Transcontinental Inc. says it is seeing a shift toward more food packaging as the effects of the coronavirus pandemic continue to rip through the North American economy, a development that is helping it offset weakness in its printing business.
The company plans to bulk up with more acquisitions in the packaging sector in the months ahead.
Canada’s biggest printer, which is also a major supplier of food packaging in North America, says it is seeing an uptick in demand for its Pop-Tarts baggies, shrink wrap around bottled beverages and other flexible wrappings as grocery shoppers opt to buy food with more sanitary protection. The gains are helping to counter weakness in commercial printing, where customers such as banks and telecom companies have scaled back on flyers and direct mail correspondence with their own clients in recent weeks.
“Our customers, which are the food manufacturers, are not looking for less packaging right now. They’re looking for more packaging to protect the food,” Transcontinental chief executive officer François Olivier said in an interview on Wednesday. “[It’s] more top of mind than ever before.”
Transcontinental’s packaging business generated adjusted operating earnings before depreciation and amortization of $56.8-million for the second quarter ended April 26 on revenue of $354.3-million. That’s a 19-per-cent increase in profit from the first quarter and an 8.8-per-cent increase in profit from the same quarter last year – a gain partly attributable to what the company said was “a significant volume increase in the operations supporting the supply chain for food retailers.”
Total company-wide net earnings climbed 15 per cent to $25.7-million or 30 cents a share for the quarter. Excluding one-time items, the profit fell 17 per cent to $43.6-million. Over all, revenue fell 18.5 per cent to $625.1-million from the year-earlier period, a drop the company pinned on the impact of selling its paper packing operations at the end of the first quarter and a decrease in printing unit volumes.
Montreal-based Transcontinental joined France’s Airbus SE, BRP Inc. and other major manufacturers in suspending some industrial operations in March after the governments of Quebec and Ontario ordered non-essential businesses to close for at least two weeks in an attempt to counter the spread of COVID-19. The company laid off 1,600 people at its printing unit, of which 600 have since been recalled.
Mr. Olivier said conditions are improving in printing and that the company is recalling more workers as economic activity picks up. But he said it will take longer than three to four months for the business to recover fully.
Over the past six years, Transcontinental has transformed itself from a printing and media company to what is largely now a printing and packaging company. It has made four acquisitions in flexible packaging in the past two years alone, with plans for more. The thinking is that if it wants to deliver growth, it has to make up for the slow decline of the print segment.
“We need to do more acquisitions,” Mr. Olivier said. “You will see us in the future months and years buying more companies in flexible packaging. … We intend to keep growing that space as quickly as we can.”
Transcontinental currently has 25 plants worldwide making packaging and is looking to make a “big investment” soon in compostable products, Mr. Olivier said. He said the company currently employs about 45 research and development engineers in the United States designing compostable and recyclable-ready packaging.
Transcontinental shares fell 4 per cent to close at $12.80 on the Toronto Stock Exchange Wednesday. They’ve clawed back 34 per cent since hitting a 52-week low of $9.50 on March 23.
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