Meredith Reports Healthy 1Q - Analyst Blog

Strong circulation and advertising revenues along with increased readership and online traffic led Meredith Corporation ( MDP ) to deliver first-quarter 2013 earnings of 55 cents a share that came ahead of the Zacks Consensus Estimate by a penny and jumped 14.6% from the prior-year quarter's earnings of 48 cents.

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 second quarter, earnings are projected in the range of 80 cents to 85 cents. The current Zacks Consensus Estimates for the second quarter and fiscal 2013 are 83 cents and $2.82 per share.

Total revenue for the quarter strengthened 8% year over year to $354.2 million, reflecting an increase of 12.4% in advertising revenue to $207.1 million coupled with a rise of 13.4% in circulation revenue to $75.5 million, partially offset by a decline of 7.1% in other revenue to $71.5 million.

However, total revenue fell short of the Zacks Consensus Estimate of $358 million. Meredith now projects second-quarter fiscal 2013 total advertising revenues to grow in the high teens.

Operating expenses for the quarter rose 6.6% to $308.9 million, reflecting an augmentation of 2.7% in production, distribution and editorial costs, 9.3% in SG&A expenses and 21.3% in depreciation and amortization.

Operating profit grew 18.5% to $45.3 million, whereas operating margin expanded 110 basis points to 12.8%.

Segment Details

Meredith's National Media Group revenue increased 3.2% to $267 million, attributable to a 6.6% growth in advertising revenue and a 13.4% rise in circulation revenue, partially offset by a decline of 12.9% in other revenue. Excluding the recent acquisitions of "Allrecipes.com," "EveryDay with Rachael Ray" and "FamilyFun," advertising revenue would have waned 9%, whereas circulation revenue would have remained unchanged.

The retail, media and entertainment, and pets categories showed robust trends. However, sluggish performance continued across the prescription drug category. The company hinted that Meredith magazines readership touched a record of 116 million while digital advertising revenue more than doubled during the quarter. However, excluding the recent acquisition, digital advertising escalated 30%.

Segment EBITDA declined 11.6% to $34.8 million with EBITDA margin contracting 220 basis points to 13%.

Meredith now projects National Media Group advertising revenue to increase in mid-teens during the second quarter of fiscal 2013. However, excluding the recent acquisitions, advertising revenue is expected to decline in the mid-single digits.

Meredith's Local Media Group revenue rose 25.8% to $87.2 million. Non-political advertising revenue increased 5% to $62.2 million, indicating the twelfth successive quarter of year-over-year enhancement. Political advertising revenue came in at $12.2 million, up from $583,000 in the year-ago quarter. Other revenue jumped 34.9% to $12.7 million.

EBITDA at Local Media Group almost doubled to $33.7 million compared with $17 million in the prior-year quarter. EBITDA margin marked a substantial improvement and came in at 38.7% compared with 24.6% in the prior-year quarter.

Management now expects Local Media Group advertising revenues to jump over 20%, including projected political advertising revenues of $18 million to $20 million during the second quarter of fiscal 2013. However, non-political advertising revenue is expected to register a slight decline or remain flat.

The company expects to deliver record political advertising revenue and stated that it will meet or surpass its earlier guidance range of $25 million to $30 million during the election phase, which comprises of first and second quarter of fiscal 2013.

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 revenue 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 Statesand 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 $27.6 million, total debt of $405 million and shareholders' equity of $800.7 million. During the quarter, the company repurchased 530,000 shares and has $70 million remaining under its share buyback program. The company's leverage ratio (debt to EBITDA) was 1.6 to 1 for the 12 months period ended September 30, 2012.

Currently, we maintain our Neutral recommendation on the stock. Moreover, Meredith retains a Zacks #3 Rank that translates into a short-term Hold rating.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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