Quebecor World Profit Falls in Q1, Q2 Outlook Poor
Press release from the issuing company
MONTREAL--May 10, 2005-- Quebecor World Inc. announced that for the first quarter 2005 the Company recorded net income of $16.3 million or $0.05 per diluted share, after the impairment of assets restructuring and other charges. This compares to net income of $35.8 million or $0.20 per share in the first quarter of 2004. Before impairment of assets, restructuring and other charges, net income in the first quarter was $46.6 million or $0.28 per share compared to $38.9 million or $0.23 per share in the first quarter last year. Operating income, before impairment of assets, restructuring and other charges was $89.4 million in the first quarter, compared to $98.0 million in the same period last year. Operating margin on the same basis was 5.5% compared to 6.3% in the first quarter of 2004.
Consolidated revenues for the quarter were $1.62 billion compared to $1.55 billion in the same quarter last year. Excluding the favourable impact of currency translation and paper sales revenues were essentially flat with the first quarter of 2004.
"Our cost containment and cost reduction efforts have helped offset the negative impact of lower prices. We are continuing with those efforts in addition to securing additional volume," said Pierre Karl Peladeau, President and CEO, Quebecor World Inc. "In the first quarter several of our business groups delivered results ahead of last year but our overall performance was hampered by our commercial group in the U.S. We have determined this business to be non-core and are currently pursuing exclusive negotiations to sell this business and similar facilities in Canada. Our first quarter results were also negatively impacted by our French operations and the loss of a major customer in our UK facility that necessitated additional restructuring efforts."
In the quarter Quebecor World recorded impairment of assets, restructuring and other charges of $33 million. The non-cash portion of this charge of $25 million is related to the impairment of assets in the UK, Europe and North America. The cash portion of this charge is related to work-force reduction initiatives in the UK, Canada and to other costs associated with previous restructuring initiatives in 2004. The first quarter 2005 restructuring initiatives, including the closing of a Canadian facility, affected 284 employee positions and will result in the creation of 66 new jobs in other facilities.
Quebecor World continues to maintain a strict discipline over costs. SG&A in the quarter was $111 million, a $5 million decrease compared to the same period last year. The decrease is related to savings from cost containment and work-force reductions. In the first quarter the Company recorded specific charges of $3 million mainly related to lease provisions. This compares to a net gain of $2.3 million in the first quarter of 2004 due to a favourable legal settlement. Free cash outflow in the quarter improved by $10 million compared to the first quarter in 2004.
In North America revenues for the quarter increased 3% to $1.2 billion but were down 1% excluding the favourable impact of currency translation and paper sales. Operating income was $81 million in the first quarter, before impairment of assets, restructuring and other charges, compared to $87 million in the first quarter of 2004. On the same basis, operating margin in the quarter was 6.6% compared to 7.3%. The decreases in operating income and margin are due to lower prices in several business groups. While some groups experienced volume increases it was not enough to mitigate price erosion.
In Europe, revenues increased 5% in the first quarter to $332 million compared to $315 million in the first quarter last year. Excluding the favourable impact of currency translation revenue were flat compared to the first quarter of 2004. Price erosion continued throughout our European operations and was only partially offset by a 2% increase in volume. Operating income in Europe for the quarter, before the impairment of assets, restructuring and other charges, was $6.3 million compared to $11.9 in the first quarter last year. This is largely due to lower results in Corby and the Company's French operations that were negative compared to last year partially due to unscheduled labour disruptions. During the quarter the Company completed the divestiture of two under-performing facilities in France. While these transactions did not affect the first quarter they are expected to have a positive impact on future results.
In Latin America revenue, operating income and margins increased in the quarter compared to the same period last year. Revenue increased 21% to $57 million compared to $47 million in the first quarter of 2004. Despite continued price erosion operating income and margins increased in the quarter due to higher volume and the positive impact of previous cost reduction initiatives. The Company has recently launched an initiative to position its Latin American platform as a low cost alternative to publishers who are outsourcing work to Asia. A large part of the volume increase in Latin America was in the book and directory at facilities in Brazil, Mexico and Argentina.
Quebecor World expects results in the second quarter of 2005 will continue to be affected by pricing pressures, the negative impact of the loss of a major customer in the U.S., one in the UK and , the under-performing U.S. Commercial segment. While the Company does not issue specific guidance it believes these factors will result in lower operating income before impairment of assets, restructuring and other charges in the second quarter of 2005 compared to the first quarter of 2005.
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