Journalism woes prompt Transcontinental to eye big acquisitions for packaging firms

Transcontinental Inc. is ready to spend more than $1 billion to purchase packaging companies that would diminish the role of commercial printing that has been the cornerstone of the company since its founding 40 years ago.

“I think in 2018 we will have opportunities to deploy capital in acquisitions, a lot more than in 2017,” CEO Francois Olivier said following the company ’s annual meeting.

With no debt, he said Canada’s largest commercial printer has the financial flexibility to make a large transformational deal that would allow flexible packaging revenues to surpass printing for the first time.

It can purchase a company that generates up to $1 billion of annual revenue and $150 million in EBITDA (earnings before interest, taxes, depreciation and amortization), he said. “It’s obvious that we have the means to make large acquisitions,” Olivier told reporters.

Transcontinental entered the packaging industry four years ago as part of its efforts to become less reliant on newspapers and magazines that are being hammered by lower advertising revenue as readers move to digital platforms.

Olivier said its targets are mainly in the United States where the large population provides demand for food and pharmaceuticals that are the biggest users of packaging.

Transcontinental is in the process of selling its remaining regional general newspapers, which could be completed in a couple of months.

That will leave its media business with educational book publishing, business and specialty publications that are not reliant on advertising and are poised for growth.

Media is expected to account for five per cent of Transcontinental revenues in 2018, down 29 per cent in 2014.

Even though it is getting out of the general news business, Olivier criticized the federal government’s budget proposal as “missed opportunity.”

The federal government plans to provide $50 million over five years to support “local journalism” in under-served communities and explore new models to support “non-profit” journalism.

“What they proposed to me is kind of saying we’re going to wait for you to die and when somebody dies and there’s no paper there then we’ll do something,” Olivier said.

Despite transferring printing of the San Francisco Chronicle at its plant in Freemont, Calif., to Hearst, Calif., Olivier defended Transcontinental’s efforts a number of years ago to build a newspaper printing model in the U.S.

“We had a great business model and a great idea. It’s just that the U.S. newspaper industry shrunk by about 50 per cent and obviously there was less need for printed copy.”

Earlier, Transcontinental beat expectations as its first quarter net earnings grew 36 per cent to $58.2 million despite lower revenues caused by the sale of newspapers in Atlantic Canada and Quebec.

The company said it earned 75 cents per share for the period ended Jan. 28, up from 55 cents per share a year earlier when net profit was $42.7 million.

Excluding restructuring costs, asset impairments and the impact of U.S. tax reform, adjusted earnings were $48.6 million or 63 cents per share. That’s up 17.7 per cent from $41.3 million or 53 cents per share in the first quarter of 2017.

Net revenues were $501.7 million, down from $503.6 million a year earlier.

Transcontinental was expected to post 56 cents per share in adjusted profits on $476 million of revenues, according to analysts polled by Thomson Reuters.