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Soft advertising bites into Transcontinental profit

Transcontinental workers check an edition of The Globe and Mail at the Intercontinental print plant.

J.P. MOCZULSKI/The Globe and Mail

Transcontinental Inc. 's profits plummeted to $8.1-million in the third quarter as soft national advertising outside Quebec, lower educational book sales and costs related to its acquisition of Quad/Graphics Canada hurt the bottom line.

The Montreal-based media company and printer said Thursday that it earned 10 cents per share for the period ended July 31. That compared to 39 cents per share a year earlier when net income was $31.5-million.

Adjusting for one-time items, profit dropped 23 per cent to $24.9-million, or 31 cents per share, compared with $32.5-million, or 40 cents per share, in the year-ago period.

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Revenue was $517-million, up 8 per cent from $479.4-million, due to the acquisitions of Quad/Graphics and Redux Media, new printing contracts and community newspaper launches in Quebec.

The increase was partly offset by reduced educational book sales following the end of school reform in Quebec, printing contract incentives and lower community newspaper ad revenues.

Organic revenue fell by 3 per cent, but was down 9.5 per cent in the media sector, with about 45 per cent of the drop due to the impact of school reform last year.

"The third quarter results demonstrate the resilience of our printing operations and the adverse impact of difficult market conditions on some niches in the media sector," said president and chief executive officer François Olivier.

He said the company is on track to generate more than $40-million in synergies over the next 18 months from the acquisition of Quad/Graphics' Canadian plants that once belonged to Quebecor World.

Drew McReynolds of RBC Capital Markets said the results were below expectations, with adjusted EPS falling below his estimate of 45 cents per share.

"Not unlike other media companies in calendar second quarter, the remaining decline was due to weak national advertising spending in newspaper publishing and year-over-year declines in digital revenue," he wrote in a report.

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Mr. McReynolds said the printing results were largely in line, with organic revenue up 1 per cent mainly due to new book and flyer contracts.

The analyst said the loss of Zellers will be a drag on a cautious outlook next year with most of the impact in the first quarter.

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 also has a digital network of more than 3,500 websites.

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