Quad Posts Sales Drop But Hits Earnings, Drives Postal Savings

Date of Call: Feb 18, 2026

Financials Results

• Revenue: Q4: $631M, down 5.7% YOY excluding European divestiture; Full Year: $2.4B, down 4.8% YOY excluding European divestiture.
• EPS: Q4 adjusted diluted EPS: $0.36, consistent with prior year; Full Year adjusted diluted EPS: $1.01, up 19% YOY.
• Operating Margin: Adjusted EBITDA margin: 8.1% for 2025, expected to increase 30 basis points to 8.4% in 2026.

Guidance:

• 2026 net sales expected to decline 1% to 5% YOY, excluding $23M from European divestiture.
• 2026 adjusted EBITDA expected to be $175M to $215M, with midpoint equal to 2025's $196M.
• Adjusted EBITDA margin expected to increase 30 basis points to 8.4%.
• 2026 free cash flow expected to be $40M to $60M, with midpoint equal to 2025's $51M.
• Capital expenditures expected to be $55M to $65M, up ~$15M YOY at midpoint.
• Net debt leverage ratio expected to decrease to ~1.5x by end of 2026.

Business Commentary:

Financial Performance and Guidance:

• Quad/Graphics, Inc. reported net sales of $2.4 billion for 2025, a decline of 4.8% compared to 2024, excluding the divestiture of European operations.
• Despite the decline, the company achieved its full-year financial guidance and generated strong cash flow, enabling targeted investments and a 33% increase in quarterly dividends.
• The decline in sales was due to lower paper sales, lower print volumes, and lower logistics and agency sales.

Direct Mail and Targeted Print Growth:

• Quad's direct mail and other targeted print categories experienced net sales growth, exceeding expectations in 2025.
• This growth was driven by higher volumes and strong operational efficiencies, as well as the integration of data-driven strategies and personalization.

Postal Optimization and Cost Management:

• Through the acquisition of Enru, Quad increased its co-mail volume by over 50% and improved sortation levels, resulting in significant postal savings.
• The company's postal optimization platform aims to maximize postage savings, which are critical for maintaining print's value in the marketing mix.

Capital Allocation and Shareholder Returns:

• Quad reduced its net debt by $42 million in 2025 and has lowered its net debt leverage to 1.57x.
• The company continues to invest in growth, automation, and shareholder returns, with plans for capital expenditures in the range of $55 million to $65 million for 2026.

In-Store Media and Integrated Solutions:

• Quad is increasingly applying its integrated solutions to support emerging consumer packaged goods brands looking to scale presence across big-box retailers.
• The company's extensive manufacturing and structural design capabilities enable rapid market entry and a wide array of in-store displays.

Sentiment Analysis:

Overall Tone: Positive

• Management expressed optimism about strategic progress, achieving full-year 2025 guidance, strong cash flow, increased dividend, and momentum in targeted print categories. 'I'm extremely optimistic about what we are all building together' and 'We remain focused on achieving our financial goals and providing strong shareholder returns.'

Q&A:

• Question from Kevin Steinke (Barrington Research Associates, Inc.): Any more commentary on direct mail growth trends and momentum carrying into 2026 and beyond?
  Response: Direct mail is becoming more personalized and data-driven, increasing responsiveness and driving growth; the integrated agency approach combines data targeting with postal optimization for better client ROI.

• Question from Kevin Steinke (Barrington Research Associates, Inc.): Have you seen any greater uptake in catalogs or other channels due to the delayed postal rate increase?
  Response: No growth in catalogs; the delayed increase provided temporary relief but the overall cost baseline is still too high; postal optimization efforts (Enru acquisition) have helped offset some damage.

• Question from Kevin Steinke (Barrington Research Associates, Inc.): Any updates on In-Store Connect pipeline, deployments, and rollout progress?
  Response: Interest and opportunities are accelerating; ISCQ is a primary driver of the increased 2026 CapEx; the learning curve with retailers is longer but interest remains strong.

• Question from Kevin Steinke (Barrington Research Associates, Inc.): What factors influence the 2026 sales and adjusted EBITDA guidance ranges?
  Response: Sales trends depend on postal impact and momentum in targeted print categories (direct mail, in-store, packaging); mix shift to higher-margin targeted print will help lift margins.

• Question from Kevin Steinke (Barrington Research Associates, Inc.): How will capital allocation proceed given low leverage and the recent dividend increase?
  Response: Capital allocation will remain balanced: opportunistic tuck-in acquisitions, continued CapEx for growth (including ISCQ and other initiatives), strong shareholder returns via dividends and buybacks, and maintaining low debt leverage.

• Question from Barton Crockett (Rosenblatt Securities Inc.): How is the first quarter trending relative to guidance, and are you seeing marketing pullback by large retailers?
  Response: Q1 is on track with expected lower volumes; no significant marketing pullback observed; some shifts within media mix (like retail inserts) have already played out.

• Question from Barton Crockett (Rosenblatt Securities Inc.): What is the visibility into future postal rate increases?
  Response: An increase of 6% to 8% is expected midyear, consistent with industry expectations; the long-term trajectory under the new Postmaster General is still uncertain but shows a pivot towards growth.

• Question from Barton Crockett (Rosenblatt Securities Inc.): Are digital performance marketing solutions (e.g., Google) creating competitive pressure for Rise?
  Response: Integration and measurement across digital channels is a key challenge for clients; Quad's strength lies in providing comprehensive, integrated solutions to optimize digital spend.

Contradiction Point 1

Catalog Volume Trend and USPS Rate Impact

Contradiction on catalog volume's response to USPS rate stability.

What is your primary question for the company? - Kevin Steinke (Barrington Research Associates, Inc.)

2025Q4: Explains the USPS rate history... catalog volume has accelerated decline due to high rates... - J. Joel Quadracci(CEO)

Has the delayed postal rate increase led to increased uptake in catalogs or other channels? - Kevin Steinke (Barrington Research Associates, Inc.)

2025Q3: The potential 5-6% increase being avoided is well-received... Postal rates have increased ~60% since 2021, making response rates challenging. - J. Joel Quadracci(CEO)

Contradiction Point 2

Guidance Factors and Sales Performance Drivers

Contradiction on the primary drivers affecting sales guidance.

What are your thoughts on the current market conditions? - Kevin Steinke (Barrington Research Associates, Inc.)

2025Q4: Factors include the planned sales decline and its management, potential postal rate impact, and the momentum in targeted print categories... - J. Joel Quadracci(CEO)

What factors influence performance at the higher vs. lower end of 2026 guidance as the year progresses? - Kevin Steinke (Barrington Research Associates, Inc.)

2025Q3: Direct mail, being more transactional, can see budget shifts at year-end, leading to quarterly variability. - J. Joel Quadracci(CEO)

Contradiction Point 3

USPS Rate Increase Outlook and Impact

Contradiction on the expected timing and magnitude of postal rate increases.

Could you comment on the company's earnings performance this quarter? - Barton Crockett (Rosenblatt Securities Inc.)

2025Q4: The industry expects a mid-year USPS increase of 6-8%, which is now baked into budgets. - J. Joel Quadracci(CEO)

Do you have visibility into January postage, but is midyear postal activity still unknown? - Kevin Steinke (Barrington Research Associates)

2025Q2: The USPS recently implemented an 11% postal rate increase, adding to a 50-70% increase over the past four years. - J. Joel Quadracci(CEO)

Contradiction Point 4

Growth Trajectory and Strategy for Targeted Print Categories

Contradiction on the growth drivers and integration of new tools for targeted print.

What are your thoughts on the recent earnings report? - Kevin Steinke (Barrington Research Associates, Inc.)

2025Q4: Differentiates between direct mail (DM) as a product and the Direct Mail Agency of Record (AOR). Highlights the shift from generic to data-driven, personalized direct mail, which increases responsiveness and effectiveness. Mentions winning back clients like GEICO. - J. Joel Quadracci(CEO)

Can you provide more commentary on direct mail's growth trends, its outperformance in 2025, and how this momentum is expected to carry into 2026 and beyond? - Kevin Steinke (Barrington Research Associates)

2025Q2: The shift towards targeted print offerings (e.g., direct marketing, packaging, in-store) is showing healthy growth, with year-to-date sales increases of 7% in direct mail/packaging and 13% in in-store. - J. Joel Quadracci(CEO)

Contradiction Point 5

Client Marketing Behavior and Overall Demand Outlook

Contradiction on whether significant client marketing pullback or demand destruction is occurring.

What is your outlook for revenue growth in Q4? - Barton Crockett (Rosenblatt Securities Inc.)

2025Q4: Confirms no significant overall client pullback has been seen. Notes that shifts in media channels (like retail inserts) have already played out. - J. Joel Quadracci(CEO)

Are you indicating that you aren't seeing increased confidence in decision-making? - Kevin Steinke (Barrington Research Associates)

2025Q1: Some clients are adjusting marketing plans due to tariff-related disruptions... No significant overall pullback has been observed yet. - J. Joel Quadracci(CEO)