Transcontinental Inc
TSX:TCL.A
US |
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
|
US |
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
|
US |
Bank of America Corp
NYSE:BAC
|
Banking
|
|
US |
Mastercard Inc
NYSE:MA
|
Technology
|
|
US |
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
|
US |
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
|
US |
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
|
US |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
|
US |
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
|
US |
Visa Inc
NYSE:V
|
Technology
|
|
CN |
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
|
US |
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
|
US |
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
|
US |
Coca-Cola Co
NYSE:KO
|
Beverages
|
|
US |
Walmart Inc
NYSE:WMT
|
Retail
|
|
US |
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
13.24
18.11
|
Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
Johnson & Johnson
NYSE:JNJ
|
US | |
Berkshire Hathaway Inc
NYSE:BRK.A
|
US | |
Bank of America Corp
NYSE:BAC
|
US | |
Mastercard Inc
NYSE:MA
|
US | |
UnitedHealth Group Inc
NYSE:UNH
|
US | |
Exxon Mobil Corp
NYSE:XOM
|
US | |
Pfizer Inc
NYSE:PFE
|
US | |
Palantir Technologies Inc
NYSE:PLTR
|
US | |
Nike Inc
NYSE:NKE
|
US | |
Visa Inc
NYSE:V
|
US | |
Alibaba Group Holding Ltd
NYSE:BABA
|
CN | |
3M Co
NYSE:MMM
|
US | |
JPMorgan Chase & Co
NYSE:JPM
|
US | |
Coca-Cola Co
NYSE:KO
|
US | |
Walmart Inc
NYSE:WMT
|
US | |
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
[Foreign Language] Welcome to the Trans -- TC Transcontinental Second Quarter of Fiscal 2022 Results Conference Call. During the presentation, all participants will be in listen-only mode. Afterwards, we will conduct the question-and-answer session, and instructions will be provided at that time. As a reminder, this conference is being recorded today, June 8, 2022.
I’d like to turn the conference over to Yan Lapointe, Director, Investor Relations. [Foreign Language] Mr. Lapointe, please go ahead.
Thank you, Julianne, and good afternoon, everyone. Welcome to TC Transcontinental second quarter 2020 results conference call. Before we begin, please note that the press release, the MD&A, along with complete financial statements and related notes, as well as the slides supporting our prepared remarks are all available on our website at tctranscontinental.com under the Investor Relations section. A replay of this conference call will also be available on our website after the call.
We have with us today, our President and Chief Executive Officer, Peter Brues; and our Chief Financial Officer, Donald LeCavalier.
Before I turn the call over to management, I would like to specify that this conference call is intended for the financial community. Media are in listen-only mode and should contact Nathalie St-Jean, Senior Advisor, Corporate Communications for more information or interview requests.
Please be reminded that some of the financial measures discussed over the course of this conference call are non-IFRS. You can refer to the MD&A for a complete definition and reconciliation of such measures to IFRS.
In addition, this conference call might also contain forward-looking statements. These statements are based on the current expectations of management and information available as of today and they involve numerous risks and uncertainties, known and unknown. The risks, uncertainties and other factors that could influence actual results are described in the fiscal 2021 annual MD&A and in the latest annual information form.
With that, I would now like to turn the call over to our President and CEO, Peter Brues.
Thanks Yan. Good afternoon. Thanks for joining our call. First from a safety perspective, we were pleased to see our 12-month rolling injury rate decreased by 7%. Team continues to assess manufacturing risks, train coworkers and regularly communicate our commitment to it.
In terms of financial results, we were encouraged by the quarter. Following a disappointing Q1 where Omicron had a significant impact on our ability -- our operations ability to supply and manufacturer efficiently and where a lag and the pass through of inflationary increases had a negative impact on Packaging financial performance took actions to improve.
Packaging’s Q2 performance was solid, benefiting from the teams work to ensure a secure supply of raw materials and open communication customers during struggles, sales increase with particularly strong growth in meat and cheese.
Profit increased due to the volume growth though this was partially offset by the lag in inflationary cost pass-throughs. To be clear, earnings increased each month and the full benefit of inflationary cost pass-throughs will be [Audio Gap]
The R&D and commercial teams continue to progress, commercialized recycle ready, post consumer recycled and compostable solutions. We continue to commercialize PCR shrink films across our beverage customer base, recently closed the deal to supply Fem Care packaging with PCR content to a major FMCG company. We can be proud of the solid growth achieved by our Print business. That said, it was disappointing, not to see it converts to the bottomline.
As the in-store marketing business move to absorb a 22% organic increase in sales, profit was affected by three elements; first, the team was behind and passing through raw material and freight increases; second, the business experience manufacturing inefficiencies related to onboarding new customers; and lastly, we grew indirect cost needed to absorb smoothly volume increases anticipated. Having visited the ISM plant in May, I was pleased to see the team’s actions to ensure cost have been pass-through and to ensure volume growth in H2 is accretive.
Confirming our ability to grow newspaper and that flyers remain a vital part of advertising retail sales, we were pleased to finalize the deal to Print two major Western Canadian newspaper and to profitably expand a significant agreement.
Our Media business was in line with our expectations. The more time I spend with the team, the more impressed I am by the quality of our management and the quality of learning tools we provide to teachers and student. This is a business we should grow and the acquisition of Scolab further supports our customer offering by expanding our digital portfolio.
In conclusion, I appreciate the work the team has done to address the issues we faced at the beginning of the year, as well as the actions we have taken to continue to [Audio Gap] confidence that we are well positioned for the second half of the year.
Now, I will hand it over to Donald.
Thank you, Peter. Moving to consolidated numbers on slide five of the earnings call presentation. For the second quarter of 2022, we reported revenues of $623.3 million, an increase of $92 million or 15% versus the last period last year. This revenue growth was driven by higher volume in our two main sectors and by price increases, following the pass-through of higher raw material and inflationary costs to our customers and by acquisitions, H.S. Crocker in Packaging, BGI Retail in Printing, and Scolab in Media.
On the profitability front, consolidated adjusted EBITDA was at $103.6 million for the quarter, compared with $109.4 million for the same period last year. This decline of $5.8 million was mainly due to the Canadian wage subsidy of $7.5 million received in Q2 last year, partially offset by higher volume in our two main sectors and by the acquisitions I referred to earlier. Corporate cost declined from a lower share-based compensation expense due to the share price.
Despite the lower interest rates on our debt, financial expenses increase slightly, mainly from a currency loss. The tax rate was at 23.1%, leading to adjusted net earnings of $0.48 per share for the quarter.
Now moving to slide six for the sector review. Packaging, we recorded organic revenue growth of $55 million. This growth was mainly due to the pass-through of higher raw material prices and other inflationary cost in addition to volume growth of about 5%.
In the face of continued supply chain challenges, we remain focused on ensuring continuity of supply and on supporting our customer’s growth. Generating this level of volume growth reflects the solid demand for our products. Finally, the acquisition of H.S. Crocker early in this fiscal year contributed $19 million of revenues in Q2.
In terms of profitability, adjusted EBITDA in Packaging grew by $3.2 million or 6.5% as the pricing actions we have taken allowed us to mitigate higher cost. The increase also includes higher volume and the contribution of $1.5 million from the H.S. Crocker acquisition. When compared with Q1 2022, adjusted EBITDA grew by $13.5 million, highlighting the effects of higher volume and the benefit of the action we implemented.
On slide seven, you can see that Printing had a fifth consecutive quarter of organic growth, with $15 million of revenue growth versus Q2 last year. The growth came mainly from our in-store marketing and book printing businesses where we saw double-digit growth, and to a lesser extent, from the pass-through of higher raw material prices and other inflationary costs. In addition, last year’s acquisition of BGI Retail contributed $9 million of revenue for the quarter.
Printing adjusted EBITDA for the quarter was $54.7 million, which was below the $67.3 million in Q2 2021. The decline was mainly due to the $7 million in wage subsidy we received last year and from the lag in recovering inflationary cost increases. The decline is also related to the additional cost in our in-store marketing activities related to on boarding new business and building capacity to further growth. The sector’s adjusted EBITDA margin for the quarter was at 18.7%.
Turning to cash flow, we generated $106 million in cash flow from operating activities before changes in our non-cash items and income taxes paid in line with last year at $106.1 million. We continue to maintain higher inventory as we prioritize the security of a supply to support our customer’s growth.
Consecutively, we had a working capital usage in the quarter of $16.5 million versus a usage of $9.2 million for the same quarter last year. Cash taxes were at $15.1 million, compared to $13.6 million in the prior year.
Our investments and CapEx at $34.8 million were in line with our expectations. These investments are key to capturing growth opportunities.
At the end of the quarter, our net debt ratio was at 2.35 times, similar to the previous quarter at 2.34 times, as we use the cash flow from operating activities to finance our capital investments and the acquisition of Scolab in our Media sector. We continue to expect the ratio to decrease back to around 2 times in the coming quarters, given our improving profitability and free cash flow generation.
Despite our CapEx and other investments, we continue to maintain a strong financial position with $407 million of available liquidity at the end of the quarter. Finally, we distributed $19.6 million in dividends.
As for the outlook, we are starting to benefit from the positive impact of pricing and other actions taken in the last month to improve profitability and we are encouraged by the results. We look forward to improve second half of the second year and remain committed to deliver on our fiscal year 2022 outlook.
In Packaging, we expect to generate organic growth in fiscal 2022. We also expect profitability to improve in the second half of the year.
Print, solid growth is coming from our ISM book printing and pre-media activities, and we expect higher revenues and higher adjusted EBITDA, in fact, in the fiscal 2022, when excluding the 53rd week of 2021 and the impact of the wage subsidy. We expect corporate costs at EBITDA level to be around $40 million for the year.
Regarding the use of cash for the year, we will continue to invest significantly in our future through our CapEx program and pursue potential acquisitions. As mentioned last quarter, CapEx in fiscal year 2022 is likely to be similar to 2021, contingent on the timing of key investments. We expect our tax rate will continue to be in the mid-20s and we expect cash taxes to be close to $80 million for the year, reflecting the higher than usual cash tax in Q1 2022.
On that note, we will now proceed with the question period.
Merci. [Foreign Language] Thank you. [Operator Instructions] And our first question comes from Hamir Patel from CIBC Capital Markets. Please go ahead. Your line is open.
Hi. Good afternoon. Peter, on the Printing side, just given some of the large cost increases you are having to pass along to your customers. Are you starting to see any signs that those customers might be looking to reduce page count or circulation?
Thanks for the question, Hamir. Let’s say, so first from a Print perspective, our paper prices are locked in for periods of time. So it’s not something where we are seeing [Audio Gap] So when we are talking about inflationary price increases also passing through freight, it’s more in the ISM and book side of the business, where it’s not contracted at the same. So in terms of changing page count of circulation, it’s not something that’s being impacted by any change.
Hey, Peter. Thanks. That’s helpful. I guess, I am curious, though, on the newsprint side, how long does that contractual protection last, because we have seen in the spot market a very significant move higher in pricing for grass [ph] papers?
Good question. So, that period will be renegotiated in the New Year. So we are position up and in terms of general inflationary increases, they can -- they adjust contractually, but it depends on the timing of...
Okay. Great. Thanks. That’s helpful. And just so last question I had was again about some of the pass-throughs across the business. Are there any caps on inflation in some of those arrangements, and if so, how meaningful are those and what’s the timing as to when you can maybe adjust those at renewal?
Yes. There can be caps on, and currently, as we renegotiate contracts, we are looking caps and [Audio Gap]
For that the caps on mostly on the Printing side of the business, but contract that, you talk a deposit about the pass through clauses that we have in contract on the Packaging side. Most of them don’t have caps. So therefore any increase, the only impact we will receive will be [Audio Gap] months before we can pass this increase to the client.
Great. Thanks. Thanks a lot. That’s all I had. I will get back in the queue.
Our next question comes from Mark Neville from Scotiabank. Please go ahead. Your line is open.
Hi. Good afternoon. In terms of the pricing adjustments in Packaging, I am just curious and trying to get a sense of where you are at, if you are sort of fully caught up and you sort of see the full benefit in fiscal Q3 or if this takes a couple of more months and sort of it’s a Q4 event. Just trying to get a sense of where that’s?
There are a lot of raw materials, but if we are focused, let’s first talk from a polyethylene perspective and polyethylene went up significant last year, stayed flat for a bit, declined slightly and now has gone up slightly and in the last two months, it is kind of maintaining flat. So from a polyethylene perspective, you [Audio Gap] it’s been absorbed for the business and pass-through as we move on into Q2.
What we saw in Q1 that was important is that in non-contractual side of our business, in a specific segment, we haven’t pass-through significant increases as we had seen in polyester, behind in doing that. So there was action taken at the end of the quarter to move that on. We saw a part of that benefit in the quarter but we will see the full benefit of reacting to that in Q3.
I’d also add from an inflation -- now we have been talking about raw materials from the Packaging perspective in contrast the Print where there can be a CPI Index in most contracts in Packaging you don’t usually see for outside raw material inflationary. But we have been doing is moving to the market and doing outside of contract inflationary cost increases. The results of which, we saw a partial benefit in Q2 and that in Q3.
All right. And the cost increases outside of raw materials, so just maybe freight, labor, energy, would that be, I mean, I am just curious sort of, I assume it’s fairly easy environment to push that through, but sort of curious to this customer reaction?
I think that -- I think, first, what I’d say is that, for all of us, both customers and ourselves, we haven’t seen inflation like this in 40 years. So, I think, as a result, we initially were slower than we would have liked to react to it.
I think customers are also experiencing inflationary environment and as you and I experience when we go to the grocery store, you can see that our end customers are pushing [Technical Difficulty]
Yeah. Yeah. Got it. Maybe just in terms of, you mentioned in the prepared remarks, Peter, some new contracts in Print. I am just curious, will they all be incremental and if there is some rough numbers you could maybe help us with in terms of sales dollars or anything that you can help us...
Yeah.
… with there? Thanks.
Sure. So, first, the reason I talked to two, one is that, when I started working with the team, I really felt that we should be the last people standing from a newspaper and flyer perspective in Canada.
We have an exceptionally strong base, and for me, we aren’t -- the strategy was to be the last people standing and we are not the last people standing. So the challenge to the team has been we have build the opportunity to grow newspaper instead of talking about something that’s shrinking.
The reason I highlighted getting a couple of newspapers, first, they are important newspapers and we secured base business in addition growing. It’s -- and the materiality of it, frankly, is not substantial. That said, it’s an indicator to the team that we are working, so, yes it’s accretive. It’s measured in under $5 million in EBITDA.
That said, it indicates our capability of continuing to grow and reminds the team of the importance of growing. From a retail perspective, we are talking about an account that’s more than $100 million a year in sales and we were able to profitably grow with the account.
Thank you.
Our next question comes from Adam Shine from National Bank Financial. Please go ahead. Your line is open.
Thanks a lot. Good afternoon. Obviously, Q1 had a lot of pent-up demand. It seems like you worked through a lot of the backlog, I guess, is a better expression, into the Q2. Peter, can you speak to some of the evolving demand going into the second half, the sort of the line of site and perhaps the presumption that maybe not necessarily 5% volume growth in the H2, but certainly something nicely robust in the low-single digits? And then, I will follow up with something.
So, yes, there was a backlog in certain segments coming out of Q1 and we continue to see a backlog. That said, I think, to say that we will continue at 5%, I wouldn’t want to and that we would be more. But really pleased with the work the team has done. The interactions they had with our struggles in Q1, the direct communication with our customers, that was excellent and the result is, we are being compensated by continue to [Audio Gap] Still a lot of work ahead of us. I don’t want to pretend segments in terms of having access to raw materials and that continue and I think the team’s [Audio Gap]
How much for dynamic is shrinkflation in terms of the business and your need to perhaps adjust to changes in sizes of packaging that are being demanded by certain customers, certainly not all?
Yeah. We -- this isn’t something impacting our business. So, right now, the focus is primarily on moving to sustainable solutions. But in terms of downgaging a package, we are always working to downgage package, but in terms of actually shrinking the scale and seeing that as being a negative impact on our business is not [Audio Gap]
Okay. And just lastly, in terms of Publisac, obviously, we had some news flow during the period, but maybe you can just talk to sort of the volumes continuing, the distribution continuing, and perhaps, any thoughts on next steps, potentially maybe a little premature, nonetheless, but any quick comments around Publisac?
Sure. So Publisac being our distribution of flyers in Québec and there was a [Audio Gap] called Mirabel out of Montreal where they suggest they put in legislation requiring customers opt in to in flyers. We have challenged that in court. The court favored against us. We will be appealing that. It can be few days and we will appeal that.
That said, what I am extremely proud of is that decision was made on a Wednesday and the team was able to supply our customers flyers to consume without any delay the following week. So there was no change in our service and it was completely smooth.
And if I look at going forward and legislation has been put in place in Montreal. Team had been challenged to grow our flyer business, given that the flyer is exceptionally important as a marketing tool to our customers and in an inflationary environment, it’s exceptionally important to consumers. And so the team challenged when we look across Canada outside of Québec, we have seen a decline in flyers as we have seen in the newspaper.
And so the challenge for us has been while we don’t want to massive distribution across Canada, we do want to make sure our customers have the ability to [Audio Gap] wherever they maybe, because it has.
So the team has been working for over, I’d say, about 12 months now on how we can increase outside of Québec and the work that they have done positioned us really well, as we look for alternatives, should we need alternatives to Publisac. We are well positioned to providing the service [Audio Gap] So really pleased about what happened in Mirabel, we are really pleased at the progress the team’s doing and [Audio Gap]
Okay. Thanks a lot, Peter. Appreciate it.
Our next question comes from Sid Dilawari from Cormark Securities. Please go ahead. Your line is open.
Yeah. Hi, guys. Thanks for taking my question. In your prepared remarks you talked about the Packaging segment experienced above 5% volume growth from new business. Just a little bit deeper into this, how is the pass-through mechanism on this new business and like you also talked about some of the pass-through of this inflationary costs being passed on to the customer at the end of the quarter. So can we expect to see the Packaging segment sort of return to normalized EBITDA margin level in the 14% to 15% range in the back half year?
Hi, Sid. Just to make sure, when you mentioned, it’s Donald speaking, the volume of 5% in the pass-through, when we said volume about 5%, this is excluding pass-through, so it’s pure organic growth. So the pass-through is not part of the 5%. So this is organic growth. And we…
Right. No.
Yeah. Okay. Just…
Sorry. Go ahead.
Yeah. And regarding margin, before I let Peter add on, finish for your question. If you look at the impact of all the increases we had to put on the pricing regarding inflation, raw material increases, margin it will be tougher to evaluate the margin in a future quarter, because it does play with, obviously, all the increases we are adding to our client and therefore the margin is not the best way that we track growth, it will be a pure EBITDA, and my comments when we say we should be better than last year was regarding the EBITDA and dollars. This is where we are looking forward to for the rest of the year. I let Peter to complete the answer.
So when you are asked of the 5%, I mean, I understand the question, the 5% growth is organic growth and the 5% growth is at pricing that reflects our raw material price -- prices in the current inflationary environment.
In terms of the impact of inflationary pass-throughs and some of the material increases that took place for one segment where we were slow to move on polyester. That was done at the beginning of the quarter. The full impact of which would only be [Audio Gap] so that’s specific to a polyester issue and it’s specific [Audio Gap]
Okay. Okay. Thanks. That’s helpful. And then maybe one for Donald. We saw inventories rising during the quarter. Is there something to unpack here in terms of stocking up or is it just inflationary to avoid input shortages or and how does this play into your COGS in the following quarters?
Well, yeah, it is first inflationary when you compare it to last year, because with the huge -- it also that for some product -- specific product, we want to protect ourselves. We have a lot of growth on the sales side. We want to make sure that some of our raw material or other products are available. Therefore, we have been a little more in the inventory.
This is something obviously we track with the team. We make sure that to be as much possible admission. We are confident to see some improvement over the rest of the year. But also that will depend of where the pricing on the raw material will go and this is something that we cannot have any view as we speak right now.
Okay. All right. Thanks. That’s it from me. I will pass the line.
[Foreign Language] [Operator Instructions] And we do have a question from Drew McReynolds from RBC Capital Markets. Please go ahead. Your line is open.
Yeah. Thanks very much. Good afternoon. On the retail flyer side, just with existing major retailers, we haven’t really talked about just coming out of COVID here and reopening, just what some of the trends and you are seeing in that core business. So if you could provide an update there, that would be great. And then secondly, maybe for you, Donald, I noticed, in the other revenue category, it was certainly well below what I was forecasting, I know it’s not a big number, but it does speak to inter-segment items impacting that, is that something you can just quickly address here or otherwise we can take it offline? Thank you.
I will start by answering the question in terms of circular volume. In terms of circular volume, what I’d say to you is it’s holdings steady. So we haven’t seen a significant change year-on-year in overall circular sales. And when we interact with our customers -- of how they view marketing interactions with our customers and a 10-fold benefit when you flyers as opposed to digital ones remains important to them.
As far as your question, it’s mainly transaction between our Printing Group and our Media Group. As you are aware, we print most of our books that we publish on the education side, so it’s more transaction for that group during that period. We are building inventory for the Media Group.
Okay. Okay. Got it. Thank you. And maybe one last one, Peter, you called out meat and cheese within packaging as certainly a particularly strong category, more broadly across the different sub categories that you do packaging in? Is there any other kind of trends to flag on that either kind of pockets of softness still or other pockets of strength or is it meat and cheese particularly strong and then nothing really notable across the rest of the categories?
It was pointed out because it was the most significant. I would say that meat and cheese is strong, beverage remains strong, especially with the work we are doing from a recycle content, seeing strength there.
I’d say the only part of the business where we are experiencing some weakness is from a Latin American perspective. You will appreciate that given the certain strength that there is about 8% of the world’s consumption of bananas is in Russia and 25% of and Ecuador does -- is the exporter -- primary exporter to Russia.
25% of their production exports goes to Russia and that caused banana prices to be impacted and there to be pressure on the LatAm, so the banana packaging side of the business, so there is some pressure there. It’s not massive, but it’s something to be aware of. So if I am looking at from a pure growth perspective, that part of the business is relatively flat, where we would have export [Audio Gap]
Got it. Thanks for that added color. Thank you very much.
[Foreign Language] Mr. Lapointe, there are no further questions at this time.
So, thank you everyone for joining us today on a call and we look forward to speaking to you soon.
[Foreign Language] Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. You may now disconnect your lines.