Quad Earnings Call Addresses Postmaster General Resignation, Impending Tariffs, MX Solutions

Joel Quadracci

Quad Chairman, President and CEO Joel Quadracci and Chief Financial Officer Tony Staniak conducted a quarterly earnings call with investors and business analysts this morning to discuss Quad’s fourth quarter and full-year 2024 financial results. Here are some of my takeaways from listening to their prepared presentation and the brief Q&A session that followed.

There’s no tears being shed at Quad about U.S. Postmaster General Louis DeJoy’s upcoming departure. Coming on the heels of Monday’s announcement that Louis DeJoy plans to step down from the position he’s held for five years, Joel Quadracci pulled no punches about the failure of DeJoy’s 10-year “Delivering for America” plan and its subsequent decreases in mail volume levels due to excessive postal rate hikes.

Louis Dejoy

“The Postmaster General just test tendered his resignation on Monday. His ‘Delivering for America’ plan really has not worked and [the USPS] continues to lose money,” Quadracci noted, despite it instituting ongoing postal rate increases in tandem with lower service standards. “… From 2021 until today, the CPI (consumer price index) increased about 16.4%. During that same period, the Post Office increased postal rates between 50% and 80% — far outpacing inflation. ...That has had a direct impact on our customers, because postage is the largest cost that they have.

“Furthermore, we do see what was supposed to be a 9% to 10% increase in July. Now they're calling for it to maybe be closer to 13%, and we're doing work to fight against that. But at least it's a known entity in people's planning, unlike the [two significant rate hikes, including an unexpected one in July, that happened] in 2023.

Related story: Quad Reports Q4 and Full-Year 2024 Sales Declines, Reduced Debt Leverage

“…A lot of damage has been done,” Quadracci added. “We look forward, though, to see who comes on board and how [DeJoy’s replacement and the USPS Board of Governors] will reflect on some of their past practices and how that should be adjusted.

“But whenever customers are under pressure on postal costs, it actually increases our ability to help them on the data side — to increase the responsiveness of print,” Quadracci continued. “So, we’re making a lot of effort right now, especially with the launch of the data stack, to hit all our existing customers that we typically hadn't been involved in helping them find audience. Usually, they're supplying the audience to us, using another agency to help them with that. Now, we're aggressively going after them to help them increase response [rates], because if we can increase responsiveness of those names, of that audience just a little bit, we can offset the impact of those [high postage] costs.

Quad is preparing for President Trump’s proposed tariffs, especially as they relate to those imposed on Canada and Mexico. “It would be a 25% tax on Canada, if that were to happen,” Quadracci explained. “As print has consolidated, so has the paper industry. We get much of the paper that we use for a lot of our marketing clients mostly from Canada, which we can no longer get in the United States. So, there is no replacement opportunity for that. If a big tariff were to be put on, it would impact paper [prices].

“Now I will remind you that paper is a pass through to our clients, so we don't incur that risk,” he pointed out. “However, if they were to incur that, you would maybe see some indirect further pressure on volumes. We've bought forward Canadian paper that we believe will allow us to weather what we think would be more of a short-term storm, as the North America tariff game plays out. If it were longer term and they stuck to a significant tax, then we would look to further help our clients mitigate that through more clever uses of marketing to offset that big increase. But we feel, in the short-term, we've been able to mitigate that.

“…And, with [our Mexican operations], our biggest tariff exposure is that we do export some [educational] books from Mexico into the United States. Ultimately, we probably could find a solution for in the U.S., if that happened in the short-term,” Quadracci concluded.

Quad looks to continued investments in marketing experience platform offerings, partially to offset declining print demand revenue streams. With expectations that Quad won’t regain net sales growth until 2027-2028, the emphasis remains to lower its debt levels and to continue to grow revenues and marketing experience (MX) customer share through its household-based data stack and its At-Home Connect and In-Store Connect offerings.

Quadracci explained: “We are continuing to enhance our solutions through the power of our proprietary household-based data stack. For the modern marketer, nothing matters more than audience data. It's core to doing business, and we have built a superior data stack for smarter audience intelligence and activation across all media channel — both online and offline. What makes our data stack different, and we believe better, is it's anchored in physical, household-centric data. This is a more accurate and resilient data source than digital alternatives like cookies or device IDs, which can frequently change or become obsolete or may not even be attached to a real person.

“Our data stack, which is built on transparency, trust, and respect for privacy, represents 250 million consumers, or 97% of the adult U.S. population. It's comprised of more than 3 billion data points that are revalidated weekly, and embodies more than 20,000 attributes, including demographic, transactional, attitudinal, and behavioral characteristics. Most significantly, it also includes proprietary identifiers related to consumer interest, or, as we like to call them ‘passions’ that help to drive deeper, more meaningful consumer engagement and improve business outcomes. These passions are unique to Quad and are linked to our mail stream data so we know exactly what is being requested in-home and therefore of interest and value to the recipient. What's more, we can link household data with all media channels for even smarter audience intelligence activation and integration.

“We continue to invest in our data stack to ensure it meets our clients’ ever-evolving needs. To maintain our competitive differentiation, notably our data stack features an open architecture, meaning we can easily ingest supplemental data from clients and vendor partners and add new capabilities and functionality. For example, we just added transactional data for more than 1,000 brands, which provides valuable insights on customer behaviors, trends and patterns. We also have made investment to ensure our data stack is future focused and AI ready. We have entered into a partnership with Google Cloud to leverage AI optimization capabilities and large language models. We intend to create new AI-driven solutions that tap into our data stack and seamlessly connect it with client creative and media assets to further enable personalization at scale.

“Our AI solutions will also include streamlined access to Quad’s audience targeting capabilities. Through these efforts, we are creating multiple monetization opportunities, such as a sales tool that acts as a point of entry for our entire MX Solution Suite, a self-service tool for clients who are looking for audience intelligence and leveraging our capabilities with other agency partners when it comes to activating our data. We've been very purposeful to eliminate the hidden fees marketers often incur, including the tech tax typically paid to data onboarding platforms that connect, control, and activate data. In this way, we are able to maximize our clients’ dollars.

“Our transparent approach is also channel agnostic, meaning we activate our data in any media channel, online or offline, based on what is best for achieving our clients’ business objectives. … In 2025 and beyond, we will continue to invest in our data stack and related media capabilities to drive new revenue streams.

“Our powerful data capability is at the core of our MX Solution Suite, and enabled by technology to help our clients connect the right message with the right audience at the right time, whether in the home, in-store, or online. We recently launched At-Home Connect, which modernizes the direct mail channel with an intelligent, automated platform that connects online engagement and offline impact. … We built At-Home Connect to seamlessly interface with a wide range of client marketing automation platforms like Salesforce and HubSpot and manage everything from personalization to printing, mail sorting, and in-home delivery. When used as part of an omnichannel campaign, our platform helps marketers drive consumers further along their purchasing journeys, converting abandoned online shopping carts into completed sales, winning backlash customers, encouraging the purchase of additional or upgraded items, and more.

“Our In-Store Connect solution drives consumer engagement in brick-and-mortar stores where approximately 80% of retail sales still happen. In-Store Connect taps into the boom of retail media networks or RMNs, which are heralded as the next big advertising channel. In fact, eMarketer predicts ad spend at omnichannel RMNs will grow to nearly $100 billion by 2028. In-Store Connect is an important growing subset of omnichannel, RMNs, and builds on our deep expertise with retailers and consumer packaged goods companies. In-Store Connect delivers engaging messages and promotions across the shopper journey, including the store aisle — the most critical moment in the purchasing experience.”