Acquisition costs take toll on Quad/Graphics

The costs of the acquisition and integration of Worldcolor caused Sussex-based Quad/Graphics Inc. to incur a third-quarter loss of $232.4 million, or $5.01 per share, compared with a net profit of $28.5 million, or 98 cents per share, in the same period a year ago.
However, with the additional capacity, Quad/Graphics’ quarterly net sales grew to $1.2 billion from $471.6 million a year earlier.
"Our results in the third quarter were in line with our expectations," said Joel Quadracci, chairman, president and chief executive officer of Quad/Graphics. "Revenues were down slightly versus the pro forma $1.24 billion due to lower volumes in the legacy Worldcolor business, contractual pricing inherited from legacy Worldcolor and continued pricing pressures from industry overcapacity. This was partially offset by increased volumes in the legacy Quad/Graphics business, as well as increases in paper and byproduct revenues. The decrease in Adjusted EBITDA and Adjusted EBITDA margin was primarily attributable to lower volumes and pricing, costs associated with catch-up retirement and incentive compensation expenses, and frictional costs associated with plant consolidations, which were partially offset by synergy savings."
The company continues to make progress with its integration plans and integration. Of the six North American plant closures the company has announced or accelerated since completing the acquisition, three have closed already and the remaining three are expected to close by year end. In total, these plants represent the consolidation of nearly 2.7 million square feet of production space and impact approximately 2,400 positions. In addition, the Company expects to complete the closure of Worldcolor’s Montreal headquarters by the end of 2010, which will result in the reduction of approximately 100 administrative positions.
"The industry still has significant overcapacity, so Quad/Graphics will continue to remove excess capacity from its newly combined platform," Mr. Quadracci said. "In addition, we plan to maintain our historic economic discipline that allows us to provide a return on capital greater than our cost of capital. This, in turn, allows us to continually reinvest in equipment, and industry-leading research and development and technological innovations to benefit our customers and drive value for our shareholders … We spent a significant amount of time preparing for this extremely complex integration and we were ready to go from the start. At the same time, our focus remains on serving our customers and ensuring their work is produced without disruption throughout this transition. We have been pleased by our customers’ favorable response to the acquisition and have been successful at retaining business with no significant loss of work."