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Yellow Media says it is on track for 2018 recovery after digital revenues surge

Ross Marowits, The Canadian Press

MONTREAL - Yellow Media says it is on track to return to growth by 2018 after the publishing company, which is shifting from paper-based directories to digital products, saw a majority of its revenues in the third quarter come from digital for the first time.

Even though its profits and revenues decreased, the Montreal-based company said it surpassed its full-year target for new customers in just nine months, which helped drive digital revenues to account for 52 per cent of overall sales.

"We remain on track with the implementation of our return to growth plan as evidenced by continued growth in digital revenues, customer acquisitions, total digital visits and debt repayment," CEO Julien Billot said Wednesday during a conference call.

Yellow (TSX:Y) said it earned $26.5 million or 98 cents per share for the quarter ended Sept. 30 compared with $41.8 million or $1.51 per share a year ago.

Total revenue declined eight per cent or nearly $19 million to $218.4 million from $237.4 million in the third quarter last year.

The company was expected to earn 99 cents per share on $222 million of revenues, according to analysts polled by Thomson Reuters.

Its print sales fell 22.8 per cent from a year ago to $104.8 million, while digital revenue accounted for 52 per cent of overall revenues after increasing 11.9 per cent to $113.6 million.

Yellow Media said much of the increase in digital came from the migration of its print customers plus the addition of new customers, who principally buy digital offerings.

The number of digital only customers grew 53 per cent to 32,700 and accounted for 13 per cent of the customer base, up from eight per cent a year ago.

Total customers decreased 8.1 per cent to 260,000 from 283,000 a year ago. But the company said it added 20,200 new customers, exceeding its full-year target and last year's tally of 14,800.

"Ultimately the growth in revenues cannot be achieved without a growth in customer count," Billot told analysts.

He said investments that started in mid 2013 should help it add 30,000 new customers in 2015.

Net debt was reduced to $478 million from $533 million as of Dec. 31, with future payments tied to cash flow since it already met the minimum repayment requirements through next year.

"Our focus remains to gain a leadership position within Canada's local digital advertising market. This will allow us to return to a growth in customer count in 2017 and ultimately grow revenues and EBITDA in 2018."

On the Toronto Stock Exchange, Yellow Media shares were up $1.81 at $17.81 in afternoon trading — a recovery from recent lows but still below this year's high of $25.52, set in March. The stock plunged below $20 in early May and took another big dip in September on its way to a 2014 low of $13.78 in October.

Aravinda Galappatthige of Canaccord Genuity called the results "encouraging."

"While the headline numbers were in line, we were very encouraged by the operational metrics," the analyst wrote in a report.

Galappatthige said the 26 per cent decline in pre-tax operating income (EBITDA) to $75.3 million was anticipated due to heavy investments in brand advertising, IT and sales.

"We believe that these investments are close to a peak and the fourth quarter may well represent the bottom, in terms of margins."

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