Quad/Graphics, Inc. (NYSE: QUAD) (“Quad/Graphics,” “Quad” or the “Company”) today reported results for its third quarter ending September 30, 2018. For full financial results, please see the accompanying information.
• Increased third quarter 2018 net sales 2.4% to $1.0 billion.
• Increased third quarter 2018 net earnings by 18% to $23 million and improved third quarter diluted earnings per share by 21% to $0.46.
• Achieved third quarter 2018 Non-GAAP Adjusted EBITDA and Margin of $105 million and 10.2%, respectively, and generated third quarter 2018 Non-GAAP Adjusted Diluted Earnings Per Share of $0.45.
• Narrows full-year 2018 guidance for net sales to be approximately $4.2 billion, Adjusted EBITDA of $410 million to $430 million, and Free Cash Flow of approximately $200 million.
• Announces acquisition of LSC Communications (“LSC”), a leader in print and digital media solutions.
• Declares quarterly dividend of $0.30 per share.
“Our third quarter results were in-line with our expectations, and reflect our consistent, disciplined focus to sustainably reduce costs, win profitable new business and expand our relationships with existing clients as we continue to strengthen our integrated marketing solutions offering,” said Joel Quadracci, Chairman, President & CEO of Quad/Graphics. “The acquisition of LSC is a natural and strategic fit, and will help us further strengthen the role of print, which is a proven and trusted media form in today’s multichannel world. When combined, our companies’ complementary platforms will be operated by the printing industry’s most experienced operators and innovators, providing our clients with flexibility and enhanced production and distribution efficiencies. As we move forward, we will continue to leverage our strong print foundation as part of a much larger, more robust integrated marketing solutions offering that not only helps clients plan and produce programs, but also physically execute and measure them across traditional and digital channels. Our offering helps clients reduce the complexity of working with multiple specialized agencies, while improving process efficiencies and enhancing marketing spend effectiveness. At a time of incredible media disruption, we remain confident in the value-creating potential of our integrated marketing solutions strategy.”
Net sales increased 2.4% during the third quarter 2018 to $1 billion, reflecting the impact of the Ivie & Associates and Rise Interactive investments. Organic sales declined 3.2% after excluding acquisition sales impact of 4.6%, increased pass-through paper sales of 1.6% and a 0.6% unfavorable foreign exchange impact. The organic results reflect ongoing print industry volume and pricing pressures and are consistent with the Company’s expectations. Net earnings attributable to Quad/Graphics common shareholders increased 18% during the third quarter 2018 to $23 million, and diluted earnings per share improved by $0.08 to $0.46 compared to $0.38 in 2017. Third quarter 2018 Non-GAAP Adjusted EBITDA was $105 million compared to $113 million in the third quarter of 2017, and Adjusted EBITDA Margin was 10.2% compared to 11.2% in 2017. Non-GAAP Adjusted Diluted Earnings Per Share for the third quarter 2018 was $0.45 per share compared to $0.46 per share in the third quarter 2017.
Net sales increased 1.5% during the nine months ended September 30, 2018. Organic sales declined 3.6% after excluding acquisition sales impact of 4.3%, increased pass-through paper sales of 1.0% and a 0.2% unfavorable foreign exchange impact, reflecting ongoing print industry volume and pricing pressures. Net earnings attributable to Quad/Graphics common shareholders for the nine months ended September 30, 2018, decreased $23 million to $29 million, or $0.57 per share, and included a special non-cash charge of $22 million for an employee stock ownership plan contribution as part of the benefit of tax reform and $18 million in higher restructuring charges. Excluding the special contribution and restructuring charges, Non-GAAP Adjusted Diluted Earnings Per Share improved 3% to $1.26 per share during the nine months ended September 30, 2018, compared to $1.22 per share for 2017. Year-to-date Non-GAAP Adjusted EBITDA was $305 million compared to $326 million for 2017, and Adjusted EBITDA margin was 10.1% compared to 11.0% in 2017, reflecting the aforementioned pass-through paper sales and volume and pricing pressures.
Net cash provided by operating activities was $47 million for the first nine months of 2018 compared to $180 million in 2017, and Free Cash Flow was negative $38 million. The year-over-year decline was primarily attributable to expected timing differences in 2018 versus 2017 for cash generated from working capital which includes an intentional build-up of paper inventories that will be reduced in the fourth quarter. As a reminder, the Company generates the majority of its Free Cash Flow in the fourth quarter of the year, which is its seasonal peak.
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