By Trevor Shackelford February 18, 2005 -- Quebecor World (NYSE: IQW) stock rose over 9.5% to $23.27, breaking the $23 mark for the first time since October following this morning’s Q4 press release and earnings call. Investors were relieved to learn that the lawsuit filed against RR Donnelley had been dropped and that the differences had been “resolved amicably.” Per the agreement with Donnelley, no further details were announced. Financial performance in the fourth quarter, as well as 2004 overall, also contributed to the stock’s climb. Quebecor reported a net income of $45 million, or $0.26 per diluted share, after $53 million in charges related to asset impairment, restructuring, and other extraordinary items. This contrasts with the net loss of $54 million, or $0.48 per share, seen in the fourth quarter of 2003. Quebecor World reported a total net income for 2004 of $144 million after extraordinary charges, or $0.80 per diluted share compared to a net loss of $31 million, or $0.50 per diluted share, in 2003. Consolidated revenues for the quarter increased 9% to $1.9 billion compared to $1.7 billion in the same quarter last year including the gains received from favorable currency rates. When foreign exchange gains are discounted, the true revenue growth is 1%. For 2004, the company reported a record $6.6 billion in revenue compared to $6.4 million in 2003. Topics of this summary: Quarter and 2004 Highlights Results by Geography Guidance Raine Radar Q & A Quarter and 2004 Highlights Quebecor World is planning to begin installing new equipment and systems in the third and fourth quarters of 2005 and into the beginning of 2006. The company won new business targeting NASCAR fans. NASCAR is the fastest growing spectator sport in the US. Quebecor World’s co-mailing offering is drawing new short and medium run magazine customers. This offering is new in 2004 and allows magazine customers to reduce postal charges. The company closed its Stockholm facility and reduced operations in San Pablo Management claims international printing dominance based on renewed Ikea contract to produce all European catalogs, which amounts to 50% of Ikea’s global catalog production. The global workforce was reduced from 37,000 to 35,000. S G & A expenses were reduced in 2004 by 11%. Free Cash Flow from operations for the year grew from $183 million in 2003 to $319 million in 2004. The Debt to Capitalization ratio was reduced to 43.57. Quebecor World is interested in making acquisitions during 2005 and beyond, with a goal of increasing revenues as its primary objective. Results by Geography North America The North American platform benefited from an increase in American ad pages, but couldn’t completely capitalize due to restructuring. The company sees an opportunity to better take advantage of this trend to continue in 2005. Before extraordinary charges, Q4 operating income increased to $138 million with an operating margin of 9.5% compared to $71 million and 5.2% in the same period last year. Operating margin for the full year increased to 8.5% from 6.0% in 2003. The company credited these improvements to higher volumes and the impact of their restructuring and cost containment initiatives throughout the North American platform. Revenues were up 8% from $1.35 billion in Q4 2003 to $1.46 billion in the same quarter 2004. Revenues for 2004 totaled $5.13 billion, up 1% from $5.06 billion last year. Taking into account the exchange rate, Q4 sales were up approximately 6% and 2004 sales were essentially flat. Europe Revenues in Europe increased 11% to $376 million in the Q4 and 13% to $1.3 billion for 2004. Discounting currency translation, revenues increased 2% for both Q4 and 2004. Volume increases of 4% in 2004 helped offset continued price pressure in Europe. Before extraordinary charges, operating income in Europe was $17 million in the fourth quarter of 2004, down from $18 million in the same period of 2003 with operating margin falling from to 4.4% from 5.3%. On the same basis, 2004 saw operating income doubling to $50 million from $24 million in 2003 with operating margin increasing to 3.9% from 2.1%. Latin America Revenues and volumes for Latin America increased in the quarter and for 2004 overall. Q4 revenue increase 17% to $56 million compared to $48 million in the same period of 2003. For the year ending December 31, 2004, revenue increased 9% to $192 million compared to $177 million in 2003. Before extraordinary charges, operating income was negative for the quarter but positive for the year compared to a loss in 2003. Guidance No guidance was given, but Quebecor World hinted at being able to continue the momentum exhibited in the fourth quarter. The major market focus for 2005 will be on Financial Services, Direct Marketing, and Telecom companies. Raine Radar Although performance this year was far better than last and recent restructuring had an effect, the currency markets had a large hand in revenue and profit growth. As the greenback’s downward trend is generally not expected to drastically alter its course in the coming months, Quebecor World will likely continue to reap this benefit for at least the Q1 of 2005. What is surprising that they talked about making acquisitions again which has been the hole that they have been digging out of ever since they bought World Color. Management has been making the bold moves to cut costs, close facilities, and take equipment offline. This has proved to deliver results and given the state of the industry; a concentrated “bottom line” approach seems be the most favorable path for 2005. Q & A Quebecor World is interested in making “opportunistic acquisitions” and stated that they were not interested in using potential M&A activity to diversify outside of their core competencies. The company expects to save $15 million due to the Q4 restructuring. Facility closing and costs involved in moving equipment hurt profitability in Q3. The focus in 2004 was on cost and headcount reductions. Total headcount reductions were 2500, with 500 new hires. Quebecor deflected a question concerning the comfort level of taking on additional leverage looking at possible acquisitions. They characterized the M&A landscape as a “buyer’s market,” and seemed unconcerned about their debt level.