LSC misses estimate, shares drop

By Charlene Zhang
Medill Reports

Shares of commercial printer LSC Communications Inc. (NYSE: LKSD), one of two spinoffs from R. R. Donnelley & Sons Co., plummeted 7 percent as adjusted earnings missed Wall Street’s estimate and the company reported a GAAP net loss of $58 million, or $1.68 per diluted share, in the fourth quarter ended Dec. 31, compared with net income of $9 million, or 26 cents per diluted share, in the fourth quarter of 2016.

But sales increased 8.7 percent to $999 million from $919 in the year-earlier period, boosted by recent acquisitions of a supply chain solutions provider The Clark Group and a producer of envelopes and mailing supplies Quality Park.

The net loss was largely explained by goodwill impairment charges of $33 million and onetime provisional tax charges of $24 million resulting from the enactment of the 2017 tax reform legislation.

Thomas J. Quinlan, CEO of LSC Communications and former chief executive of R.R. Donnelley before the spinoff, said, “despite continued challenging industry conditions, we delivered increases in non-GAAP adjusted EBITDA and non-GAAP earnings per share.”

LSC reported adjusted net income of $17 million, or 50 cents per diluted share, below the Wall Street expectation of 66 cents, compared with $15 million, or 48 cents per diluted share, in the year-earlier period.

But ongoing productivity, cost control initiatives and inorganic growth continue to be offset by volume declines, product mix, and price pressure in both the Print segment and the Office Product segment, according to Chief Financial Officer Andrew B. Coxhead.

“In magazine, catalogs, and retail inserts, the overall organic decline was 4.4 percent. Retail insert volumes continued to show the most significant declines,” Coxhead stated.

A Wall Street analyst, who asked not to be named in accordance with company policy, predicted in a call, “print companies are on a secular decline, even though the whole decline curve is a lot slower. You would expect the top line of LSC will continue to decline anywhere between 2 and 5 percent in 2018.”

In the conference call, Quinlan showed his uncertainties with the USPS from a rate structure and hoped to streamline logistics management through the previous acquisition of The Clark Group.

LSC has made eight acquisitions since the spinoff in October 2016. In the conference call Quinlan said he will pursue potential acquisitions that closely align with the company’s technology-focused strategy and with proper valuations.

CREEL Printing, acquired by LSC in the third quarter in 2017, will continue bringing data-driven and highly targeted direct marketing opportunities to the clients, according to Quinlan.

The analyst said, “Quinlan is grounded enough and has a track record of accomplishing M&A synergies, even though smaller companies could be a bit tough.”

In the twelve months ended Dec. 31, LSC lost $57 million, or $1.69 per diluted share, compared with income of $106 million, or $3.23 per diluted share, in the prior year. Net sales slightly decreased to $3.60 billion from $3.65 billion.

The stock closed at $13.45, down $1.06.

Photo at top: LSC Communications corporate office in Chicago. Feb. 22, 2018. (Charlene Zhang/MEDILL)