Welcome to the TC Transcontinental third quarter of fiscal year 2024 results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session, and instructions will be provided at that time. As a reminder, this conference is being recorded today, September 12th, 2024. I would like to turn the conference over to Yan Lapointe, Director, Investor Relations and Treasury. [Foreign language] please go ahead.
Thank you, Joelle, and good morning, everyone on the call. Welcome to Transcontinental's third quarter of fiscal 2024 earnings call. Before we begin, please note that our quarterly report, including financial statements and related notes, as well as the slides supporting management's remark, are all available on our website at www.tc.tc under the Investor Relations section. A replay of this conference call will also be available on our website shortly after the call. Please note that this conference call is intended for the financial community. Media are in listen-only mode and should contact St-Jean, Senior Advisor, Corporate Communication, for more information. We have with us today our President and Chief Executive Officer, Thomas Morin, and our Executive Vice President and Chief Financial Officer, Donald Lecavalier. As referenced on slide two, some of the financial measures discussed over the course of this conference call are non-IFRS.
You can refer to the MD&A for a complete definition and reconciliation of these measures to IFRS. In addition, this conference call might also contain forward-looking statements. These statements are based on the current expectations of management and information available as of today, and they involve numerous risks and uncertainties, known and unknown. The risks, uncertainties, and other factors that could influence actual results are described in the fiscal 2023 annual MD&A and in the latest Annual Information Form. With that, I would like to turn the call over to our President and CEO, Thomas Morin.
Thank you, Yan, and good morning to all today. I'm happy to report a fourth quarter in a row of improved profitability. This strong performance is the result of the hard work from our teams in reducing costs, the optimization of our manufacturing network, as well as our focus on higher value-added products. In the packaging sector, even though Q3 last year is an easy comparable, we are pleased with the increase of 20.6% in Adjusted EBITDA. While the pressure on our non-food business continued, particularly in the medical market, we did experience a modest volume growth for the first time since 2022. Regarding recyclable packaging and our new BOPE line in Spartanburg, South Carolina, we powered up the line for the first time in July, and we are producing test reels for customers trials.
So far, this is a successful startup, and it's on plan. Looking forward, while the demand environment is slowly improving, we are seeing some pricing pressure in the market and remain vigilant in this regard. Regarding medical, which represents about 5% of packaging revenue, we don't expect a recovery before the first quarter of fiscal 2025. In our Retail Services and Printing sector, our actions to improve our cost structure, a more favorable product mix, including the rollout of r.a.d.a.r. and growth in volume and profits in our in-store marketing activities are paying off. The sector delivered 20.4% increase in Adjusted EBITDA, the first time increase in profitability in a very long time. In July, we expanded our r.a.d.a.r. footprint in British Columbia, and we are now reaching 1.2 million homes weekly in the province, and nearly 5 million weekly overall.
Our entry into a new bundle has been delayed, taking into account the acquisition of SaltWire assets by Postmedia. As a consequence of this transaction, though, we will be receiving additional volumes for our Halifax plant starting in the next few weeks. And finally, the implementation of our two-year program to improve our profitability and financial position continues to be on track, in line with the objectives announced last December. I'm very proud of the work done by our team, which continues to focus on our priorities and delivers these encouraging results. On this, I will pass it over to you, Donald.
Thank you, Thomas, and good morning, everyone. Moving to consolidated numbers on slide 5 of the earnings call presentation. For the third quarter of 2024, we reported revenues of CAD 700 million at 0.9%. The small decline was caused by lower volume in the Retail Services and Printing sector, partially offset by a positive exchange rate impact in both sectors and by a low single-digit volume growth in the packaging sector. Regarding profitability, we deliver another strong quarter with consolidated adjusted EBITDA of CAD 121 million, a 12.1% improvement versus last year. This increase was mainly due to our cost reductions and efficiency initiative related to the profitability improvement program and also a positive exchange rate impact.
Volume growth in our packaging sector and a favorable product mix in the Retail Services and Printing sector also contributed to the strong performance. Financial expense decreased by CAD 0.5 million, mainly due to a lower debt level following strong cash flow generation in the last twelve months, partially offset by-
Interest rate fluctuations. Adjusted income tax increased by CAD 7 million to CAD 17 million and represented an effective rate of 24.8%. This led to an adjusted earnings per share of CAD 0.60, a CAD 0.09 increase compared to the same quarter last year. Now, moving to slide 6 for the sector review. In packaging, we generated revenue of CAD 417.3 million, a 3.5% increase compared to last year. The increase is mainly due to a positive exchange rate and modest volume growth in the quarter. While we continue to see pressures in the medical market, mostly due to destocking, we have seen some improvement in demand. In terms of profitability, adjusted EBITDA in packaging grew by 20.6% to CAD 64.9 million.
This solid performance led to a 15.6% EBITDA margin, a 230 basis point improvement versus last year. Cost reduction initiative and volume growth supported the profitability growth for the quarter. Moving to Retail Services and Printing sector on slide seven. Revenues decreased by 8.7% to CAD 250 million. This was mainly due to the lower volume in our traditional printing activities, including the end of Publisac in Quebec. Adjusted EBITDA grew by 12.4% to CAD 50.8 million. After stabilizing profitably in the last quarter, we are encouraged to see EBITDA growth this quarter. The improvement came from our cost reduction initiative, the optimization of our manufacturing network, the favorable effect of the rollout of r.a.d.a.r., and growth in in-store marketing.
Adjusted EBITDA margins grew 380 basis points to 20.3%, reflecting EBITDA growth and our efforts to improve our product mix towards higher value products and services. Now turning to cash flow. We generated CAD 98.3 million from operating activities, compared to CAD 109.1 million in the previous year, following the strong working capital benefit in Q3 last year. Our CapEx at CAD 30.6 million were CAD 13.5 million lower than last year, and in line with our full year guidance of around CAD 135 million. Despite the impact of a stronger US dollar at the end of the quarter and CAD 17.7 million of shares buyback, we improved our net debt ratio to 1.91 x.
We are confident that our leverage ratio will continue to decrease in the fourth quarter, in line with the important cash flow that we expect to generate over the next few months. Looking ahead, following the strong year-to-date performance, we are confident in our full-year outlook. We continue to expect our Retail Services and Printing sector to deliver a stable adjusted EBITDA in fiscal 2024 compared to fiscal 2023. In our packaging sector at the consolidated level, we expect to grow the adjusted EBITDA in this fiscal year to reflect the strong performance year to date. Looking at Q4 results, we expect adjusted EBITDA in both of our main sectors to be in line with a strong quarter last year. However, we should be impacted by higher stock-based compensation expense due to the share price performance, in addition to a strong comparable for the media sector.
We are pleased with the traction we are seeing from our profitability and financial position improvement program, and we continue to expect to reach a run rate of at least CAD 30 million in recurrent savings by the end of this fiscal year. Finally, we closed a CAD 7.1 million sale of a building in Montreal, which bring us to around CAD 20 million versus our objective of CAD 100 million over two years, and we are cautiously optimistic about closing the sale of another building over the next few months. On that note, we will now proceed with the question period.
Thank you. One moment, please. Ladies and gentlemen, we will now conduct a question and answer session. If you have a question, please press star followed by the one on your touch tone phone. You will hear a tone acknowledging your request. Your questions will be pulled in the order they are received. Please ensure you lift the handset if you are using a speakerphone before pressing any keys. One moment, please, for your first question. Your first question comes from Adam Shine with National Bank Financial. Please go ahead.
Thanks a lot. Thanks a lot. Good morning. Thomas, maybe first question to you on the Q4 outlook. You know, you're calling for stable packaging and printing EBITDA. Is this due to mostly a margin dynamic, or is it a function of also a combination of some top-line related issues as you reference, you know, I guess some of the pricing pressure alluded to in packaging?
Hey, good morning. Good morning, Adam. Good to hear from you again. A few things to say on our Q3 and on our Q4. The growth in Q3, 1.7%, is actually in line with what we've announced. If you take into account the decrease in medical, which has been actually a bit stronger than anticipated. So far, we're comfortable and happy with the performance. When I look towards Q4, two things to say on Q4. Last year was a seasonal high in Q4. For packaging, we don't expect such a high seasonality, first thing.
As far as the price pressure is concerned, it's gonna be not a massive impact in Q4, but probably we still have a little bit impact. So I think it's fair to say that, you know, anticipating a stable top line for Q4 packaging is the right thing to do at this point in time.
So if we go back, so that's stable, stable revs in packaging, but then when we think about, you know, some of the margin improvement we've seen in the first three quarters of this year, and, you know, not a huge margin dynamic necessarily, in Q4 last year. Can you just help us a little bit, a bit more color around then, you know, there's got to be a margin dynamic for packaging and printing, unless, of course, you're just being rather conservative.
I don't know. I'll leave the last comment for you, Adam. What I would say is the improvement in costs will continue towards Q4. This is something we've done for the last few quarters, and we will continue to deliver in the fourth quarter. I'm not giving any prediction on margin levels, if you will, but if you add the two together, you can make your own math.
Adam, if you want more color on the printing side, I think with the kind of mix of product we now have on the retail side, if we say we're in line with last year, obviously margin should be up because you see the impact of the new product r.a.d.a.r. we have on the top line. So margins should be better if we say we're in line regarding EBITDA.
Yeah, and just as a follow-up-
And dollars.
No, I appreciate that, Donald. And just as a follow-up on the margin, last question. When we think about how the margin has stepped up on the back of cost cutting, you know, you're near 18% in Q2 this year, you know, 20% in Q3. As you just alluded to, I think the margin, you know, could be closer to 21% in Q4. When we think ahead to next year, is it fair to be thinking about a margin that could actually be in a 19%-20% zone, particularly as, you know, the mix evolves and there's further cost cutting efforts, or is there something, you know, to be considered further?
Yeah, the cost cutting effort obviously will be there again next year because it's a run rate. And as we say, we expect to be at least $30 million, and we're still gonna have cost cutting effort next year. Excluding any important movement on the resin price that, as you know, can have an important impact on the margin, yes, we should continue to see some improvement. Having said that, when you look at quarter over quarter, you see in Q3 and you know, for next few quarters, you'll see the impact of the closing of Publisac in Quebec and the closing of Saint-Hyacinthe. But in next year, Q3 and Q4, those will be, you know, behind us.
So that's something to consider when you look at the improvement in Q3. But, you know, cost cutting program will stick, still be there next year, so.
Okay. Okay, I'll leave it there to queue up again. Thank you.
Your next question comes from Hamir Patel with CIBC Capital Markets. Your line is now open.
Hi, good morning. So on the printing side, we've seen several newsprint producers out with price hikes in September of sort of CAD 50 per ton. How do you see the timing of that increase flowing through your printing business? And how do you think about the risks there for further demand destruction when you try to pass that on?
We don't. So thank you for the question. We don't see this as impacting much the demand as we speak. This is not certainly something that came high in the discussions we're having with our newsprint customers.
I would add to that, as you know, on the printing side, as the same on the packaging side, we have pass-through mechanisms.
Yeah.
Usually in the past, it did have an impact because obviously retailers have a budget that they need to respect. So any spike, important spike in the price of paper had an effect, but that's r.a.d.a.r. using way less paper. Obviously, that help us to mitigate that, so we don't expect any important impact regarding that.
Okay, great. Thanks. That's helpful. And just turning to the packaging side, Thomas, you mentioned some pricing pressure, which would be more apparent in 2025. How large a percentage decline are you seeing?
That's a complex question to answer. I'll try to give you a few insights. First, we have a lot of customers who are under contract, so this will obviously not impact us in the near term. The second thing is, we want to remain competitive, and that's why, as Donald mentioned, we will continue in 2025 to be very cautious.
And frugal on our costs to remain competitive. Now, the price pressure overall will be a combination of those renewal of contracts as well as obviously the level of competitiveness we can deliver. You can look at the industry, see what some of our comparables are doing. They actually already report some price movements, which we do not. So we'll stay very alert and close to what happens on the market. I think the key message here is to remain competitive and be in a position to fight and maintain our margin levels.
Fair enough. And just the last question I had was, just sticking with the packaging side. We've seen, financial regulators in the U.S. start to crack down on companies for some of the claims they make about the recyclability of their plastic packaging. Are you seeing any signs yet of that driving customers to wanna consider paying up for more of the sustainable offerings that you have?
So, well, very, very good point here. And that very much aligns with our investments we've made, and I could speak about it, our BOPE recycle-ready film manufacturing investment we've made, and we're starting up now. So all this to say that we've been somewhat ahead of the curve, anticipating for such regulation to be very clear. So it's good to see. I think it's good news for the industry to see some increased awareness, if you will, and regulation associated with it. I remind you what our investment is about, is to produce recycle-ready films, so to be in line with these new laws and new regulations, and to provide our customers with the technical solutions.
Whether the end consumers will be ready to pay more for it, it's not really for me to say. What matters at this point in time is to come up with technical solutions so that our customers can be ready and can be successful, being the first on the marketplace to offer recycle-ready packaging solutions, which we are. So we'll see the way the dynamic evolves in terms of readiness to pay, to your question. What matters at this point in time is to come up with a technical solution that works and is commercial on our customers' lines.
Fair enough. Thanks. That's all I had. I'll turn it over.
Your next question comes from Maher Yaghi with Scotiabank. Your line is now open.
I just wanted to ask you, when you think about the packaging, you talked about the pricing pressure, but, if we maybe can we just talk a little bit about the volume side of things. I think you had like, you know, 1.7% growth in packaging revenues, organically. Can you split that in terms of volume and pricing, please?
Sure. It's almost 100% volume.
Okay. Volumes are positive. Your indication on pricing: should we expect pricing in next year to turn negative, like slightly negative? Or are you just implying that pricing will remain, you know, continue to be a pressure, but you know, within the current environment, which is flat overall?
We are expecting a pressure downwards on price. Not so much because of raw material movements, as Donald would mention earlier, but because of some activity, I would say, from the market as we speak. So the answer to that is, we remain competitive, and if we need to adjust our pricing, we will take into account our costs so that we can remain positive margin-wise. That's the whole equation we're working on.
Okay, okay. And looking at volumes in general, you know, you've had some sectors that we're seeing volume declines. Can you, if we look, you know, look into the future, can you, you know, discuss a little bit the inventory situation and which segments you're seeing the most growth in? And, from an overall perspective, how do you see volumes behaving going forward? Thank you.
So the volume, the inventory related, the volume impact are primarily in our medical and healthcare segments, which are small. I think we mentioned 5% overall of our sales, and yet significant from a dollar volume impact. I think for Q3, it was in the region of $5 million impact, negative impact for the quarter, so this shows up. We expect this to recover step by step in the course of next year. We don't have yet a full visibility from our customers, so we're staying close to them to get some, you know, accurate data. But we expect a slight recovery, not a full recovery, though. Our assumptions for 2025 are prudent when it comes to medical.
It's gonna be better than this year, but not yet to the highest weeks in 2022, for instance.
And overall, you know, for on a company-wide basis, when you think about volumes next year, how do you think the market will look like?
We don't have a large inventory impact in the other market segments we play in. By the nature of those segments, they can't really increase their inventory that much. Demand so far, when we speak to our key customers, is gonna be flat at best.
Okay, so, to offset these pressures, you mentioned that you're gonna stay very frugal, very tight on cost. Where are the items that you could push on to maintain the margins that you had in 2024 going into 2025 with these top line pressures that you're seeing?
I think, you know, we've demonstrated this year that the priorities we've given are delivering the results we wanted. So we're not gonna change something that delivers as we speak. So three main areas of cost consciousness or control or reduction, if you will. The number one and the largest remains the cost of goods sold. So basically, our efficiencies, our waste levels, the way we buy our materials will be number one focus. The second will remain on the performance of sites and make sure that they raise their expectation. We raise their expectations, and they raise their targets.
And third, we'll stay very, very close to our fixed costs on SG&As to make sure that we align, again, with the cost competitiveness we need to deliver. So the three main things as we've already done, cost of goods sold, performance manufacturing-wise, and fixed costs.
You mentioned in previous quarters that you know, as you finish off and stabilize and continue to, you know, start to grow the packaging EBITDA line, you might look at, you know, doing some M&A. Has that thought or, you know, view changed any at all going into 2025 ?
One of our four priorities is to reduce our debt level, and I think you mentioned this morning, we, Donald, we are 1.91 as we speak, and we have a good path towards lower than that. Meanwhile, as we reach those lower levels, obviously we're looking, we continue to look at and create a funnel of opportunities for packaging, but also for some segments of growth in the Retail Services and Printing. Yes, we are having a funnel of opportunities. Whether this will land in 2025 is too early to say, but this is intimately related to our debt ratio, which goes in the right direction as we speak, and we'll manage both accordingly.
Okay, great. Thank you very much.
[Foreign language] Your next question comes from Drew McReynolds with RBC. Your line is now open.
Yeah, thanks very much. Good morning, too, for me. First, on the Retail Services and Printing segment, overall, you know, down 9% in Q3, and obviously there's a Publisac dynamic here. Just wondering, kind of with that dynamic and all the moving parts on the top line, you know, how you think that kind of unfolds in Q4 and into fiscal 2025 . And then secondly, on the consolidated EBITDA growth that you're seeing again here in fiscal 2024 . Again, given all the moving parts, looking ahead, I know you won't give guidance, but, you know, to what extent do you feel or what are the puts and takes to sustaining positive EBITDA growth in fiscal 2025 and maybe beyond? Thank you.
I'll take the first, and maybe Donald, you want to take the second part of the question? So on the flyers and the reinvented flyer, r.a.d.a.r., the product brings a lot of benefits, as you can see. One of the benefits, it's more stable because of the nature of the products, of the product itself. We have a more predictable and more stable demand and utilization. It's also somewhat limited to the number of pages we have. So the peaks and valleys you would have seen in the past with the flyers are less so. It's more predictable, more upwards trend, but more predictable, less ups and downs.
So when we look at the year over year, I think, Donald, you mentioned that, the we can foresee a strong demand as always for Q4 in the r.a.d.a.r. But we won't see these highest peaks we could see in the old days, as well as we won't see the downs in the lower season. That's what I can say on r.a.d.a.r., which is the product we now expand as we could discuss across the country. When it comes to consolidated EBITDA guidance or direction for 2025 , I think, Donald, I'd like you to give a bit of a feel for that.
Usually, and we'll do the same this year, we give more guidance, you know, through the result of Q4. But as we said in the call, earlier in the call, you know, we will certainly have pressure on the pricing side for packaging, but we'll be cautious regarding costs, and we think we have opportunity to be better on that side. So that's something to consider. On the retail, the printing service, I'd like to highlight that, you know, that was a business that used to go down year over year, and this year we're talking about a stable business. So the challenge for us is keep that business at that level or even, you know, growing the business because ISM is growing, and we think book is, you know, the...
We had a tough year, year over year in book, on the book side, but this is kind of stabilizing at the moment. So we're encouraged to see what the future of this business can be bringing us. So too early to give guidance, but we definitely feel that we have the tools to keep growing the EBITDA.
Agreed.
That's great. Thank you.
[Foreign language] Cormark Securities. Your next question comes from David McFadgen with Cormark Securities. Your line is now open.
Okay, thank you. A couple questions, maybe following on, Drew's line of questioning. When do you expect to lap the impact of Publisac?
This was the first quarter where we had the full impact of, you know, having no longer any Publisac in Quebec. You may recall that we first started with Montreal and with the closure of Saint-Hyacinthe and the closure of the entire distribution service in Quebec in this quarter. So that's the first quarter where, as I said, there's no more Publisac. So it's the new normal in Q3, 2024 .
Okay. So when we look at the organic decline in revenue for the Retail Services and Printing, it was down CAD 24.7 million. Can you give us an idea how much of that was related to Publisac?
I will say that, part of it was linked to Publisac, but also remember that we have, the newspaper business on the retail side, that has an impact, and the book business had an impact also. So the exact impact by each, maybe I will say, close to a third of each, something like that.
One third each?
Yeah.
So about a third is Publisac. Okay.
Yes.
Just give us an idea how long it's gonna take to run that off? So. Okay, that's helpful. And then in the fourth quarter, you know, you indicated, I guess, higher corporate expense. Can you give us an idea how much the magnitude of the higher corporate expense would be?
The way to look at it is, you know, if you look at the stock price last year, we moved from opening fourth quarter at CAD 13 and close a little north of 10. And this year, you'll make the call where the stock will end at the end of Q4, but it's not the direction it's going. I will say that every impact of a dollar is about CAD 1 million negative. So you can do your own calculation regarding that, regarding where we should finish at the end of Q4. This is why we mentioned it, that it will be an impact, and it had an impact over in Q3, probably north of CAD 2.5 million.
Okay. So when you say every dollar is a million, that's for the quarter or for the year?
For the quarter.
For the quarter. Okay.
Yes.
All right. And obviously, you guys have extracted a lot of cost savings this year, and you highlighted CAD 30 million. And do you think you're pretty much done? I mean, I get... You know, obviously, you guys constantly trying to make the business more efficient, but do you think, for the most part, any big cost savings programs are done by the end of this year?
No, we don't think we're done. As we said, you know, we need to be proactive because we're gonna have price pressure, and we still see opportunity, over that side, and when we first announced this program, we mentioned 30 to 40. We are at a run rate of thirty, at least thirty by the end of fiscal year. So we definitely see opportunity to keep improving this program and find other opportunities. This is the way Transcontinental has been doing it for many years, so that's part of our DNA.
Okay. And then, you know, you talk about your- one of your priorities is to lower your leverage. Can you share with us a leverage target that you want to get to before you would start to consider M&A more aggressively?
I think Thomas mentioned that, you know, being at one point one is definitely where we wanted to be. Recall that we were at 2.63 at the end of Q1 2023. So we're quite happy with the movement in that direction. And what it gave us, it gave us more flexibility, and this is why we were confident to put a NCIB program in place in late June. Because we feel that we're way more comfortable to be under two, excluding following acquisition, and, you know, Transcontinental will produce a lot of free cash flow next year. So yes, it gives us flexibility to either keep, you know, being active on the NCIB or if opportunity comes, and Thomas spoke about it, to be on the M&A side.
Okay, but there isn't like a target, say you want to get to 1.5 or one before you would actually-
We don't have a specific target. Before we did, we bought Coveris, we were at, I guess at point thirty debt-to-EBITDA. We were quite happy to be in that position to do, you know, the biggest transaction, M&A transaction for TC. So it's not because we're close to one that we will need to do something, but it that give us a lot of comfort regarding the flexibility and look at any opportunities to improve the performance of the company.
Okay. All right, thank you.
Ladies and gentlemen, if there are any additional questions at this time, please press star followed by the one. As a reminder, if you are using a speakerphone, please lift your handset before pressing any keys. Nevan Yochim, BMO Capital Markets. Your next question comes from Nevan Yochim with BMO Capital Markets. Your line is now open.
Thanks. Good morning, guys. Just on the packaging segment. As we think about margins in 2025, we're at the high end of the 15% range this year, and then you have some additional cost cutting coming into place. But that's been partially offset by some pricing headwinds. I guess just directionally, how are you thinking about packaging margins in 2025? And, you know, could we see margins back into that 16% range?
Well, we, you know, for us, the most important thing is our first priority is to grow the EBITDA. It's not to grow the margin, but obviously, sometimes both goes in the same direction. So what we're definitely working on for 2025 is to grow the EBITDA dollars. In terms of margin, it's always, you know, excluding raw material movement, if pricing, as you know, if pricing cancel the volume impact, but we do better on costs, yes, margin should be better. But we're comfortable with the increase. We're satisfied with the increase we saw over the last 12 months, and, you know, as I said, the most important thing for us is to grow the EBITDA dollars.
Okay, understood. And just my last question on building sales. Can you provide a bit of detail on the demand that you're seeing, maybe in terms of the valuations that you're receiving, and then your expectations on when you could achieve the CAD 100 million target you're looking for?
Well, you know, we see the market being softer than when we launched that program. The good news is that we were working for CAD 100 million over two years, so we still have one year. But being in such a good position right now on the balance sheet, we won't put pressure on us to sell if the price is not at the right level. You know, in the past, we had opportunity, and we decided to keep the building, and a couple of years after, we had a much better price.
Having said that, we're confident to do one transaction in the coming months, but we won't put pressure if the pricing is not there. And I will say, repeating myself, that it's not as, it's way softer than it was a year ago. So we'll see the impact of the interest rate going down and, you know, the next 12 months, if it creates opportunity. But that's how I see the market right now. We see the market.
Okay, understood. Thank you.
There's still a point. There are no further questions at this time.
Thank you, everyone, for joining us on the call today, and we look forward to speaking to you soon. Thank you.
Ladies and gentlemen, this concludes the conference call for today. Thank you for participating, and please disconnect your lines.
Further, cost-cutting efforts, or is there something, you know, to be considered further?
Yeah, the cost-cutting effort obviously will be there again next year because it's a run rate, and as we say, we expect to be at least CAD 30 million, and we're still gonna have cost-cutting effort next year. Excluding any important movement on the resin price that has, as you know, can have an important impact on the margin, yes, we should continue to see some improvement. Having said that, when you look at quarter over quarter, you see in Q3, and you know, for next few quarters, you'll see the impact of the closing of Publisac in Quebec and the closing of Saint-Hyacinthe. But in next year, Q3 and Q4, those will be, you know, behind us.
So that's something to consider when you look at the improvement in Q3. But, you know, cost-cutting program will stick, still be there next year, so.
Okay. Okay, I'll leave it there and queue up again. Thank you.
Your next question comes from Hamir Patel with CIBC Capital Markets. Your line is now open.
Hi, good morning. Thomas, on the printing side, we've seen several newsprint producers out with price hikes in September of sort of CAD 50 per ton. How do you see the timing of that increase flowing through your printing business? And how do you think about the risks there for further demand destruction when you try to pass that on?
We don't. So thank you for the question. We don't see this as impacting much the demand as we speak. This is not certainly something that came high in the discussions we're having with our newsprint customers. And I will add to that, as you know, on the printing side, as the same on the packaging side, we have pass-through mechanisms. Yeah. Usually in the past, it did have an impact because obviously retailers have a budget that they need to respect. So any spike, important spike in the price of paper had an effect, but that's r.a.d.a.r. using way less paper, obviously, that help us to mitigate that. So we don't expect any important impact regarding that.
Okay, great. Thanks. That's helpful. And just turning to the packaging side, you mentioned some pricing pressure, which would be more apparent in 2025. How large a percentage decline are you seeing?
That's a complex question to answer. I'll try to give you a few insights. First, we have a lot of customers who are under contract, so this will obviously not impact us in the near term. The second thing is, we want to remain competitive, and that's why, as Donald mentioned, we will continue in 2025 to be very cautious and frugal on our costs to remain competitive. Now, the price pressure overall will be a combination of those renewal of contracts as well as obviously the level of competitiveness we can deliver. You can look at the industry, see what some of our comparables are doing.
They actually already report some price movements, which we do not, so we'll stay very alert and close to what happens on the market and remain. I think the key message here is to remain competitive and be in a position to fight and maintain our margin levels.
Fair enough. And just the last question I had was, just sticking with the packaging side. We've seen, financial regulators in the U.S. start to crack down on companies for some of the claims they make about the recyclability of their plastic packaging. Are you seeing any signs yet of that driving customers to want to consider paying up for more of the sustainable offerings that you have?
So, wow, very, very good point here. That very much aligns with our investments we've made, and I could speak about it, our BOPE recycle-ready film manufacturing investment we've made and we're starting up now. So all this to say that we've been somewhat ahead of the curve, anticipating for such regulation to be very clear. So it's good to see. I think it's good news for the industry to see some increased awareness, if you will, and regulation associated with it. I remind you what our investment is about is to produce recycle-ready films, so to be in line with these new laws and new regulations, and to provide our customers with the technical solutions.
Whether the consumers, end consumers will be ready to pay more for it, it's not really for me to say. What matters at this point in time is to come up with with technical solutions so that our customers can be ready and can be successful, being the first on the marketplace to offer recycle-ready packaging solutions, which we are. So we'll see the way the dynamic evolves in terms of readiness to pay, to your question. What matters at this point in time is to come up with a technical solution that works and is commercial on our customers' lines.
Fair enough. Thanks. That's all I had. I'll turn it over.
Your next question comes from Maher Yaghi with Scotiabank. Your line is now open.
I just wanted to ask you, when you think about the packaging, you talked about the pricing pressure, but if we maybe can we just talk a little bit about the volume side of things. I think you had like, you know, 1.7% growth in packaging revenues, organically. Can you split that in terms of volume and pricing, please?
Sure. It's almost 100% volume.
Okay. So volumes are positive, and so your indication on pricing, should we expect pricing in next year to turn negative, like slightly negative? Or are you just implying that pricing will remain, you know, continue to be a pressure, but you know, within the current environment, which is flat overall?
We are expecting, we're expecting a pressure downwards on price. Not so much because of raw material movements, as Donald would mention earlier, but because of some activity, I would say, from the market as we speak. So the answer to that is, we'll remain competitive, and if we need to adjust our pricing, we will take into account our costs so that we can remain positive margin-wise. That's the whole equation we're working on.
Okay. And looking at volumes in general, can you know, you've had some sectors that we're seeing volume declines. Can you, if we look, you know, looking into the future, can you, you know, discuss a little bit the inventory situation and which segments you're seeing the most growth in? And, from an overall perspective, how do you see volumes behaving going forward? Thank you.
So the volume, the inventory-related, the volume impact are primarily in our medical and healthcare segments, which are small. I think we mentioned 5% overall of our sales, and yet significant from a dollar volume impact. I think for Q3, it was in the region of $5 million impact, negative impact for the quarter. So this shows up. We expect this to recover step by step in the course of next year. We don't have yet a full visibility from our customers, so we're staying close to them to get accurate data, but we expect a slight recovery, not a full recovery, though. Our assumptions for 2025 are prudent when it comes to medical.
It's gonna be better than this year, but not yet to the highest weeks in 2022, for instance.
And overall, you know, on a company-wide basis, when you think about volumes next year, how do you think the market will look like?
We don't have a large inventory impact in the other market segments we play in. By the nature of those segments, they can't really increase the inventory that much. Demand, so far, when we speak to our key customers, is gonna be flat at best.
Okay. So, to offset these pressures, you mentioned that you're gonna stay very frugal, very tight on cost. Where are the items that you could push on to maintain the margins that you had in 2024 going into 2025 with these top line pressures that you're seeing?
I think, you know, we've demonstrated this year that the priorities we've given are delivering the results we wanted. So we're not gonna change something that delivers as we speak. So three main areas of cost consciousness or control or reduction, if you will. The number one and the largest remains the cost of goods sold. So basically, our efficiencies, our waste levels, the way we buy our materials will be number one focus. The second will remain on the performance of sites and make sure that they're, they raise their expectation. We raise the expectations, and they raise their targets.
Third, we stay very, very close to our fixed costs on SG&A to make sure that we align again with the cost competitiveness we need to deliver. The three main things, as we've already done, are cost of goods sold, performance manufacturing-wise, and fixed costs.
You mentioned in previous quarters that you know, as you finish off and stabilize and continue to, you know, start to grow the packaging EBITDA line, you might look at doing some M&A. Has that thought or, you know, view changed any at all, going into 2025?
One of our four priorities is to reduce our debt level, and I think you mentioned this morning, Donald, we are 1.91 as we speak, and we have a good path towards lower than that. Meanwhile, as we reach those lower levels, obviously we're looking. We continue to look at and create a funnel of opportunities for packaging, but also for some segments of growth in the Retail Services and Printing. Yes, we are. We're having a funnel of opportunities. Whether this will land in 2025 is too early to say, but this is intimately related to our debt ratio, which goes in the right direction as we speak, and we manage both accordingly.
Okay, great. Thank you very much.
Drew McReynolds with RBC. Your next question comes from Drew McReynolds with RBC. Your line is now open.
Yeah, thanks very much. Good morning, too, from me. First, on the Retail Services and Printing segment, overall, you know, down 9% in Q3, and obviously there's a Publisac dynamic here. Just wondering, kind of with that dynamic and all the moving parts on the top line, you know, how you think that kind of unfolds in Q4 and into fiscal 2025. And then secondly, on the consolidated EBITDA growth that you're seeing again here in fiscal 2024. Again, given all the moving parts, looking ahead, I know you won't give guidance, but you know, to what extent do you feel, or what are the puts and takes to sustaining positive EBITDA growth in fiscal 2025 and maybe beyond? Thank you.
I'll take the first and maybe, Donald, you want to take the second part of the question. So on the flyers and the reinvented flyer, r.a.d.a.r., the product, brings a lot of benefits, as you can see. One of the benefits, it's more stable, because of the nature of the product itself. We have a more predictable and more stable demand and utilization. It's also somewhat limited to the number of pages we have. So the peaks and valleys you would have seen in the past with the flyers are less so. It's more predictable, more upwards trend, but more predictable, less ups and downs. So when we look at the year over year, I think, Donald, you mentioned that.
We can foresee a strong demand, as always, for Q4 in the r.a.d.a.r. But we won't see these highest peaks we could see in the old days, as well as we won't see the downs in the lower season. So that's what I can say on r.a.d.a.r., which is the product we now expand as we could discuss across the country. When it comes to consolidated EBITDA guidance or direction for 2025, I think, Donald, I'd like you to give a bit of a feel for that.
Usually, and what we were saying this year, we give more guidance, you know, through the result of Q4. But as we said in the call, earlier in the call, you know, we will certainly have pressure on the pricing side for packaging, but we'll be cautious regarding costs, and we think we have opportunity to be better on that side. So that's something to consider. On the retail, the printing service, I'd like to highlight that, you know, that was a business that used to go down year over year, and this year we're talking about a stable business.
So the challenge for us is to keep that business at that level or even, you know, growing the business because ISM is growing, and we think book is, you know, the. We had a tough year, year over year in the book, on the book side, but this is kind of stabilizing at the moment. So we're encouraged to see what the future of this business can be bringing us. So it's too early to give guidance, but we definitely feel that we have the tools to keep growing the E BITDA.
Agreed. That's great. Thank you.
David McFadgen with Cormark Securities. Your next question comes from David McFadgen with Cormark Securities. Your line is now open.
Okay, thank you. A couple questions, maybe following on, Drew's line of questioning. When do you expect to lap the impact of Publisac?
This was the first quarter where we had the full impact of, you know, having no longer any Publisac in Quebec. You may recall that we first started with Montreal and with the closure of Saint-Hyacinthe and the closure of the entire distribution service in Quebec in this quarter. So that's the first quarter where, as I said, there's no more Publisac. So, it's the new normal in Q3-2024.
When we look at the organic decline in revenue for the Retail Services and Printing, it was down CAD 24.7 million. Can you give us an idea how much of that was related to Publisac?
I will say that, part of it was linked to Publisac, but also remember that we have, the newspaper business on the retail side, that has an impact, and the book business had an impact also. So the exact impact by each, maybe I will say, close to a third of each, something like that. One-third each. Yeah.
So about a third is Publisac. Okay.
Yeah.
Just give us an idea how long it's gonna take to run that off? So okay, that's helpful. And then on the, in the fourth quarter, you know, you indicated, I guess, higher corporate expense. Can you give us an idea how much the magnitude of the higher corporate expense would be?
The way to look at it is, you know, if you look at the stock price last year, we moved from opening a fourth quarter at CAD 13 and close, a little bit north of CAD 10. This year, you'll make the call where the stock will end at the end of Q4, but it's not the direction it's going. I will say that every impact of a dollar is about a million negative. So you can take... You can do your own calculation regarding that, regarding where we should finish at the end of Q4. This is why we mentioned it, that it will be an impact, and it had an impact over in Q, in Q3, probably north of CAD 2.5 million.
Okay. So when you say every dollar is a million, that's for the quarter or for the year?
For the quarter.
For the quarter.
Yeah.
Okay. All right. And obviously, you guys have extracted a lot of cost savings this year, and you highlighted CAD 30 million, and do you think you're pretty much done? I mean, I get, you know, obviously, you guys constantly trying to make the business more efficient, but do you think for the most part, any big cost savings programs are done by the end of this year?
No, we don't think we're done. As we said, you know, we need to be proactive because we get a price pressure, and we still see opportunity over that side. And when we first announced this program, we mentioned forty to forty. We are at a run rate of thirty, at least thirty by the end of fiscal year. So we definitely see opportunity to keep improving this program and find other opportunities. This is the way Transcontinental has been doing it for many years, so that's part of our DNA.
Okay. And then, you know, you talk about your, one of your priorities is to lower your leverage. Can you share with us a leverage target that you want to get to before you would start to consider M&A more aggressively?
I think Thomas mentioned that, you know, being at 1.91 is definitely where we wanted to be. Recall that we were at 2.63 at the end of Q1, 2023 . So we're quite happy with the movement in that direction. And what it gave us, it gave us more flexibility, and this is why we were confident to put a NCIB program in place in late June. It's because we feel that we're way more comfortable to be under two, excluding following acquisition, and, you know, Transcontinental will produce a lot of free cash flow next year. So yes, it give us flexibility to either keep, you know, being active on the NCIB or if opportunity comes, and Thomas spoke about it, to be on the M&A side.
Okay, but there isn't like a target, say, you want to get to 1.5 or one before you would actually-
We don't have a specific target. Before we did, we bought Coveris, we were at, I guess, at point thirty debt to EBITDA. We were quite happy to be in that position to do, you know, the biggest transaction, M&A transaction for TC. So it's not because we're close to one that we will need to do something, but it, that give us a lot of comfort regarding the, the flexibility and look at any opportunities to improve the, the performance of the company.
Okay. All right, thank you.
Ladies and gentlemen, if there are any additional questions at this time, please press Star, followed by the one. As a reminder, if you are using a speakerphone, please lift the handset up before pressing any keys.
[Foreign language] BMO Capital Markets. Your next question comes from Nevan Yochim with BMO Capital Markets. Your line is now open.
Thanks. Good morning, guys. Just on the packaging segment, as we think about margins in 2025, we're at the high end of the 15% range this year, and then you have some additional cost-cutting coming into place. But that's been partially offset by some pricing headwinds. So I guess just directionally, how are you thinking about packaging margins in 2025? And, you know, could we see margins back into that 16% range?
We, you know, for us, the most important thing is our first priority to grow the EBITDA. It's not to grow the margin, but obviously, sometimes both goes in the same direction. So what we're definitely working on for 2025 is to grow the EBITDA dollars. In terms of margin, it's always, you know, excluding raw material movement, if pricing cancel the volume impact, but we do better on costs, yes, margin should be better. But we're comfortable with the increase. We're satisfied with the increase we saw over the last 12 months. And, you know, as I said, the most important thing for us is to grow the EBITDA dollars.
Okay, understood. And, just my last question on building sales. Can you provide a bit of detail on the demand that you're seeing, maybe in terms of the valuations that you're receiving, and then your expectations on when you could achieve the CAD 100 million target you're looking for?
You know, we see the market being softer than when we launched that program. The good news is that we were working for CAD 100 million over two years, so we still have one year. But being in such a good position right now on the balance sheet, we won't put pressure on us to sell if the price is not at the right level, you know. In the past we had a fortune team, we decided to keep the building, and a couple of years after, we had a much better price. Having said that, we're confident to do one transaction in the coming months, but we won't put pressure if the pricing is not there. I will say, repeating myself, that it's not as, it's way softer than it was a year ago.
So we'll see the impact of the interest rate going down and, you know, the next 12 months, if it creates opportunity. But that's how I see the market right now. We see the market.
Okay, understood. Thank you.
[Foreign language] There's still a point, there are no further questions at this time.
Thank you, everyone, for joining us on the call today, and we look forward to speaking to you soon. Thank you.