The topline number in Quad/Graphics’ first quarter results is encouraging on its own. Net sales increased 3.8% to more than $1 billion the first quarter.
The increase, however, was the result of gains from acquisitions of Periscope, Ivie and Rise Interactive. Those deals combined to increase sales 4.4%. Excluding the acquisitions, Quad saw a 0.6% organic sales decline that included a 0.8% negative impact from foreign currency.
In constant currency, the company saw a 0.2% increase in sales. Even if the gain is small in percentage terms and requires a number of caveats, it is the first such increase Quad has seen since 2014, according to Dave Honan, chief financial officer of Quad.
The Sussex-based printing and marketing services provider has been working over the last several years to transform itself into more than a printer, using data, analytics and an understanding of marketing services to drive increased business with customers.
“Our Quad 3.0 strategy is working, as evidenced in the new and expanded relationships with clients and is a significant driver behind the best quarterly organic sales performance since 2014,” said Joel Quadracci, chairman and CEO of Quad.
The midpoint of the company’s guidance still calls for a 1% decline in sales for the year. Honan said the company’s assumptions include 1% to 1.5% in downward price pressures and volume declines of 1% to 4%.
While the topline results were encouraging, the company reported a net loss of $22.8 million, an increase over a $3.5 million loss from the same quarter last year. Earnings dropped from a 7-cent loss per share last year to a 45-cent loss per share this year.
The results this quarter included a $15.9 million loss on debt extinguishment, higher interest expense and $8 million in added costs from an increase in starting wages.
“We’ve seen a drastic improvement in our pipeline of people,” Quadracci said. “Not just in getting bodies, but also in the quality of people coming in.”
Quad announced last fall that it would increase starting wages in competitive markets by $3 per hour. Honan said the increase, along with investments in automation, would help the company improve its productivity and earnings performance throughout the year.
“We’ve made a lot of investments into our platform in terms of automation, but we’ve also … made significant investments into starting wages in very competitive wage markets in our plants,” Honan said.
“That has had the result of reducing turnover in our facilities and getting us to more full employment levels, which in turn, with our training and our education of those employees, is allowing us to drive productivity through those facilities,” Honan added. “It is not a light switch; it takes some time to come around.”
