Meredith a Penny Ahead - Analyst Blog
Meredith Corporation ( MDP ) posted second-quarter fiscal 2013 earnings of 89 cents a share, a penny ahead of the Zacks Consensus Estimate and up 27% year over year, owing to the strong advertising revenues along with increased readership.
However, including one time items, earnings came in at 79 cents a share, up 12.9% year over year.
Going forward, management stood by its earlier guidance and expects earnings between $2.60 and $2.95 per share for fiscal 2013. Moreover, for the third quarter, earnings are projected in the range of 65 cents to 70 cents.
Revenue & Margins
Total revenue for the quarter strengthened 10% year over year to $360.6 million, reflecting an increase of 18% in advertising revenues to $217.1 million coupled with a rise of 5.5% in circulation revenues to $67.4 million, partially offset by a decline of 6.3% in other revenues to $76.1 million. However, total revenue fell short of the Zacks Consensus Estimate of $373 million.
Adjusted operating expenses for the quarter rose 8.1% to $296.1 million, reflecting an augmentation of 4.4% in production, distribution and editorial costs, 11.9% in adjusted SG&A expenses and 4.4% in depreciation and amortization.
Adjusted operating profit grew 17.6% to $64.5 million, whereas adjusted operating margin expanded 120 basis points to 17.9%.
Meredith's National Media Group revenues increased 2.1% to $249.4 million, attributable to a 12.1% rise in advertising revenues and a 5.5% rise in circulation revenues, partially offset by a decline of 15.5% in other revenues.
Segment's adjusted operating profit plunged 22.5% year over year to $27.7 million, whereas adjusted operating margin decreased 360 basis points to 11.1% during the quarter.
The company stated that its investments in business, lower advertising revenues at comparable magazine titles, and sluggish performance of Meredith Xcelerated Marketing took a toll on its operating margin.
The company hinted that Meredith magazine readership attained a record of 116 million while digital traffic more than doubled to 35 million during the first six months of fiscal 2013.
For the first half of fiscal 2013, total advertising and circulation revenues increased 9% year over year, however, excluding the recent acquisitions of "Allrecipes.com", "EveryDay with Rachael Ray" and "FamilyFun", advertising revenues would have waned 9%, whereas circulation revenues would have been down by 2%. Digital advertising revenues grew more than 110%, however, excluding the acquisition of "Allrecipes.com", digital advertising revenues increased 15%.
Meredith now projects National Media Group advertising revenues to increase in the mid-single digits during the third quarter of fiscal 2013. However, excluding the recent acquisitions, advertising revenues is expected to decline in the low-single digits.
Meredith's Local Media Group revenues rose 31.7% to $111.2 million, attributable to significant rise in political advertising revenues that came in at $25.7 million compared with $1.1 million in the year-ago quarter. Other revenues nearly doubled to $14.2 million, while non-political advertising revenues decreased 5.5% to $71.3 million during the quarter.
Segment's adjusted operating income jumped 70.2% to $46.2 million compared with $27.2 million in the prior-year quarter. Adjusted operating margin expanded significantly to 41.6% from 32.2% during the quarter.
For the first half of fiscal 2013, net political advertising revenues improved substantially to a record high of $38 million, while non-political advertising revenues were marginally down. The company stated that non-political advertising revenues increased to 3% during the period after election.
Meredith stated that other revenues marked an improvement on account of higher retransmission revenues during the first half of fiscal 2013. The company also renewed its long-term affiliation agreements with CBS Corporation ( CBS ) and News Corp .'s ( NWSA ) Fox Broadcasting Co.
Management now expects Local Media Group's total revenue to increase in the high-single digits, while non-political advertising revenues are expected to remain flat during the third quarter.
Meredith's Growth Catalysts
It's been a constant endeavor by Meredith to explore and add alternative revenue generating channels through acquisitions or strategic alliances. Thereby, the company attempted to reduce its dependence on conventional advertising.
The sluggish economy prompted Meredith to diversify and add significant revenue streams beyond traditional advertising by leveraging its brands through strategic alliances. Brand Licensing revenues supplemented the sales of the company, led by a rise in sales of Better Homes and Gardens' branded products at Wal-Mart Stores Inc . ( WMT ). The company extended its contract with Wal-Mart Stores through 2016, which includes an expansion of the Better Homes and Gardens branded home decor and garden program at Wal-Mart stores across the United States and Canada.
Meredith remains committed to making strategic investments to increase its revenue generating capabilities while enhancing its profitability. The company is aggressively expanding its brands through online platforms, televisions, videos, mobile applications, and is expanding its reach of food and lifestyle content across tablet products, such as the iPad, NOOK Color, Kindle Fire, and Samsung Galaxy.
Following its growth trajectory, Meredith acquired "Every Day with Rachael Ray" the award-winning magazine of Reader's Digest Association, and assets of "FamilyFun": magazine from Disney Publishing Worldwide.
Meredith, the media and publishing company, also acquired the world's No. 1 digital food site, "Allrecipes.com" for about $175 million, to expand its digital platform. The transaction will be modestly incremental to its earnings per share and free cash flow in fiscal 2013.
Going forward, management's strategy will be focused upon bolstering advertising revenue, primarily in the digital space; enhancing online consumer transactions, especially magazine subscription orders; focusing on non-advertising depending activities, such as brand licensing, marketing services and e-Commerce; and attaining operational efficiencies.
Other Financial Details
Meredith ended the quarter with cash and cash equivalents of $24.7 million, total debt of $365 million and shareholders' equity of $817.4 million. During the first half of fiscal 2013 the company repurchased 750,000 shares and has $62 million remaining under its share buyback program. The company's leverage ratio (debt to EBITDA) was 1.5 to 1 for the 12 months period ended Dec 31, 2012.
Currently, shares of Meredith hold a Zacks Rank #3 (Hold).
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