Technology has taken its toll on publishing and printing, but this industry stock is taking decisive steps to spur growth with a new business.
Cutting back on its newspaper business, the company is applying its printing expertise to the business of plastic packaging. As it makes the transition, the stock trades at a low level to future earnings and the shares yield 3.2%.
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TRANSCONTINENTAL INC. (Toronto symbol TCL.A; www.tctranscontinental.com) is Canada’s leading printer of advertising flyers, magazines, books and newspapers. It also makes plastic packaging for food products.
The company continues to make progress with the plan to sell its 93 newspapers in Quebec and Ontario. As part of that strategy, it recently agreed to sell 12 papers in Quebec to Groupe Lexis Média inc. for an undisclosed sum. However, Transcontinental will continue to print and distribute those papers under a long-term contract.
Hearst Communications Inc., which publishes the San Francisco Chronicle newspaper, has also cancelled its printing contract with Transcontinental, effective April 2, 2018.
Under the terms of a new deal, Transcontinental will transfer the operations of its printing plant in Fremont, California, to Hearst. However, it will continue to own the facility. Hearst has also agreed to rent the plant until the end of 2024. Transcontinental will receive an early termination fee of $42.8 million U.S.
Transcontinental’s plan to sell off newspapers cuts its exposure to declining demand for print advertising. The company can also use the cash to keep expanding its more profitable food packaging operations.
In November 2017, Transcontinental acquired Les Industries Flexipak Inc. Based in Montreal, that privately held firm makes flexible plastic packaging for frozen fruits and vegetables, seafood, snacks, grains, nuts and beverages.
The company has not revealed what it paid for Flexipak. However, expanding its packaging operations helps cut Transcontinental’s reliance on its main commercial printing and newspaper publishing businesses.
Value Stocks: Increased in 2017, dividend now yields 3.2%
Transcontinental’s revenue for its 2017 fourth quarter, ended October 31, 2017, fell 5.1%, to $527.2 million from $555.6 million a year earlier. That’s due to the ongoing sale of its smaller newspapers. On a comparable basis, revenue improved 0.6%.
Overall earnings in the quarter fell 10.8%, to $68.3 million from $76.6 million. Per-share earnings declined 11.1%, to $0.88 from $0.99, on fewer shares outstanding. The lower earnings are mainly due to a drop in demand for commercial printing.
Transcontinental ended the quarter with cash of $330.8 million. Its long-term debt was just $348.3 million, or 18% of its market cap.
Transcontinental last increased its dividend by 8.1% with the April 2017 quarterly payment of $0.20. The new annual rate of $0.80 yields 3.2%. Transcontinental’s dividend has increased an average of 6.6% annually over the last 5 years.
For all of fiscal 2018, Transcontinental will probably earn $2.63 a share. The stock trades at a low 9.1 times that estimate.
Recommendation in The Successful Investor: Transcontinental is a buy
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