blog.rightreading.com

Quebecor was for years the other big domestic print company, the competition to R. R. Donnelley. But the company appears to have fallen on difficult times. It canceled a $250mm share sale when the reception proved tepid at best. Quebecor shares have recently dropped from $5.10 to $2.80. Now it has to figure out how to manage its sizeable debt. Report on Business observes:

Let’s start with the balance sheet. Long-term debt and preferred shares add up to $2.4-billion against hard assets - that is, not counting goodwill - of about the same. Working capital is negative. By the book, then, the value to shareholders lies in the goodwill on the balance sheet. There’s no goodwill in the printing industry in the digital age. Debt has to come down. …

Quebecor World’s capital expenditures are supposed to drop to between $100- and $150-million next year. Assuming it can generate cash flow of $250-million - a big assumption and more than it will make this year - free cash flow is about $125-million.

On a market capitalization of roughly $279-million, that looks like a lot. But keep in mind that this cash has to go toward righting the balance sheet. Meanwhile, as common shareholders wait for their kick at the coffers, cash flow falls relentlessly.

There’s probably an interesting short-term trade for the aggressive investor here, but long term it looks like a hard way to earn a buck.