Transcontinental hopes to win Target flyer contract initially printed in U.S.

MONTREAL – Transcontinental continues to vie for a contract to print Target’s Canadian flyers, even though the U.S. retailing giant will initially import the inserts from the United States.

“We’ll see if there will not be an opportunity for us later to have a relationship with them but at the moment we do not have a contract with Target to replace the volume of Zellers,” said chief executive Francois Olivier following the media company’s annual meeting Wednesday.

Transcontinental Inc. (TSX:TCL.A) fell short of analyst estimates in the first quarter as it felt the effects of losing Zellers’ flyer business. Despite this, it showed year-to-year improvements in income and revenue and plans to issue a special dividend to shareholders.

The Montreal-based printing and publishing company went from a year-earlier loss to $17.8 million or 23 cents per share of net profit in the quarter.

In terms of adjusted earnings, there was a less dramatic improvement to $28.5 million or 37 cents per share.

That was a penny short of the consensus estimate compiled by Thomson Reuters.

Revenue for the quarter ended Jan. 31 was also less than analysts expected at $528.7 million, although it was up 8.4 per cent from a year earlier.

Transcontinental shareholders may be heartened, however, by a special dividend of $1 per participating share that the company will issue in the second quarter at a total cost of $78 million.

Olivier also confirmed Wednesday that the company has no intention to buy the specialty television channels that will soon become available following Bell’s (TSX:BCE) purchase of Astral.

“We have had an interest for some of the Astral channels that were close to our niche magazines, but unfortunately for us, the channels that are available are primarily in the youth niche, an area that we don’t currently have,” he said.

Transcontinental mainly publishes magazines directed at women such as Elle Quebec.

Under a recent agreement with the Competition Bureau, Bell can retain eight of Astral’s specialty channels. Corus (TSX:CRJ.B) will buy five channels while six others will be put up for sale, including Musimax and MusiquePlus.

Transcontinental launched television production services last year.

“For us, it is a complement. It is not central to our strategy and we do not intend to become a major player in television production,” Olivier added.

He welcomed the Competition Bureau’s intervention, which will ensure that Bell will be less dominant than it would have been if the first version of the transaction with Astral was accepted by the Canadian Radio-television and Telecommunications Commission (CRTC).

“This is good news. There will be another player which will be arriving in Quebec: Corus,” said Olivier. “This is a good thing to have some diversity.”

Transcontinental says its revenue for the three months ended Jan. 31 was boosted by acquisitions but partially offset by the termination of a flyer contract due to the closure of the Zellers stores.

Adjusted operating income was $45.7 million, up 6.3 per cent from $43 million, mainly due to efficiencies from the acquisition of the Quad/Graphics Canada printing business and its digital activities.

Olivier said the company’s printing sector is expected to continue improving its profitability as it integrates the former Quad/Graphics printing business and the addition of new multi-year agreements valued at $30 million a year.

Transcontinental, which publishes a variety of consumer magazines and newspapers, as well as websites, said its media sector will continue to be affected by difficult conditions — especially in regards to advertising spending.

In the year-earlier quarter, Transcontinental had $487.6 million of revenue, a net loss of $33.3 million or 41 cents per share and adjusted earnings of $27.1 million or 33 cents per share.

The net loss or 41 cents per share in the first quarter of fiscal 2012 was mainly related to unusual items.

On the Toronto Stock Exchange, Transcontinental shares closed up four cents at $12.50 in Wednesday trading.