MONTREAL, June 14 -- Transcontinental today reported solid financial results for its second quarter ended April 30, 2007, despite a negative foreign exchange impact and a soft advertising market in certain segments. As mentioned in the previous quarter, management expects results for the second half to be higher than they have historically been compared to the first half. This is due to the change in its business portfolio - related primarily to the acquisition of CheneliÃ¨re Ã‰ducation in 2006 - and the trend to greater seasonality in certain niches. Transcontinental remains in an excellent position to achieve earnings per share before unusual items in the previously announced range of $1.52 to $1.65 for 2007.
"We are very satisfied with the second-quarter results and the first half of the year, which are promising for the remainder of 2007," said LucÂ Desjardins, president and chief executive officer of Transcontinental.
"We are gradually reaping the benefit from our major reorganization projects in Canada, the United States and Mexico, as well as from our investments in new technology and the ongoing continuous improvement initiatives throughout the company, which have more than offset the negative foreign exchange impact and the softness in certain segments of the advertising market. For the rest of the year we plan to focus our efforts on sales growth, digital development in the Media sector and improving our ability to compete, primarily in the commercial printing sector."
"Due to the recent rise in the Canadian dollar, we have revised our assumptions for the rest of the year downward, from $1.10 CAD/USD to $1.05Â CAD/USD," Mr. Desjardins said. "Taking into account the unfavorable impact of this change and the previously announced investment of about fiveÂ millionÂ dollars in Evolution 2010 initiatives, as well as the positive impact of our share buy-back program, we are maintaining our earnings-per-share objective of $1.52 to $1.65 for fiscal 2007. This objective would be maintained even with the assumption of an exchange rate at parity by the end of the year."
The Corporation is in an excellent financial position for further growth, with a net funded debt to total capitalization ratio of 28% as at April 30, 2007.
In its second quarter, Transcontinental reported a 2% increase in consolidated revenues, to $580.7 million, compared to $570.9 million for the same quarter a year earlier. Adjusted operating income before amortization rose 2% to $92.8 million, compared to $91.4 million in 2006. Excluding the exchange rate fluctuations between the Canadian dollar and its U.S. and Mexican counterparts, which lowered revenue by $3.4 million and adjusted operating income before amortization by $5.2 million, adjusted operating income before amortization would have grown 7%. Thus the acquisitions made in 2006, higher volumes in certain segments and many cost-reduction initiatives throughout the Corporation more than offset lower volume in other segments and additional investments in the Media sector.
Net income rose slightly, from $33.7 million in the second quarter of 2006 to $34 million in 2007; on a per-share basis, net earnings were up 3%, from $0.39 to $0.40. Adjusted net income, which does not take into account unusual items related to asset impairment and restructuring costs, declined 4%, from $35.8 million to $34.5 million; on a per-share basis, adjusted net income remained stable at $0.41. Excluding the exchange rate impact, growth would have been 9%.
In the first six months of fiscal 2007, consolidated revenue was up slightly, from $1.136 billion to $1.149 billion, while adjusted operating income before amortization was down slightly, from $170.6 million to $168.5Â million. Excluding the exchange rate impact, which reduced revenue by $8.6Â million and adjusted operating income before amortization by $8.7 million, adjusted operating income before amortization would have been up 4%.
Net income was down 12%, from $61.6 million in the first half of 2006 to $54.2 million in 2007. The decrease stems primarily from asset impairment and higher restructuring costs. In 2007, these costs were mainly related to the restructuring plan for commercial printing operations announced in the first quarter. On a per-share basis, net earnings declined from $0.70 to $0.63. Adjusted net income, excluding pre-tax restructuring charges of $7.8 million in 2007 and $3.2 million in 2006, was down 7%, from $63.8 million to $59.5Â million. On a per-share basis, adjusted net income decreased 4%, from $0.73 to $0.70.
Excluding the negative foreign exchange impact in the first half of 2007 and unusual items, earnings per share would have been $0.78, up 7% over the first half of 2006. This measurement is a good indicator of the Corporation's operating performance for the first half of the year.