Transcontinental predicts turnaround by mid-2006

Printer and publisher Transcontinental Inc., hit by a 21-per-cent profit drop in the third quarter of 2005, says it expects to see a turnaround in fortunes by the middle of fiscal 2006.

Yesterday, the company revealed the soft results that it had previewed a few weeks ago when it warned that full-year 2005 profit will be 5 to 10 per cent below the bottom end of its earlier estimates.

In the quarter ended July 31, Transcontinental saw its revenue grow 6 per cent to $531.3-million, but profit fell to $27.5-million from $34.7-million. Share profit fell to 31 cents from 39 cents.

In the first three quarters of the year, profit dropped 6 per cent to $94.4-million ($1.06 a share) from $100.4-million, while revenue grew 8 per cent to $1.6-billion.

The third-quarter numbers suffered from a softness in the commercial printing business, a foreign exchange hit from the high Canadian dollar, and disruptions caused by the reorganization and consolidation of some of its plants.

Transcontinental is installing new equipment at printing plants in Owen Sound, Ont., and Boucherville, Beauceville and Louiseville, Que. It is also consolidating its U.S. direct marketing organization from four plants into one in Pennsylvania.

Chief executive officer Luc Desjardins, on a conference call with analysts, said the firm had faced "a challenging quarter on many fronts." It underestimated disruptions from the new installations, he said, but expects the investments to pay off over the long term.

In an interview, chief financial officer Daniel Denault said the company has no control over the factors that have hit commercial printing prices, but it will be able to ensure that the changes to its plants in Canada and the United States are completed as soon as possible.

By the second quarter of 2006, most of the reorganization should be complete and the company should be back on track, he said.

Transcontinental stock dropped 7 per cent after it issued its profit warning on Aug. 24, and has languished under $24. It closed yesterday up 45 cents to $23.95.

Mr. Denault noted that trading volumes have been normal in the past few weeks, and suggested that long-term investors stayed with the company even after the profit warning.