We have downgraded our recommendation on the diversified media
and education firm,
The Washington Post Company
(
WPO
) from Neutral to Underperform following its disappointing
second-quarter 2012 results.
The company's second-quarter 2012 earnings from continuing
operations came in at $5.38 per share, sliding approximately 22%
from $6.88 earned in the prior-year quarter. Moreover, revenue for
the quarter dropped 5% to $1,006.9 million from the prior-year
period, as slump in the students' enrollment and soft advertising
demand continue to deter the profitability of the company.
The U.S. publishing industry has long been grappling with sinking
advertising revenue, and the lingering macro concerns have further
worsened the situation. The company's Newspaper Publishing segment
marked a decline of 7% during the quarter as print advertising fell
15% during the period. The division's operating loss widened to
$15.9 million from a loss of $2.9 million witnessed in the
prior-year quarter.
Adding to the pain is the declining revenues at its education
division, which went down 9% to $558.4 million, reflecting a 19%
fall in Higher Education revenue, a dip of 4% in Test Preparation
revenue, and a 6% decline in Kaplan Ventures revenue. The education
division saw operating income of $3.4 million, a sharp decline from
$21.5 million in the prior-year quarter.
Going forward, we believe that advertising volumes at its print
division is likely to remain under pressure as advertisers are
exhibiting reluctance in making any upfront commitments in an
economy which has still not completely awakened from a state of
hibernation.
Moreover, its Kaplan Higher Education segment faces stiff
competition from other from traditional colleges as well as other
for-profit schools. Further, the company's cable television system
faces intense competition from other forms of video program
delivery systems, including DBS services, telephone companies and
the Internet. This may dent the company's top and bottom lines
performance.
Currently, The Washington Post Company, which faces stiff
competition from
The New York Times Company
(
NYT
), holds a Zacks #5 Rank, which translates into a short-term Strong
Sell rating.
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