ($395 million) and printing ($310.5 million), with about $23.4 million in other revenue.

Olivier said Transcontinental expects that packaging will eventually account for at least 70% of total revenue over time but printing will remain a significant business.

“People look at print, holistically, as a declining medium. But, actually, about 25% of our portfolio right now is growing,” Olivier said.

He said that growth is coming from in-store marketing materials and content creation for retailers as well as from book printing and publishing.

“Obviously, the growth engine will be packaging and it will move from 50 to 60 to 70 per cent (of annual revenues),” Olivier said.

“But print will probably decrease at a much slower pace than people might anticipate and it will generate a significant amount of cash flow for the company over the next five years.”

Transcontinental’s net earnings attributable to shareholders was 56 cents per share during the third quarter, up from $3.4 million or four cents per share a year earlier.

Adjusted net earnings rose to 78 cents per share, from 60 cents per share _ beating analyst estimates.

Analysts had estimated 45 cents per share of adjusted earnings and nearly $593 million of revenue, according to financial data firm Refinitiv.

 


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