LSC Communications Reports Increase in Net Sales in Q2 Financials

LSC Communications Inc., Chicago, reported financial results for the second quarter of 2018.

2Q 2018 Highlights:

• Net sales of $943 million compared to $848 million in the second quarter of 2017, an increase of $95 million, or 11.2%
• GAAP net income of $8 million, or $0.23 per diluted share compared to net income of $5 million, or $0.12 per diluted share in the second quarter of 2017
• Non-GAAP net income of $17 million, or $0.48 per diluted share, compared to non-GAAP net income of $21 million, or $0.59 per diluted share in the second quarter of 2017
• Non-GAAP adjusted EBITDA of $77 million, or 8.2% of net sales, compared to $82 million, or 9.7% of net sales, in the second quarter of 2017
• Company completed the acquisition of RR Donnelley’s Print Logistics business and announced entering into definitive agreement to divest LSC’s European printing business
• Company updates full-year guidance to include impact of the sale of the European printing business and completion of $20 million share repurchase program

“We are pleased with our second quarter results as we continued to experience favorable organic revenue trends and saw an improved sales mix. In addition, we continued our focus on acquisition integration and cost reductions that drove sequential margin improvement,” said Thomas J. Quinlan III, LSC Communications’ chairman, CEO and president. “Our investment in growth areas, including our Print Logistics acquisition, will bring additional value to our customers. Additionally, we recently announced entering into an agreement to sell our European printing business which will allow us to increase strategic focus on our North America operations and customers and provide us with additional financial flexibility.”

Net Sales

Second quarter net sales were $943 million, up $95 million, or 11.2%, from the second quarter of 2017. After adjusting for acquisitions, divestitures, changes in foreign exchange rates, pass-through paper sales, and the adoption of new revenue recognition standards, organic net sales decreased 2.0% from the second quarter of 2017. This organic net sales change represents continued improvement compared to the Company’s 2017 organic net sales trends. This improvement was largely driven by sales performance in our Office Products segment and our Book reporting unit.

GAAP Net Income

Second quarter 2018 net income was $8 million, or $0.23 per diluted share, compared to net income of $5 million, or $0.12 per diluted share, in the second quarter of 2017. Second quarter 2018 net income included after-tax charges of $9 million and second quarter 2017 net income included after-tax charges of $16 million, both of which are excluded from the presentation of non-GAAP net income. Additional details regarding the amount and nature of these adjustments and other items are included in the attached schedules.

Non-GAAP Adjusted EBITDA and Non-GAAP Net Income

Non-GAAP adjusted EBITDA in the second quarter of 2018 was $77 million, or 8.2% of net sales, compared to $82 million, or 9.7% of net sales, in the second quarter of 2017. The decrease in non-GAAP adjusted EBITDA margin was primarily due to sales mix, pricing pressure and the impact of lower margins related to recent acquisitions partially offset by on-going productivity and cost control initiatives.

Non-GAAP net income totaled $17 million, or $0.48 per diluted share, in the second quarter of 2018 compared to non-GAAP net income of $21 million, or $0.59 per diluted share in the second quarter of 2017. Reconciliations of net income to non-GAAP adjusted EBITDA and non-GAAP net income are presented in the attached schedules.

2018 Guidance

The Company’s updated full-year guidance for 2018, in the table below, includes the sale of LSC’s European printing business and the completion of the share repurchase authorization:

Certain components of the guidance given in the table above are provided on a non-GAAP basis only, without providing a reconciliation to guidance provided on a GAAP basis. Information is presented in this manner, consistent with SEC rules, because the preparation of such a reconciliation could not be accomplished without "unreasonable efforts." The Company does not have access to certain information that would be necessary to provide such a reconciliation, including non-recurring items that are not indicative of the Company's ongoing operations. Such items include, but are not limited to, restructuring charges, impairment charges, pension settlement charges, acquisition-related expenses, gains or losses on investments and business disposals, losses on debt extinguishment and other similar gains or losses not reflective of the Company's ongoing operations. The Company does not believe that excluding such items is likely to be significant to an assessment of the Company's ongoing operations, given that such excluded items are not indicators of business performance.

Source: LSC Communications.

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