NY Times Posts Q1 Earnings Beat - Analyst Blog

The New York Times Company NYT posted first-quarter 2014 adjusted earnings of 7 cents a share from continuing operations. The reported figure surpassed the Zacks Consensus Estimate of 4 cents but plunged 12.5% from the year-ago quarter adjusted earnings of 8 cents.

Including one-time items, quarterly earnings came in at 2 cents a share, down 50% from 4 cents in the prior-year period.

In the reported quarter, The New York Times witnessed an increase in its digital subscription packages and rise in both circulation revenues and advertising revenues. However, these failed to offset the rise in operating costs.

Of late, publishing companies like Journal Communications, Inc. JRN, The E.W. Scripps Co. SSP and Gannett Co. Inc. GCI have been experiencing waning advertising demand. The New York Times Company was no exception in this respect.

Given this factor, the company is considering the introduction of a new line of digital products and services, and targeting global customers to better its position.

Publishing companies have been divesting assets that are not directly related to core operations. The New York Times Company shed its remaining stake (210 Class B units) in the Fenway Sports Group in May 2012.

The company also completed the sale of Regional Media Group in Dec 2011 to re-focus on its core newspapers and increase attention to its online activities. The company, in Sep 2012, completed the sale of About Group and in Oct 2012, sold its stake in Indeed.com.

Most recently, in Oct 24, 2013, The New York Times Company completed the sale of New England Media Group, including The Boston Globe and its allied properties for about $70 million in cash.

The New York Times Company's top line increased 2.6% to $390.4 million and came ahead of the Zacks Consensus Estimate of $385.0 million. The year-over-year rise in revenues was mainly driven by an increase in advertising revenues and the addition of digital subscribers.

During the quarter, The New York Times Company's print and digital advertising revenues increased 3.7% and 2.2%, respectively. Revenues from digital-only subscription packages, e-readers and replica editions jumped 13.6% to $40.3 million.

The company experienced a rise of 4.7% and 2.3% in National and Retail advertising, respectively, which more than offset the 6.1% fall in classified advertising.

However, the diversified media conglomerate hinted that total advertising revenue in the second quarter of 2014 would decline in the mid single-digit range due to challenging year-over-year comparisons.

Circulation revenues increased 2.1% to $209.7 million primarily due to its digital subscription initiatives and rise in the home delivery price of The New York Times. Management now expects total circulation revenue to rise in low single digits in the second quarter of 2014.

Total adjusted operating profit dropped 0.9% to $56.6 million while adjusted operating margin contracted 50 basis points to 14.5%.

Other Financial Aspects

The New York Times Company ended the quarter with cash and marketable securities of about $973 million, and total debt and capital lease obligations of approximately $685.0 million. The company incurred capital expenditures of about $6.0 million during the quarter. Management now anticipates total capital expenditures between $35 million and $45 million in 2014.

Conclusion

The company's advertising volumes were hurt, as advertisers shied away from making any upfront commitments in an economy which is showing an uneven recovery. The publishing industry has long been grappling with sinking advertising revenues. This comes in the wake of a longer-term secular decline as more readers choose free online news, thereby making the print-advertising model increasingly irrelevant.

To counter declining advertising revenues and seek new revenue avenues, publishing companies have started charging readers for online content.

Despite hiccups in the economy, what still promises a guaranteed revenue generation avenue is The New York Times Company's pricing system for NYTimes.com, which was launched on Mar 28, 2011. The company notified that the number of paid digital subscribers reached 799,000 at the end of the reported quarter, rising 5.1% from the fourth-quarter 2013 end figure of 760,000.

The New York Times Company remains committed to streamline its cost structure, strengthen its balance sheet and rebalance its portfolio. However, we remain apprehensive about risks that the company faces due to its high dependence on advertising revenues. The New York Times Company intends to transform itself and reduce its reliance on traditional advertising.

For doing so, the company wishes to launch lower-priced as well as premium subscription based models to target different masses according to their appetite, and emphasize on online video production and brand extension. The company also rechristened International Herald Tribune as the International New York Times to represent itself as a single brand identity in order to attract international digital subscribers.

Currently, The New York Times Company has a Zacks Rank #3 (Hold).