Securities Class Action Suit Filed Against Quad/Graphics

Printing company Quad/Graphics Inc. is facing a securities class action filed on behalf of investors who allege the company provided materially false and/or misleading statements. The action also said the company failed to disclose material adverse facts about the company’s business, operations and prospects.

The complaint covers the class period of Feb. 21, 2018 through Oct. 29, 2019. It said Quad/Graphics CEO J. Joel Quadracci and CFO David Honan failed to disclose to investors that due to underperformance the company was likely to divest its book business and cut its quarterly dividend. It also said that the two executives made positive statements about the company’s business, operations, and prospects, which were materially misleading and/or lacked a reasonable basis.

Quad/Graphics reported on Oct. 29 that it was slashing its dividend in half to $0.15 from $0.30 a share and announced plans to divest its book business. It also downgraded its guidance to reflect the divestiture of its book business, which the company said generated $200 million in annual sales.

Quad/Graphics’ net sales guidance for 2019 was lowered to approximately $3.9 billion from the previous range of $4.05 billion to $4.25 billion. Its adjusted EBITDA forecast was cut to $300 million to $330 million from a range of $360 million to $400 million. It also lowered its free cash flow guidance to $80 million to $100 million from $145 million to $185 million.

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As a result of the announcements the company’s share price fell $6.42, or nearly 57%, to close at $4.85 per share on Oct. 30. According to the lawsuit, Quadracci and Honan knew that the adverse factors affecting the company “had not been disclosed to and were being concealed from the public.”

The complaint also cited positive comments made about the company’s business by Quadracci while at the same time delivering the news of the dividend cut and divestment.

“We are making bold decisions to accelerate our transformation through

investments in our business that will drive long-term growth and shareholder value,” Quadracci said on Oct. 29. “Our Quad 3.0 transformation strategy is working as evidenced by $125 million of expected organic incremental sales growth in 2019, which helps offset over three percentage points of annual print sales decline.”

In its 10K filing for the fiscal year ended Dec. 31, 2018, however, the company said that “significant downward pricing pressure and decreasing demand for printing services caused by factors outside of the company’s control may adversely affect the company.”

Quad/Graphics did not respond to a request for comment on the lawsuit.

In late September Quad/Graphics agreed to pay the SEC nearly $10 million to resolve charges that it violated the Foreign Corrupt Practice Act (FCPA) by engaging in multiple bribery schemes in Peru and China.

The SEC said that the company repeatedly paid or promised bribes to Peruvian government officials to win sales contracts and avoid penalties. It also said the company improperly attempted to influence the judicial outcome of a dispute with the Peruvian tax authority.

Meanwhile, the firm’s China-based subsidiary Quad/Tech Shanghai Trading Company “used sham sales agents” to make and promise improper payments to employees of private and governmental customers to secure business, said the SEC.

Quad/Graphics neither admitted nor denied the SEC’s findings.

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Tags: David Honan, J. Joel Quadracci, Lawsuits, Quad/Graphics, securities class action

The California Public Employees’ Retirement System (CalPERS) recently re-tooled its investment policies to enhance liquidity and diversify its investment approach. This move comes after falling short of its target for the recent fiscal year.

During a recent investment committee meeting, the committee decided to divide the pension program’s Global Equity Program between a “Market Capitalization Weighted Segment” and a “Factor Weighted Segment.” The market cap approach, which tilts more heavily toward larger stocks, and the factor method, which rests on assessments of such conditions as dividend payouts and stock quality in equity selection, would give CalPERS a broader range of strategies.

The strategy reshuffle comes amid slightly lower investment returns for the giant fund: It generated 6.7% in the 2018-19 fiscal year, ending June 30, falling just shy of its 7% investment goal. This is compared to 8.6% the year before, and 11.2% in 2016-2017. CalPERS’s funded status is 70%.

The primary purpose of the market capitalization-weighted segment is to provide the portfolio with an outlet for high beta, and returns correlated with economic growth while at the same time being a source of liquidity for the $354 billion portfolio.

Measuring risk on the market cap segment will be keyed to tracking error, or the divergence between actual performance and the portfolio’s benchmark. The pension is forecasting that the tracking error will stay consistent with the zero to 50 basis points range, but slight deviations are “allowed,” depending on current market conditions.

The factor weighted segment, on the other hand, is intended to have reduced volatility characteristics and some diversification of equity risk, while acting as a high source of beta as well. This, too, will be managed using tracking error.

Both segments of the global equity program are expected to help keep a tight maintenance on portfolio volatility.

The fixed income asset class also broke out into three separate strategies, each with their own strategic objectives: long Treasury, long spread, and high-yield.

The long Treasury segment is intended to serve as an economic diversifier to equity risk and be a reliable source of liquidity, while the long spread is to provide a reliable source of income and an additional source of liquidity. The high-yield segment is intended to provide exposure to economic growth and act as a reliable source of income, given its larger interest income.

Also, the new policies will shift reporting of certain internal rules violations from the pension’s board to the pension’s senior investment staff.

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Tags: California, CalPERS, Fixed-Income, Global Equity, investment policy