Falling print revenue wasn't enough to keep Yellow Media from posting a multimillion-dollar profit just two weeks after proposing a radical restructuring that would essentially wipe out common shareholders and leave the company's creditors in charge.
The Montreal-based directory publisher said it earned $67.7-million in the second quarter, or 12 cents a share, compared to a loss of $20.7-million a year ago. Its gross margin – a measure of how much money is left over after production costs are paid – was down slightly to 68.8 per cent.
Revenue, however, came in 16.4 per cent lower than a year ago at $286.5-million as customers moved away from its printed phone books in favour of cheaper online alternatives. Online revenue increased 4.4 per cent to $89.7-million.
The profit and healthy margins are likely to spark an outcry from the company's shareholders and many of its lenders, who have asked a Quebec court to squash the company's plan to do a debt-for-equity swap with its senior note holders and banks to get out from under about $2-billion in debt.
The banks object to the restructuring, arguing that despite a challenging year ahead as debt comes due there is no need for it at the moment because the company is generating enough cash to pay its obligations as they come due.
Chief executive officer Marc Tellier has argued that the company needs more time to reinvent itself for the digital age, and the company's existence is threatened by about $700-million in debt coming due in the next year. The proposal would push debt maturities back five years and chop its debt by about 60 per cent.
The company's woes are similar to those of other publishers who spent decades enjoying profits based on advertising sales in printed products. It has managed to retain most of its customers, but they are buying less space in the printed products and spending their money online instead where it is much less expensive to reach their customers.
Its average revenue per advertiser – a key gauge of effectiveness – declined to $3,300 from $3,500 a year ago as large advertisers opted to stick around but spend less with the company.
"Our customers needs have not changed," he said. "They continue to require the expertise of a trusted advisor who understands the dynamics of today's increasingly digital marketplace."
The company's restructuring can't move ahead without court approval. The next hearing is Sept. 10.