Quad/Graphics, Inc. Q2 FY2025 earnings call

• Quad positions as a marketing experience company, differentiating via integrated solutions for creative production and media with intelligence and tech across digital and physical channels.
• Continues to invest in strategic growth areas, with limited direct tariff exposure on key imports like Canadian paper and Mexican-manufactured books, which are compliant under USMCA.
• Addresses postal rate challenges with a 10% catalog discount test starting in October and innovative postal optimization solutions such as Household Fusion.
• Applies AI in process automation, cognitive insights, and engagement across MX Intelligence, Creative, Production, and Media segments.
• In-store Connect expanded partnerships with Vallarta and Save Mart, demonstrating sales lift from promotional campaigns, with average 5%-20% product sales lift.
• Received industry recognitions, partnered with The Harris Poll for a cross-generational consumer study, and maintained long-term client partnerships like with KnitWell Group and Natrol.

Net sales in the second quarter of 2025 were $572 million, a decrease of 4% compared to the second quarter of 2024, excluding the 6% impact of the February 28, 2025, divestiture of European operations. For the first half of 2025, net sales were $1.2 billion, a 3% decline compared to the first half of 2024, excluding the 4% impact of the Europe divestiture. Adjusted EBITDA in the second quarter of 2025 was $43 million compared to $52 million in the second quarter of 2024, with the adjusted EBITDA margin declining from 8.2% to 7.6%. Year-to-date, adjusted EBITDA was $89 million in 2025 compared to $102 million in 2024, and the adjusted EBITDA margin dropped from 7.9% to 7.4%. Adjusted diluted earnings per share was $0.14 in the second quarter of 2025 compared to $0.12 in the same period of 2024. Year-to-date, it was $0.34 in 2025 versus $0.22 in 2024. Free cash flow improved $16 million from the previous year to negative $66 million in the 6 months ended June 30, 2025, with $34 million of free cash flow generated in the second quarter of 2025.

• Expect net sales to decline 2% to 6% compared to 2024, excluding divested European operations. Full year 2025 net sales exclude $23 million in 2025 and $153 million in 2024 from European divestiture.
• Full year 2025 adjusted EBITDA expected between $180 million and $220 million, midpoint at $200 million. Sequentially higher adjusted EBITDA in third and fourth quarters due to seasonal production peak.
• Free cash flow expected in the range of $40 million to $60 million.
• Net debt leverage ratio expected to decrease to approximately 1.5x by the end of 2025, achieving the low end of the long-term targeted range of 1.5x to 2.0x.

• Potential impacts of tariffs and inflationary pressures on clients.
• Uncertainty regarding postal rate increases and their effect on print and marketing spend.

Q: Kevin Steinke asked about the postal rates landscape and progress with the post office, including optimism on pricing vs. volume trade-off and interaction with USPS leadership.

A: J. Joel Quadracci discussed the new Postmaster General David Steiner, the 10% catalog discount test starting in October, and the Postal Rate Commission's review of rate structure, expressing optimism about the new leader's potential to address postal challenges.

Q: Barton Crockett inquired about sales trends excluding grocery client impact, third quarter trends, asset sales progress, and Postal Service rate increase recommendations.

A: J. Joel Quadracci noted the grocery client impact was 3% of revenue, Q2 is typically the lowest volume quarter with higher organic decline in large print product lines, and Anthony C. Staniak mentioned third quarter trends are within guidance. Regarding asset sales, details on Sacramento building sale and other facilities for sale were provided, and on Postal Service rate increase recommendations, it was discussed as a process yet to play out with input gathering ongoing.