Quad Reports 4Q, Full-Year 2018 Results

Quad/Graphics, Inc. reported results for its fourth quarter and full year ending Dec. 31, 2018.
 
Quad increased full-year 2018 net sales 1.5% to $4.2 billion, with integrated services revenue now accounting for approximately 20% of net sales. The company achieved full-year 2018 net earnings of $8 million, diluted earnings per share of $0.16, non-GAAP adjusted diluted earnings per share of $1.79, and full-year 2018 non-GAAP adjusted EBITDA and adjusted EBITDA margin of $415 million and 9.9%, respectively.
 
Quad generated cash flow from operations of $261 million and free cash flow of $164 million for full-year 2018, which reflects the company’s decision to increase long-term strategic investments. It reduced debt and capital leases by $24 million during 2018 and debt leverage ratio to 2.11x, net of excess cash, which is at the low end of company’s long-term targeted range of 2.0x to 2.5x.
 
“2018 was a truly pivotal year in our Quad 3.0 transformation as reflected by last week’s announcement to evolve our brand from Quad/Graphics to Quad,” said Joel Quadracci, chairman, president and CEO of Quad. “While maintaining our focus on preserving our high-quality, low-cost producer status, we made strategic investments to accelerate our transformation as a marketing solutions partner by acquiring Ivie & Associates, increasing our investment in Rise Interactive to majority ownership and, in January 2019, acquiring Periscope. Our integrated services revenue, including Periscope, has grown to approximately 20% of our net sales and represents over 40% growth since 2017.
 
“Our Quad 3.0 strategy creates more value for clients by expanding our offering beyond print and content production to include an integrated stack of higher margin marketing services, which, in turn, drives incremental revenue across our print product categories,” Quadracci added.
 
“We expect to complete the acquisition of LSC Communications in mid-2019,” Quadracci said. “We remain enthusiastic about the value this transaction will create for all clients and shareholders. This business combination will enhance our highly efficient print platform to fuel our Quad 3.0 transformation and strengthen the role of print in a multichannel media world.”
 
In the fourth quarter of 2018, net sales increased 1.5% during the fourth quarter 2018 to $1.2 billion, reflecting the impact of the Ivie & Associates and Rise Interactive investments as part of Quad’s continuing transformation as a marketing solutions partner. Organic sales declined 4.6% for the quarter after excluding acquisition sales impact of 4.3%, increased pass-through paper sales of 2.5%, and a 0.7% unfavorable foreign exchange impact. The organic results reflect ongoing print industry volume and pricing pressures and are consistent with the company’s expectations.
 
Net sales increased 1.5% during the year ended Dec. 31, 2018, to $4.2 billion. Organic sales declined 3.8%, as expected, after excluding acquisition sales impact of 4.3%, increased pass-through paper sales of 1.4%, and a 0.4% unfavorable foreign exchange impact, reflecting ongoing print industry volume and pricing pressures.
 
Net cash provided by operating activities was $261 million for the year ended Dec. 31, 2018, compared to $344 million in 2017, and free cash flow was $164 million as compared to $258 million. Free cash flow decreased due to the company’s long-term strategic investment decisions to increase capital expenditures in manufacturing automation, increase wages for hourly production employees in the company’s most competitive labor markets, and transaction-related costs for the pending acquisition of LSC. Additionally, given paper supply pressures, the company intentionally increased paper inventories to ensure uninterrupted client service.
 
“We are pleased to report that our Net Sales and Adjusted EBITDA full-year results were in-line with our expectations as we continued to invest in our business and execute on our strategic priorities for long-term growth and shareholder value,” said Dave Honan, EVP and CFO of Quad. “Our Debt Leverage Ratio, net of excess cash, was 2.11x as of Dec. 31, 2018, which is at the low end of our long-term targeted range of 2.0x to 2.5x. The strength of our balance sheet provides us with the ability to deploy our capital between investing back into our business, making strategic acquisitions and returning capital to our shareholders through our consistent dividend and share repurchases.”