Release Date: September 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Transcontinental Inc (TCLAF, Financial) reported a consolidated adjusted EBITDA of $121 million, a 12.1% improvement versus last year.
- The packaging sector saw a 3.5% revenue increase to $417.3 million, driven by positive exchange rates and modest volume growth.
- Adjusted EBITDA in the packaging sector grew by 20.6% to $64.9 million, resulting in a 15.6% EBITDA margin.
- Retail services and printing sector's adjusted EBITDA grew by 12.4% to $50.8 million, with margins improving by 380 basis points to 20.3%.
- The company generated $98.3 million from operating activities and reduced CapEx by $13.5 million compared to last year, aligning with full-year guidance.
Negative Points
- Revenues in the retail services and printing sector decreased by 8.7% to $250 million, primarily due to lower volumes in traditional printing activities.
- The medical market in the packaging sector continues to face pressures due to destocking, impacting demand.
- Higher stock-based compensation expenses are expected in Q4 due to share price performance.
- The company anticipates pricing pressure in the packaging sector, which could impact margins in 2025.
- The market for building sales is softer than anticipated, potentially delaying the achievement of the $100 million target from asset sales.
Q & A Highlights
Transcontinental Inc (TCLAF) Q3 2024 Earnings Call Highlights
Q: Tom, regarding the Q4 outlook, you're calling for stable packaging and printing EBITDA. Is this due to mostly margin dynamics or a combination of top-line issues?
A: (Thomas Morin, CEO) The growth in Q3 was in line with expectations, despite a stronger-than-anticipated decrease in medical. For Q4, we don't expect high seasonality in packaging and anticipate stable top-line performance. Price pressure will have a minor impact.
Q: Can you provide more color on the margin dynamics for packaging and printing in Q4?
A: (Thomas Morin, CEO) Cost improvements will continue into Q4. While not predicting specific margin levels, the cost improvements should positively impact margins. (Donald Lecavalier, CFO) The mix of products in retail services should also lead to better margins.
Q: On the printing side, how will the recent newsprint price hike impact your business?
A: (Thomas Morin, CEO) We don't see a significant impact on demand. (Donald Lecavalier, CFO) We have pass-through mechanisms in place, and the use of raddar, which uses less paper, helps mitigate the impact.
Q: Regarding pricing pressure in packaging, how significant is the expected decline?
A: (Thomas Morin, CEO) The impact will be limited in the near term due to customer contracts. We aim to remain competitive by being cautious with costs. The overall price pressure will depend on contract renewals and market competitiveness.
Q: Are you seeing any signs of customers willing to pay more for sustainable packaging solutions?
A: (Thomas Morin, CEO) We have invested in producing recycle-ready films to align with new regulations. While it's uncertain if consumers will pay more, our focus is on providing technical solutions that meet regulatory requirements.
Q: Can you split the 1.7% growth in packaging revenues into volume and pricing?
A: (Thomas Morin, CEO) The growth is almost entirely due to volume.
Q: How do you see volumes behaving in the future, considering inventory situations in various segments?
A: (Thomas Morin, CEO) Inventory-related volume impacts are primarily in the medical segment, which we expect to recover gradually next year. Overall, demand from key customers is expected to be flat at best.
Q: What are the main areas of focus to maintain margins in 2025?
A: (Thomas Morin, CEO) We will focus on cost of goods sold, performance of manufacturing sites, and fixed costs and SG&A to remain competitive and maintain margins.
Q: Has your approach to M&A changed going into 2025?
A: (Thomas Morin, CEO) Reducing debt levels remains a priority. We are building a funnel of opportunities for packaging and retail services, but any M&A activity will be aligned with our debt ratio targets.
Q: How do you see the retail services and printing segment evolving in Q4 and fiscal 2025?
A: (Thomas Morin, CEO) The raddar product brings more stable and predictable demand. (Donald Lecavalier, CFO) We aim to keep the business stable or growing, with opportunities in in-store marketing and book segments.
Q: When do you expect to lap the impact of Publisac?
A: (Donald Lecavalier, CFO) This quarter is the first with no Publisac impact, marking the new normal.
Q: Can you provide details on the higher corporate expense expected in Q4?
A: (Donald Lecavalier, CFO) The impact of stock price movements will affect corporate expenses. Each $1 change in stock price impacts expenses by about $1 million for the quarter.
Q: What is your leverage target before considering M&A?
A: (Donald Lecavalier, CFO) We don't have a specific target but being under 2x debt to EBITDA gives us flexibility for NCIB or M&A opportunities.
Q: How do you see packaging margins evolving in 2025?
A: (Donald Lecavalier, CFO) Our priority is to grow EBITDA dollars. While margins should improve with cost-cutting efforts, our main focus is on increasing EBITDA.
Q: Can you provide details on building sales and market demand?
A: (Donald Lecavalier, CFO) The market is softer than when we launched the program. We are confident in completing one transaction soon but won't rush if prices aren't favorable. We aim to achieve our $100 million target over two years.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
