TRANSCONTINENTAL INC. $12 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 80.8 million; Market cap: $969.6 million; Price-to-sales ratio: 0.3; Dividend yield: 2.7%; SI Rating: Average) is the largest commercial printer in Canada, and the sixth-largest in North America. This business provides 60% of its revenue and profit. The company also publishes newspapers and magazines (25% of revenue, 30% of profit). As well, its marketing communications division (15%, 10%) designs direct mail and other advertising campaigns, and analyzes customer-purchasing data. These services help its clients expand sales and build loyalty.
The stock fell to $5.42 last March. That’s because the recession hurt the company’s direct-mail volumes. As well, many of its clients are U.S.-based financial institutions. Higher credit losses prompted many of these customers to cut their advertising spending.
Transcontinental has cut its costs in response. This involved closing a direct-mail plant in Pennsylvania and merging some printing plants. So far, these moves have lowered its costs by $50 million a year. It should achieve its goal of $100 million in annual savings sometime next year.
If you disregard restructuring expenses, the company earned $31.2 million, or $0.39 a share, in the third quarter (which ended July 31, 2009). That’s up 4.3% from $29.9 million, or $0.37 a share, a year earlier. Revenue fell 8.9%, to $533.1 million from $584.9 million.
Together, the U.S. and Mexico account for 15% of Transcontinental’s revenue, so the cost savings will help it offset the negative impact of the rising Canadian dollar. The company probably earned $1.50 a share in fiscal 2009. The stock trades at 8.0 times that figure.
Transcontinental is a buy.
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