Meredith Q3 Earnings Beat - Analyst Blog

Meredith Corporation MDP reported earnings of 70 cents per share for the third quarter of fiscal 2014, ahead of the Zacks Consensus Estimate of 66 cents and exceeding management's guided range of 63–68 cents. However, on a year-over-year basis, earnings fell 2.8%.

Going forward, management expects fourth-quarter fiscal 2014 earnings per share in the range of 81 cents to 86 cents. Moreover, for fiscal 2014, the company reiterated earnings projections at $2.60–$2.95 per share excluding the impact from T.V stations acquisition-related costs. The Zacks Consensus Estimate for the third quarter and fiscal 2014 are pegged at 82 cents and $2.70, respectively.

Revenues & Margins

Total revenue for the quarter fell by a marginal 0.6% year over year to $367.4 million, resulting from a 6.7% decline in advertising revenues to $182.2 million, partly offset by a 5.1% rise in Circulation revenues to $96.1 million and 7.5% increase in other revenues to $89.2 million. However, total revenue fell marginally short of the Zacks Consensus Estimate of $370 million.

For fourth quarter of fiscal 2014, total revenue is anticipated to increase in the low-single digits range.

Total operating expenses for the quarter increased 5.2% to $336.2 million owing to a 2.2% increase in production, distribution and editorial costs, and a 0.9% rise in selling, general and administrative expenses.

Operating profit fell 37.6% to $31.2 million, while operating margin contracted 500 basis points to 8.5%.

Segment Details

Meredith's National Media Group revenues declined 5.1% year over year to $269.7 million, driven by a 13.1% decline in advertising revenues to $111.8 million. However, the segment results gained from a strong performance at the non-advertising with circulation and brand licensing revenues increasing 5% and 6%, respectively. The segment's operating profit dipped 68.3% year over year to $13.6 million.

Meredith now projects National Media Group advertising revenues to fall in mid-single digits in the coming quarter.

Meredith's Local Media Group revenues rose 14.5% to $97.7 million due to a 5.6% increase non-political advertising revenues to $69.8 million, a 49.9% rise in political advertising revenues and a 44.9% increase in other revenues to $27.4 million.

The segment's operating income rose 10.8% to $26.7 million. The improved performance at the segment was attributed to higher retransmission revenues along with encouraging results from Meredith television stations in Nashville, Phoenix and Las Vegas.

Management now expects Local Media Group's revenues to increase in high teens range during the fourth quarter of fiscal 2014.

Meredith's Growth Catalysts

Meredith, which competes with Martha Stewart Living Omnimedia Inc. MSO, boasts a strong portfolio of women's magazines, which helps it to gain market share. Further, the company remains focused on bolstering advertising revenues, primarily in the digital space and is increasingly concentrating on brand licensing, marketing services and e-Commerce to counter possible economic downturns going forward.

In Dec 2013, in order to enhance its television portfolio, Meredith agreed to buy television stations in Phoenix and St. Louis from Gannett Co. Inc. GCI and Sander Media LLC for $407.5 million in cash. Under the deal, the stations that Meredith will acquire include KTVK, an independent station in Phoenix, KASW, the CW affiliate in Phoenix and KMOV, the CBS affiliate in St. Louis.

With the St. Louis stations fully acquired on Feb 28 this year, Meredith began its ownership of KMOV-TV in St. Louis. On the other hand, the Phoenix transaction is expected to be completed in the fourth quarter of fiscal 2014.

In Nov 2013, Meredith launched Allrecipes magazine, the media industry's most important print extension of a digital brand. Advertising interest has been strong, with Procter and Gamble PG, Hershey as well as General Motors making commitments.

Meredith is also an ideal pick for yield-seeking investors.  The company, through its total shareholder return (TSR) strategy, intends to boost shareholders' value through dividend payouts, share repurchases and strategic investments in business to drive growth. Since the implementation of this strategy two years back, the company has hiked its dividend by 70% and initiated a $100 million share repurchase program.

The company has a history of regularly paying dividends for 66 years. Over the last two decades, it has increased its dividend consistently, which now stands at $1.73 per share.

Moreover, the company constantly seeks to venture into new arenas and add alternative revenue generating channels through strategic acquisitions and collaborations. Meredith's contract with Wal-Mart Stores Inc. WMT 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.

The company's brand licensing revenues rose nearly 6% in the quarter on account of continued robust sales of more than 3,000 SKU's of Better Homes and Gardens' approved products at more than 4,000 Wal-Mart outlets across U.S.

Other Financial Details

Meredith ended the third quarter with cash and cash equivalents of $22.1 million, total debt of $525 million and shareholders' equity of $868.1 million. For the nine months of fiscal 2014, the company has bought back 1.4 million shares.

As of Mar 31, 2014, Meredith had $16 million worth of shares remaining under its existing share repurchase authorization. Moreover, during the quarter the company raised its dividend by 6% to a annualized dividend of $1.73. The company's leverage ratio (debt to EBITDA) was 2.0 to 1 for the 12 month-period ended Mar 31, 2014.

Currently, Meredith carries a Zacks Rank #3 (Hold).