Quebecor profit plunges on media division hit

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Quebecor Inc.'s news media division took a major hit in the first quarter on a dramatic drop in advertising spending on newspapers.

The Montreal-based media giant, on the other hand, says its mobile telephone service performed well, with 18,300 subscriber connections in the first quarter.

Operating income in news media – which includes the Sun chain of newspapers and the flagship Journal de Montréal on the French-language side – plummeted 63.7 per cent to $5.7-million in the first quarter.

Like most other players in the newspaper industry, Quebecor has been struggling with newspaper ad revenue that is declining at a faster clip than digital revenues can increase.

Over all, Quebecor posted a net profit of $35.6-million or 57 per share in the quarter, compared with $71.4-million or $1.13 per share in the year-earlier period.

The 50-per-cent drop in first-quarter profit was due mainly to a $74.2-million unfavourable variance in the gain on valuation and translation of financial instruments, a $20.7-million increase in the amortization charge and an $11.8-million increase in financial expenses.

Adjusted income from continuing operations was $33.1-million or 53 cents per share, compared with $37.8-million or 60 cents.

The analysts' consensus estimate was 61 cents.

Revenue was off 1 per cent at $1.05-billion.

"Overall, quarterly results are clearly showing the impact of increased competitive pressure. The newspaper business continues to be impacted by secular downward pressures; however, the stock continues to trade at a discount to peers," Desjardin Securities analyst Maher Yaghi said in a research note Wednesday.

He said he expects the discount to diminish over time.

The Vidéotron cellphone unit passed the break-even point for the first time since its launch two years ago, based on operating income, the company said.

Total subscriber base in the first quarter reached 420,900.

"We are very satisfied with Vidéotron's results, which continued showing healthy improvement in the first quarter of 2013," Vidéotron chief Robert Dépatie said in a news release.

Besides wireless service, Vidéotron -- a part of Quebecor subsidiary Quebecor Media Inc. -- also includes Internet, cable telephony and cable television.

Desjardins' Mr. Yaghi said Quebecor's first quarter results were slightly below expectations.

Vidéotron lost 5,800 basic cable subscribers in the quarter, versus Mr. Yaghi's forecast of a loss of 3,000.

Wireless additions of 18,300 was below his estimate of 20,000.

Average revenue per user (ARPU) in wireless was $40.40, down 2.8 per cent year-over-year and just below Mr. Yaghi's forecast of $41.54.

The wireless ARPU numbers continue to "imply that Vidéotron is struggling to realize higher data ARPU from smartphone customers," he said.

Mr. Depatie is taking over from Pierre Karl Péladeau as president and chief executive officer of Quebecor and subsidiary Quebecor Media, while Mr. Péladeau becomes chairman of Quebecor Media and vice-chairman of Quebecor.

"Unfortunately, in the News Media segment, the latest cost-containment initiatives did not make up for the decrease in revenues during the quarter, which was more significant than in previous periods," Mr. Péladeau said in a news release Wednesday.

"In addition to intense competition from new media, traditional newspapers are also facing large reductions in advertising spending by local and national advertisers. Despite signs of a potential recovery in advertising spending in the coming quarters, News Media segment management took immediate steps to adjust its cost structure again in light of the conditions experienced in the first quarter of 2013."