By Ann Levine July 30, 2004 -- Quebecor World, Inc. (NYSE: IQW) reported net income of $50 million or $0.31 per share as compared to a net loss of $1 million or $0.07 per share for the same period last year. Operating income for the quarter was $108 million up from $39 million for the year ago period. Consolidated revenues were reported at $1.54 billion, up slightly from $1.51 billion. Topics of this summary: Quarterly Overview Global Performance Guidance Q & A Quarterly Overview Quebecor continues to pursue its plan to reduce cost and create greater efficiencies. Rigorous attention to cost produced SG & A expenses were reduced by 14% compared to Q2 a year ago. The reduction is due to lower discretionary spending, and workforce reductions. A focus has also been on Quebecor’s manufacturing platform and capital investments. As a result, the company closed one of its magazine facilities in Illinois and downsized operations at a book printing facility in Tennessee. These actions will affect over 1300 jobs, but there is an expectation that over 450 additional jobs will be created in other facilities, with a net reduction of about 900 employees. The company is undertaking a strategic investment plan in purchasing 22 new offset presses over 2005-2007 for the magazine and book platforms. The plan is thought to be capacity neutral as the company dismantles some presses and idles others. The plan is expected to cost $300 million over the next three years with 1/3 of the equipment coming on line in 2005. The ROI on the investment is sufficiently more than the cost of capital to provide an adequate return to shareholders. Global Performance In North America the print market witnessed some improvements, however this segment suffered from pricing pressures across the board. Operating income increased to $96 million as compared to $43 million for the same period a year ago. Revenues dropped 1% to $1.19 billion, compared to $1.20 billion for the year ago period. There was year over year improvement primarily due to cost reductions. In the magazine segment, consumer ad pages grew 4%. There were 400 new launches this quarter which is on par with last year. The company is looking for increased growth in the second half of the year. Catalog prices remained stable with flat volumes. Catalogs saw significant contract renewals during the quarter. Retail segment revenues increase 3% and also showed a volume increase. Prices in the segment stabilized. Volume and revenue increases were primarily due to cost control/containment efforts. Book revenues were down for the quarter due to lower prices and an unfavorable product mix. The Canadian market showed an increase in volumes but lower revenues. In Europe, revenues were $310 million showing a 6% increase excluding currently impact. Operating income was $12.4 million as compared to $1.9 million a year ago. Europe continues to suffer a negative pricing environment. Success in Europe, however, is due mainly to French operations where cost reductions are having a positive impact. Operations in Sweden will see a 48-page web offset press, the first in Sweden. On the other side, discussions are underway to potentially close a plant in Stockholm leading to the elimination of 150 positions and $12-13 million in restructuring charges. In the UK, revenues were flat at $44 million. A major contract was not renewed to print the Sunday Supplement. The contact expires in May of 2005. Quebecor is developing a sales strategy to replace the volume from this contract. Latin American operations posted revenues of $44 million, flat with the year ago period. Volume increased 4%, year to date revenues were up 3%. Guidance Although officials at Quebecor would not give specific guidance in terms of range, the company stated capital expenditures for 2005 - 2007 should be $250-$350 million. Capital expenditures for 2004 are expected to be $200 million. Q & A Paper prices or supply impact on revenue from this quarter to last year’s second quarter was essentially flat. As mentioned during today’s call, Quebecor will purchase 22 new presses. Final decisions have not been made on the presses being decommissioned, although some may be moved to Latin America. Listeners of today’s call were reminded the presses which will be decommissioned are 15-20 years old and run 1000-1200 feet per minute. There will be no impairment charges related to the decommissioned presses. Speaking more on the contract loss of printing the Sunday Supplement in the UK, Quebecor indicated its customer was interested in a Gravure solution. Quebecor indicated it was able to do a “fantastic” job for the customer and could not understand what they were looking for in Gravure. To build a solution in the UK would not be in the company’s best interest. Since the contract expires next May, Quebecor has slightly less than a year to find a replacement customer. The equipment in the UK plant is in good shape as is the newspaper supplement market, thus a replacement customer should be forthcoming. The capital expenditure amount for 2004 includes $60 million in leases. When asked about using other company’s assets rather than purchasing new presses, officials today responded Quebecor uses a balance of investments and acquisitions to meet customer demands and provide shareholder value. The outlook for 2005 is particularly robust from a company point of view. In making investments now in new presses, Quebecor intends to replicate its success in Gravure. Gravure is not wide spread throughout all markets and the company intends to be at the technological edge over its competitors. Being on the edge of technology is also considered to provide significant saving thus providing an additional cost driven initiative. The new presses will provide the ability to run 2x the number of pages in one revolution at 2 ½ times the speed. Interest expense in $10 million less than last quarter for a number of reasons; 1) Quebecor refinanced $600 million which produced a savings of $12 million on an annual basis, 2) a favorable exchange rate, and 3) lower interest rates. One third of the new presses are expected in the second half of 2005. Disbursement will be upon delivery and performance rates. Quebecor’s credit rating is BBB and officials are actively, keeping rating agencies abreast of its activities. Generating strong results this year over last year and improving free cash flow is projected to have a positive impact with rating agencies.