MONTREAL — Yellow Media is eating “humble pie” after a stock market selloff Thursday triggered by a slashing of the company’s dividend and a rating agency downgrade.
“Given where we are we’re going to be eating a little bit of humble pie,” president and CEO Marc Tellier said during a conference call in the wake of the stock selloff on Canada’s main stock exchange.
Shares of the Montreal-based company lost nearly half their market value as the telecom directory publisher dropped 94 cents, or 48.5 per cent, to $1 in massive afternoon trading of 33.9 million shares on the Toronto Stock Exchange.
“We are disappointed with the performance of our securities . . . (but) we are also convinced that this does not reflect the future of our business, nor our true business fundamentals,” Tellier told investors.
Before markets opened Thursday, Yellow Media cut its dividend to common shareholders to 15 cents a share from 65 cents annually in a move to reduce debt and improve its balance sheet.
Dividends will also be paid quarterly instead of each month.
The company said it will use the more than $200 million saved from the dividend cut and $708 million gained from the sale of its Trader Corp. unit last month to cut debt and reinvest in its core operations.
“We want to take a more cautious approach to creating long-term value while preserving financial flexibility during the transformation of our business,” Tellier told analysts.
He said the move is prudent and in the best interests of the company and its stakeholders.
The dividend cut, proceeds from the Trader sale and expected free cash flow over the next three years should generate more than $2 billion.
The anticipated dividend cut comes as Yellow Media (TSX:YLO) lost $20.7 million or five cents a share from continuing operations for the quarter ended June 30.
That compared with net earnings of $53 million or nine cents for the same quarter in 2010,
The latest red ink reflected a loss of $50.5 million from the company’s investment in Ziplocal, a U.S.-based online local search website.
Including discontinued operations, Yellow Media reported a net loss of $14.3 million for the quarter compared to earnings of $52 million last year.
Revenues fell 4.8 per cent to $342.7 million from $360.1 million.
The publishing industry’s inability to adequately deal with its debt without resorting to bankruptcy has created an overhang for Yellow and diverted investors’ focus away from its business transformation, Tellier added.
The company’s value has contracted in line with newspaper and other traditional publishers and it is not been given credit for the changes it has made, he said.
Digital revenues account for 25 per cent of overall revenues and are projected to represent half by the end of 2014.
Despite the prevailing perception of its decline, print medium is more robust that some think, Tellier added.
One in two Canadians referred to a print directory last month, compared to 70 per cent who did so a decade ago.
Analysts’ estimates compiled by Thomson Reuters place revenue at $353 million with a high of $362 million to a low of $339 million.
Earnings per share was estimated at 18 cents with a low of 10 cents to a high of 23 cents.
DBRS rating service downgraded Yellow’s medium-term notes and commercial paper rating over concerns about business risk as Yellow accelerates its transition from print to digital.
“DBRS believes that Yellow Media’s directories business, which is now its principal business since the recent sale of the automotive assets of Trader, will face heightening competitive challenges as it continues to transform its business from a print-placement and listing organization into an online digital media and marketing service provider,” it said Thursday.
Yellow Media is the largest telephone directory publisher in Canada. Online properties comprise the YellowPages.ca and Canada411.ca online telephone directories, and the CanadaPlus.ca group of major Canadian city websites.
Print directories include 340 telephone directories published annually for Bell Canada, Telus, Bell Aliant, MTS Allstream and other telephone companies.