Quad/Graphics, Inc. (QUAD)

Executive Summary / Key Takeaways

• Quad/Graphics (NYSE:QUAD) is strategically transforming into a Marketing Experience (MX) company, integrating creative, production, and media solutions across digital and physical channels to simplify marketing complexities for clients. This shift is aimed at driving diversified revenue growth and enhancing profitability.
• The company's proprietary, household-based data stack, covering 92% of U.S. households with over 20,000 attributes and "passions," is a core technological differentiator, enabling precision targeting and higher marketing effectiveness. AI-powered tools like Audience Builder 2.0 and solutions like In-Store Connect are demonstrating tangible, quantifiable benefits, including significant sales lifts for clients.
• Financial performance in the third quarter and first nine months of 2025 reflects this strategic pivot, with targeted print offerings (direct mail, packaging, in-store) showing healthy growth, partially offsetting declines in large-scale print and paper sales. Adjusted diluted EPS saw significant increases due to higher earnings, reduced expenses, and share repurchases.
• Quad has updated its full-year 2025 guidance, narrowing net sales decline to 3-5% (excluding divestitures), adjusting Adjusted EBITDA to $190-$200 million, and raising Free Cash Flow to $50-$60 million, driven by lower capital expenditures. The company projects a return to net sales growth by 2028 and long-term Adjusted EBITDA margin expansion.
• Despite macroeconomic headwinds, including elevated interest rates and historical postal rate increases, Quad maintains a strong balance sheet with a Net Debt Leverage Ratio expected to be around 1.6x by year-end 2025, supported by robust cash generation and a disciplined capital allocation strategy focused on growth investments and shareholder returns.

From Print Legacy to Marketing Experience Powerhouse

Quad/Graphics, Inc., founded in 1971, has evolved significantly from its origins as a printing operation into a comprehensive Marketing Experience (MX) company. This transformation addresses the increasing demand for end-to-end marketing services as consumer media consumption habits change and new channels emerge. Quad's MX Solutions Suite provides a flexible, scalable, and connected approach, integrating creative, production, and media solutions across both online and offline channels. This strategy aims to simplify marketing complexities for brands and marketers, driving cost efficiencies, improving speed to market, and strengthening marketing effectiveness.

The company's history includes key milestones such as the 2010 acquisition of World Color Press Inc., which expanded its operational footprint. More recently, Quad has strategically streamlined its portfolio through divestitures, including the sale of its European operations in February 2025 for a total potential sales price of €41 million (approximately $42 million). Concurrently, Quad has made targeted acquisitions, such as the co-mailing assets of Enru in April 2025 for an estimated $27 million, to enhance its postal optimization capabilities and generate additional savings for clients. This strategic reorientation is reflected in its revenue mix, with integrated solutions and targeted print offerings growing from 54% of total net sales in 2018 to 65% in 2024, with a projected increase to 78% by 2028.

Technological Edge: Data-Driven Intelligence and AI Innovation

At the heart of Quad's MX transformation is its proprietary, household-based data stack, a critical technological differentiator in today's marketing ecosystem. This data stack represents 92% of U.S. households and includes over 20,000 addressable demographic, transactional, attitudinal, and behavioral characteristics, along with hundreds of proprietary "passions". This physical household-centric data is considered more accurate and resilient than digital alternatives like cookies or device IDs, which can be prone to obsolescence or lack direct linkage to real individuals. The tangible benefit for clients is precisely targeted marketing efforts that drive measurable results, creating a unified buying experience across multiple media partners and channels.

Quad is making significant investments in AI-powered tools and systems to leverage this data. The company has successfully integrated a generative AI chat feature into its proprietary Audience Builder platform, which utilizes Cortex AI functionality from Snowflake (SNOW). This innovation allows media strategists, analysts, and planners to interpret prompts, analyze stored audience attributes, and enrich results with external demographic data, enabling faster and more effective creation of high-propensity audiences. This automation democratizes access to complex data, allowing for quicker iteration of audience data and more rapid deployment of targeted campaigns. The company is also partnering with Google Cloud to further leverage AI optimization capabilities and large language models, aiming to create new AI-driven solutions that seamlessly connect the data stack with client creative and media assets for personalization at scale.

Beyond audience intelligence, Quad's MX Tech solutions include innovative platforms like At-Home Connect and In-Store Connect. At-Home Connect modernizes the direct mail channel by automating personalized direct mail triggered by online consumer interactions or life events, integrating with client automation platforms like Salesforce (CRM) and HubSpot (HUBS). This solution aims to drive consumer engagement and improve marketing ROI by converting abandoned online shopping carts, winning back lapsed customers, or encouraging additional purchases.

In-Store Connect, Quad's retail media network for brick-and-mortar stores, leverages digital technology to deliver engaging messages and targeted promotions at the shelf, a critical moment in purchasing decisions. The company has introduced three new digital signage form factors designed to grab shopper attention and increase brand visibility. Test and control studies with major CPG clients have demonstrated significant sales lifts: Nestle USA (NSRGY) experienced a 23 percentage point sales lift for DiGiorno frozen pizza, PepsiCo (PEP) saw a 25 percentage point sales lift for Rockstar Energy drink, and Procter & Gamble (PG) achieved an 8 percentage point sales lift for laundry products like Tide, Downy, and Bounce. Quad has successfully doubled its In-Store Connect footprint with The Save Mart Companies and is expanding partnerships with new retailers like Vallarta, aiming to build a nationwide network of mid-market grocers.

Strategic Pillars: Diversification and Operational Excellence

Quad's strategic initiatives are centered on diversifying its revenue streams and maintaining operational excellence. The company's targeted print offerings, including direct mail, packaging, and in-store signage, are experiencing robust growth. Year-to-date through Q3 2025, direct mail sales were up over 6%, packaging over 9%, and in-store sales increased by 11%. This growth is significantly benefiting from Quad's data stack and personalization efforts, leading to increased responsiveness and new client wins. The acquisition of Enru's co-mailing assets is expected to generate "pretty significant increases in discounts for our clients" by expanding postal optimization solutions and increasing co-mail volumes.

The company's manufacturing group consistently focuses on improving productivity and managing costs, adapting to dynamic market trends and leveraging lean enterprise methodologies. This includes optimizing capacity utilization and maintaining strong labor management. While large-scale print offerings like retail inserts and magazines face organic declines, they continue to generate good cash flow, which Quad manages while growing its higher-margin services.

Financial Performance: A Story of Resilience and Investment

Quad's financial results for the third quarter and first nine months of 2025 reflect its ongoing strategic transformation and disciplined management. Net sales in Q3 2025 decreased by 7% (excluding the 6% impact of the European operations divestiture) compared to Q3 2024, primarily due to lower paper sales, lower print volumes, and reduced logistics and agency solutions sales. Year-to-date net sales for the first nine months of 2025 declined by 4% (excluding the 5% impact of the European divestiture), also impacted by the loss of a large grocery client that annualized in March 2025. Despite these top-line pressures, the revenue mix in targeted print offerings increased by 2% as a percentage of total net sales in the first nine months of 2025.
Adjusted EBITDA for Q3 2025 was $53 million, with an improved margin of 8.9% compared to 8.7% in Q3 2024. Year-to-date, Adjusted EBITDA was $141 million, with a margin of 7.9%. The decrease in Adjusted EBITDA was primarily due to lower net sales and increased investments in innovative offerings, partially offset by lower selling, general, and administrative expenses and improved manufacturing productivity. Adjusted diluted earnings per share increased significantly, rising 19% to $0.31 in Q3 2025 and 33% to $0.65 year-to-date, driven by higher earnings, lower restructuring and impairment charges, reduced depreciation and amortization, lower interest expense, and the beneficial impact of share repurchases.

Liquidity remains robust, with total available liquidity of $166 million as of September 30, 2025, under the most restrictive debt covenants. Net cash used in operating activities increased to $50 million for the nine months ended September 30, 2025, primarily due to changes in operating assets and liabilities, partially offset by increased cash from earnings. Free cash flow improved by $5 million year-over-year to negative $87 million for the nine months ended September 30, 2025, with the company typically generating negative free cash flow in the first nine months due to seasonality.

The Net Debt Leverage Ratio increased to 2.28x at September 30, 2025, from 1.56x at December 31, 2024, primarily due to an increase in Net Debt and a reduction in trailing twelve months Adjusted EBITDA. However, Quad remains in compliance with all financial covenants.

Competitive Positioning: Differentiating in a Dynamic Market

The commercial printing industry remains highly fragmented and competitive, characterized by overcapacity and downward pricing pressures. In this environment, Quad strategically positions itself as a differentiated marketing experience company, contrasting with traditional holding companies that often operate with siloed agency capabilities. Quad's integrated service model, which seamlessly combines creative, production, and media solutions, aims to produce results "greater than the sum of their parts".

Quad's primary competitive advantage lies in its proprietary household-based data stack, which provides a more accurate and resilient data source compared to digital alternatives. This enables a "unified buying experience" for clients, helping them understand their target audience across multiple media partners and channels, thereby removing unintentional audience duplication. Furthermore, Quad emphasizes "radical media transparency," ensuring clients' spend is invested directly into working media rather than excessive production and process fees, a value proposition that resonates with clients like Spirit of Gallo. This approach helps Quad maximize clients' dollars in working media, a key differentiator against competitors who may incur "tech tax" or hidden fees.

Compared to direct competitors like RR Donnelley & Sons Company, Taylor Corporation, and Vericast, Quad's integrated platform and data-driven approach offer a comprehensive solution that can streamline campaign execution and potentially lead to stronger customer loyalty. While RR Donnelley & Sons Company leverages its scale for broader reach, and Taylor focuses on niche customization, Quad's strength lies in its ability to blend print and digital execution, making it versatile in mixed-media strategies. Vericast, with its data-driven marketing focus, competes in precision marketing, but Quad's broader service offerings, including print production and logistics, provide a more holistic solution. Quad's investments in AI-powered tools like Audience Builder 2.0 and In-Store Connect further enhance its ability to deliver targeted and measurable results, as evidenced by significant sales lifts in retail media campaigns.

Indirect competition from digital marketing platforms like Google (GOOGL) and Meta (META), offering online advertising and social media targeting, continues to influence the market. However, Quad's focus on integrating online and offline channels, coupled with its unique data stack, allows it to address digital fatigue and create meaningful audience connections that cut through media clutter.

Outlook and Guidance: Charting a Path to Growth

Quad has updated its full-year 2025 guidance, reflecting its strategic trajectory and current market conditions. The company now expects net sales to decline between 3% and 5% (4% at the midpoint) for 2025, excluding the divested European operations. This represents a sequential improvement from the 9.7% net sales decline experienced in 2024. Adjusted EBITDA is projected to be between $190 million and $200 million, with a midpoint of $195 million. This expected decline from 2024 Adjusted EBITDA is attributed to lower net sales, the European divestiture, and increased investments in innovation to drive future revenue growth. Despite this, Adjusted EBITDA margin is expected to remain similar to 2024 levels due to an increasing mix of higher-margin offerings and continued cost management.

Free cash flow for 2025 is expected to be at the higher end of the original guidance range, between $50 million and $60 million. This improvement is primarily driven by a reduction in capital expenditures, now projected between $50 million and $55 million.

The Net Debt Leverage Ratio is anticipated to slightly increase to approximately 1.6x by the end of 2025, influenced by the Enru acquisition and lower-than-expected proceeds from asset sales, partially offset by higher free cash flow.

Looking further ahead, Quad aims to achieve an inflection point of net sales growth in 2028. The company anticipates its business, excluding large-scale print offerings, to grow at a 3% CAGR through 2028. By 2028, Adjusted EBITDA margin is expected to improve by at least 100 basis points compared to 2024's 8.4% margin, with a long-term goal of reaching low double-digit Adjusted EBITDA margins. Free cash flow conversion as a percentage of Adjusted EBITDA is projected to improve from approximately 28% in 2025 to 35% by 2028 and 40% in the long term, driven by lower interest payments and restructuring costs.

Risks and Challenges

Quad operates in an environment subject to several risks. Macroeconomic conditions, including inflation and elevated interest rates, continue to be closely monitored for their potential impact on client marketing spend. Tariffs, while having limited direct exposure for Quad's supply chain, have increased costs for certain print-related materials, which are being passed on to clients.

Postal rates remain a significant challenge, representing the single largest marketing expense for mailers. While the USPS announced no January 2026 price increase for market-dominant mail, previous increases have been substantial, with rates rising 50-80% from 2021 to 2024, far outpacing CPI. This has historically hurt mail volume, and the company anticipates a further 10-13% increase in July 2025. Quad is actively engaged with the USPS and leveraging its co-mailing capabilities to mitigate these impacts. Commodity risks related to paper, ink, and energy prices also persist, though price adjustment clauses in sales contracts help mitigate some of this exposure. The company's ability to attract and retain qualified talent across its evolving enterprise is also a continuous focus.

Conclusion

Quad/Graphics is executing a compelling transformation, strategically pivoting from a traditional print provider to a dynamic Marketing Experience company. By leveraging its integrated MX Solutions Suite, underpinned by a proprietary, household-based data stack and advanced AI-powered tools, Quad is not merely adapting to market shifts but actively shaping the future of marketing for its diverse client base. The company's commitment to technological differentiation, exemplified by innovations like Audience Builder 2.0 and In-Store Connect, is yielding quantifiable benefits for clients and reinforcing its competitive moat in a fragmented industry.

Despite ongoing macroeconomic and industry-specific challenges, Quad's disciplined financial management, robust cash flow generation, and strategic capital allocation position it for long-term value creation. The clear guidance towards net sales growth by 2028, coupled with anticipated margin expansion and a stable debt profile, underscores a well-defined path forward. For discerning investors, Quad represents an opportunity to invest in a company that is effectively converting its print legacy into a data-driven, integrated marketing powerhouse, poised for sustained growth and enhanced shareholder returns through technological leadership and strategic execution.