Quad/Graphics, Inc. Q1 FY2026 earnings call

Key highlights: Q1 results in line with expectations, on track for full-year 2026 guidance. Maintained steady profitability and expanded margins. Returned $7 million to shareholders. Strategic investments in marketing solutions, strong momentum in audience strategy services. Addressed macroeconomic challenges like postage rate increases and supply chain costs, implemented ink surcharge, proactively managed by diversifying suppliers, optimizing inventory. Postal optimization solutions delivered savings for clients. Invested in innovative solutions like At Home Direct, saw success with Fidium. Worked with Monogram on direct mail effort, achieved strong results. Partnered with Harris Poll on AI study, helped clients adapt to AI influence on marketing.

In Q1 2026, net sales were $581 million, a 4.3% decrease from Q1 2025 (excluding European divestiture). Revenue mix increased in targeted print offerings (direct mail, packaging, in-store) and logistics due to increased volume, offset by declines in magazines, catalogs, and agency solutions. Adjusted EBITDA was $45 million in Q1 2026 vs. $46 million in Q1 2025, with adjusted EBITDA margin rising to 7.7% from 7.2%. Adjusted diluted earnings per share was 25 cents in Q1 2026 vs. 20 cents in Q1 2025. Free cash flow was negative $107 million in Q1 2026 vs. negative $100 million in Q1 2025.

Reaffirmed 2026 guidance: net sales decline 1%-5% (excluding European divestiture), midpoint 3% decline. Full-year adjusted EBITDA $175M-$215M, midpoint $195M (essentially equal to 2025). Adjusted EBITDA margin expected to increase 30 basis points to 8.4%. Free cash flow $40M-$60M, midpoint $50M (essentially equal to 2025). Net debt leverage ratio expected to decrease to ~1.5 times by end of 2026. 2028 outlook: net sales growth expected, adjusted EBITDA margin to 9.4%, free cash flow conversion to 35% by 2028.

Macroeconomic uncertainties including persistent inflation, evolving global trade, geopolitical tensions, cautious business spending. Postal rate increases affecting clients' marketing spend. Delayed payment of $6 million principal and interest on note receivable from European divestiture.

Q: Talk about macro pressures dampening demand.

A: Surcharge on ink due to supply chain, postage rate hikes expected in July, clients generally expected increase in budgeting, no big pullback seen yet but focus on 2027 planning.

Q: Consistency with long-term growth aspiration.

A: Services offerings seen as growth areas, targeted print expected to grow, agency decline due to transition from project-based to agency of record, expect growth in 2027 and beyond.

Q: Detail on delayed payment from CapMod.

A: Expect to be paid in full, no performance benchmark issue, actively working with CapMod.

Q: Hope for less aggressive rate hike regime under Steiner.

A: Steiner's testimony hints at simplifying problem, post office has $2T economy impact, mandate to deliver six days a week, hope for more realistic solution.

Q: Visible acceleration in agency business.

A: Core saw pullback from existing customers due to macro, transitioning from transactional to holistic with longer sales cycles, expect to ramp up towards end of year and into 2027.

Q: Free cash flow range puts and takes.

A: CapEx guided $55M-$65M, midpoint $60M, CapEx and adjusted EBITDA landings are big drivers.

Q: Postal service flexibility.

A: Got additional flexibility like relief on pension, debt limit raise, more pricing flexibility desired.

Q: Temporary surcharge on ink.

A: Not material to revenue, offsetting increasing costs, ink is lower component of cost structure.

Q: Agency pullback color.

A: Reasons vary, depends on client, early in season, no huge disruption expected in product lines.

Q: Commentary on household-based data stack.

A: Benefits through direct mail agency, helps find good audiences, enhances print piece effectiveness, allows winning big invoice products and gaining trust as advisor.