Printer Transcontinental Takes Loss Amid Soft Market

Transcontinental Inc. generated $604.1 million in revenue during first-quarter 2009, up from the $596 million it realized in first-quarter 2008. But the company’s operating costs, which a year earlier had been 74.3% of its revenue, jumped to 78.1%. The company reported a net loss of $6.4 million, compared with $34.1 million a year ago. The quarter ended Jan. 31.

The revenue gain was due to acquisitions and the positive impact of paper prices and exchange rates. Absent these, the Canadian-based printer’s would have fallen by 10%, primarily due to cancellation, decrease or postponement of U.S. direct mail campaigns by financial institutions and car manufacturers, according to the company’s financial papers.

The company has instituted a series of cost-savings measures, including a round of layoffs. Fifteen hundred people – roughly half of whom are based in the U.S. – are being let go. Additionally, senior managers agreed to work for two weeks without pay, an action roughly equivalent to a 4% pay cut – 10% for the board chair and CEO. Board members have agreed to freeze their retainers.

Transcontinental attributed much of its net loss to “negative organic growth” – underperformance of ongoing businesses from last year.

“These measures, combined with several new contracts that take effect in 2009, will put us in a better position in the second half of the year,” said Francois Oliver, the company’s president and CEO, in remarks that accompanied the company’s financials.

One of these is a contract renewal with Rogers Communications, a six-year, $150 million agreement that locks up Rogers’ direct marketing business with Transcontinental.

The Gossip’s Take: The renewed agreement to produce Rogers Communications’ direct marketing pieces followed a new, six-year, $210 million agreement to start printing Rogers Communications magazines, which took place last month. The latter contract was a win from Quebecor. During each of the next six years, Rogers will account for $60 million of Transcontinental’s annual revenue – but as Transcontinental pulled in $2.4 billion during 2008, this doesn’t represent a disproportionately large percentage of the firm’s sales. On the downside, the financials boast of construction work on a plant earmarked for printing the troubled San Francisco Chronicle newspaper. Ouch!