Quebecor World Earnings Preview: No Reason To Get Excited

Is the worst behind Quebecor World Inc. (IQW)?

Investors in the second-largest commercial printer in North America may find out when it publishes 2006 results on Tuesday.

Some analysts seem to think so, but hardly see this as any reason to get excited.

RBC Capital Markets analyst Drew McReynolds cited several reasons for tempering hopes of better days ahead, including an economic slowdown in the U.S., increasing commoditization of many areas of the printing business and a valuation that has already priced in a partial turnaround.

He says while benefits of past restructuring – including US$650-million of charges since 2000 – should show up in margins this year, “the magnitude and timing of a turnaround remains very much up for debate” and the results could be quite uneven through 2007.

What about hopes that Quebecor Inc. boss and controlling shareholder Pierre Karl Péladeau could sell the printing arm of his empire, which has underperformed the media side for the past few years?

It seems to make sense strategically, and Mr. Péladeau has been coy about the printer’s future, but to Mr. McReynolds, there is a “low probability of a takeout until the turnaround story plays out.”

There is some good news there; the printing industry, which has been wracked with overcapacity and weak pricing, has shown strength, with the value of monthly printing shipments up 8.6% year over year in 2006, as capacity utilization reached a nine-year high of 81% in December.

Pricing is firming up. In addition, Quebecor World has invested heavily in new presses to make its operations more efficient and up to date.

In addition, the firm’s underperforming European operation could fetch an extra US$2 to US$2.50 per share on a sale if the company could get its margins back to normal levels.

Mr. McReynolds values Quebecor World shares at US$12.50 each, just up from its US$12.15 close Friday.

IQW 1-yr chart: