Quad Reveals Plans to Sell $200M Book Printing Platform Amidst Dismal Q3 Report

Joel Quadracci

Just two days short of a year after Quad Chairman, President, and CEO Joel Quadracci first announced the proposed $1.4 billion, all-stock acquisition of LSC Communications and described it at the time as a “defining moment” in Quad’s 47-year history, the printing industry behemoth is finding itself facing another defining moment as it attempts to further execute its Quad 3.0 transformation strategy.

On Oct. 29, Quad reported a third quarter 2019 net loss; cut its quarterly shareholder dividend payout in half (from 30 cents to 15 cents per share); lowered its full-year guidance; announced an additional $50 million cost reduction initiative; and revealed plans to sell its U.S. book manufacturing platform, which generates approximately $200 million in annual revenues.

Quad’s book printing business encompasses manufacturing operations in Kentucky, Pennsylvania, and West Virginia, employing a total of approximately 1,350 full- and part-time workers. U.S. book publishers, it appears, aren’t considered by Quad to be big enough targets for its omnichannel services that extend beyond print. The divestiture plan does not include Quad’s book manufacturing operations in Latin America. However, the announcement does come on the heels of Quad selling its Transpak industrial wood crating business, located in a 300,000-sq.-ft. plant in Franklin, Wis., in early September to FCA Packaging for approximately $11 million.

The company indicated that it is in active discussions with potential buyers for its U.S. book printing platform and wants to complete the sale as soon as possible to help eliminate uncertainty for clients, employees, and within the local communities where the book plants operate.

Its three U.S. book manufacturing facilities were all acquired as part of Quad’s 2010 acquisition of Worldcolor. Specifically, they include:

  • The Versailles, Ky., plant employs approximately 700 employees. The 1 million-sq.-ft. facility specializes in educational textbooks and trade books.
  • Quad’s 370,000-sq.-ft. Fairfield, Pa., facility employs approximately 300 people and specializes in trade books.
  • Its Martinsburg, W. Va. (Baker Road) plant produces trade and mass-market books. The 380,000-sq.ft. facility employs roughly 350 workers. Quad operates two manufacturing facilities in Martinsburg. The company’s other facility (located on Caperton Boulevard) primarily prints magazines, catalogs, and retail advertising inserts, and is not impacted by the decision to sell its book business.

“This decision makes sense as we look at our business through the lens of our Quad 3.0 transformation strategy,” said Quadracci, in a statement to the media. “We are making bold decisions to accelerate our transformation through investments in our business that will drive long-term growth and shareholder value, and provide us with the ability to take advantage of opportunities in the rapidly changing print industry.”

Potential Suitors for Quad’s U.S. Book Printing Business?

According to the 2018 Printing Impressions 400 ranking of the largest printers in North America as ranked by annual sales (access the complete list by clicking here), Sussex, Wis.-based Quad is the second largest book printer, second only to Chicago-based LSC Communications, which reported more than $1 billion in book sales. It should also be noted that book printing powerhouse, the CJK Group, of Brainerd, Minn., is privately held and does not reveal its financials, so does not appear on the Printing Impressions 400 list. But one could surmise that CJK Group — which is led by CEO Chris Kurtzman and has been an active acquirer in the book manufacturing market, including the assets of Thomson-Shore, most recently — is on the short list of potential suitors.

It would, likewise, be an ironic twist of fate for Quad to sell its book platform to LSC Communications, especially following its failed acquisition of LSC that was called off July 23, 2019, due to a decision by Quad not to fight an antitrust lawsuit filed by the Department of Justice (DOJ) to block the acquisition. As a result, Quad also had to pay LSC a $45 million reverse termination fee that was written into their original merger agreement (total LSC-related payments actually amount to $60 million, according to Quad’s financials). With that said, however, LSC’s weak Q2 earnings report, including declines in its core businesses, an amended credit facility, and the suspension of its shareholder dividend payout entirely, makes it an unlikely acquirer, given its current debt load.

Other Q3 Results and Actions Being Taken by Quad

Quad financial results for the three months ended Sept. 30, 2019, included:

  • Net Sales (excluding discontinued operations) — Net sales were $944 million in 2019 as compared to $974 million in 2018, down 3.1%. Organic sales declined 4.3% during the quarter, after excluding sales related to the January 2019 acquisition of Periscope. The organic results benefitted from new sales generated from Quad’s 3.0 transformation strategy, which were offset by the ongoing print industry volume and pricing pressures, and a negative 0.5% impact from foreign exchange.
  • Net Loss Attributable to Quad Common Shareholders — Net loss attributable to Quad common shareholders was $126 million in 2019, or $2.52 diluted loss per share, as compared to net earnings of $23 million in 2018, or $0.46 diluted earnings per share, and includes a $79 million loss on discontinued operations. Net loss from continuing operations was $47 million, or $0.94 diluted loss per share, as compared to net earnings from continuing operations of $27 million, or $0.56 diluted earnings per share.
  • Adjusted EBITDA (excluding discontinued operations) — Adjusted EBITDA was $80 million in 2019, as compared to $107 million in 2018, and Adjusted EBITDA margin was 8.4% in 2019, as compared to 11.0% in 2018. The variance to prior year primarily reflects $8 million of strategic investments made to increase hourly production employees’ wages, $8 million from the reduction in market price for paper byproduct recoveries, and the impact from the organic sales decline of 4.3%.

Quad also updated its full-year 2019 guidance to exclude the discontinued operations of the book business and to reflect what it described as “updated business trends from weakening market prices for paper byproduct recoveries, and the timing of productivity improvements from wage increases.”

Mark Michelson is the Editor-in-Chief of Printing ImpressionsServing in this role since 1985, Michelson is an award-winning journalist and member of several industry honor societies. Reader feedback is always encouraged. Email mmichelson@napco.com

Publish date: October 31, 2019 https://dev.adweek.com/media/quad-reveals-plans-to-sell-200m-book-printing-business/ © 2020 Adweek, LLC. - All Rights Reserved and NOT FOR REPRINT