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Why Nielsen Holdings plc Lost 24% in July

NLSN Chart

What happened

Shares of information-measurement giant Nielsen Holdings plc (NYSE: NLSN) slumped 23.8% during July, according to data from S&P Global Market Intelligence .

So what

Nielsen stock had already exhibited a steady deterioration year to date, but the company's second-quarter 2018 earnings report precipitated a stark, vertical descent following its July 26 release:

NLSN data by YCharts.

In the earnings filing, revenue of $1.6 billion was essentially flat against the comparable prior-year quarter, while higher costs of revenue and rising selling, general, and administrative expenses combined with a $65 million restructuring charge to essentially cut operating income in half, to $121 million. As a result, net income plunged 45%, to $72 million, while earnings per share dropped by a similar magnitude, to $0.20

Investors were further unsettled by the announcement that current CEO Mitch Barns will retire at the end of 2018. The company also revealed that it's now conducting a strategic review of its underperforming buy segment.

Typically, a strategic review can result in further restructuring of a troubled unit, drastic downsizing, or in many cases, an outright sale. During the second quarter, $55 million of the company's $65 million restructuring-charge tally was attributed to the buy business, which sells analytics and market research information as opposed to the company's watch division, which houses its better-known audience-measurement services.

Selling the buy segment may be a prudent course of action. In the second quarter, buy revenue declined 4% year over year, to $789 million, and the division generated an operating loss of $3 million. In comparison, watch revenue improved by 4.5%, to $858 million, while operating profit increased 4%, to $256 million. A sale or spinoff of the buy segment would cut Nielsen's annual top line almost in half, but the remaining watch business might be easier for management to improve through a tighter focus -- ultimately increasing shareholder value.

Abstract concept of audience measurement: A pair of calipers measuring the word "audience."

Image source: Getty Images.

Now what

Nielsen slashed its full-year guidance alongside second-quarter earnings. Revenue is now expected to improve just 1% in 2018 from a previous target of 3%. Free cash flow has been trimmed from approximately $800 million to a band of $550 million to $575 million.

Finally, earnings per share, which were previously forecast in a range of $1.50 to $1.56, are now anticipated to land between $0.95 and $1.00 for the year. The sober revisions have only heightened investors' concerns. Nielsen is next scheduled to report in late October.

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Asit Sharma has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

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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