In late 2018, Sussex-based Quad/Graphics made the decision to invest $40 million to boost wages for its hourly production wages, including increasing starting wages to $16 per hour.
While it took some time for the company to start realizing results from the investment, the benefits showed up in the company’s fourth quarter.
“We had one of the best quarters in the past decade in terms of customer service performance, achieving strong quality and on-time delivery for our clients in their busiest season,” said Joel Quadracci, chairman, president and chief executive officer of Quad.
Coming out of the third quarter, Quad had lowered its full year guidance for sales, adjusted earnings and free cash flow, citing its decision to divest its book business, weakening market prices for paper byproduct recoveries and the expected timing of productivity improvements.
The company ultimately hit its sales guidance of around $3.9 billion. At $335 million and $106 million, the company exceeded its adjusted EBITDA and free cash flow guidance. Quad had projected adjusted EPITDA of $300 million to $330 million and free cash flow of $80 million to $100 million.
While Quad’s net sales decreased by 4.9% during the fourth quarter, total operating expenses decreased by 7.3%. Net earnings in the quarter swung from a $20.8 million loss in 2018 to a $7.5 million profit.
“It was outstanding performance by our manufacturing team,” said Dave Honan, chief financial officer at Quad.
In addition to productivity gains, Quadracci said the company saw $225 million in sales growth during the year from its Quad 3.0 strategy, which seeks to position the company as a marketing service provider.
He said that revenue helped offset volume declines and pricing pressure in the company’s print business and the ultimate goal is to completely offset print declines through marketing services.
The print declines were particularly concentrated in Quad’s large scale print business, which includes retail inserts, magazines and directories. In 2018, the large scale business accounted for around 33% of Quad’s revenue. Last year, the business shrank to 30% of the total, a decline of around $150 million.
Retail inserts, in particular dropped nearly $100 million and declined from 21% to 19% of sales.
Quadracci said the company has seen increasing interest for more targeted print products, including catalog and direct mail, adding that previously online only retailers are taking an interest in print.
“The cost of using social media is going up and the effectiveness is going down,” he said. “We believe that there is going to be a decent amount of new revenue coming into print”