The New York Times Company (NYT) recently posted better-than-expected third-quarter 2011 results. The quarterly earnings of 5 cents a share beat the Zacks Consensus Estimate of 3 cents, but dropped 28.6% from 7 cents earned in the prior-year quarter.
The Zacks Consensus Estimate dropped to 3 cents from 6 cents a share in the last 30 days with 3 out of 4 analysts following the stock revised their estimates downward.
On a reported basis, including one-time items, the company posted quarterly earnings of 10 cents a share compared with a loss of 3 cents delivered in the year-ago quarter.
Let’s Dig Deep
The quarter reflects favorable response to the digital subscription packages, increase in digital advertising revenue at News Media Group, improvement in circulation revenue and fall in attrition rate as subscribers to The New York Times’ print version are able to access content or articles online as well as on all applications of The Times for no additional charge.
The New York Times Company’s top-line fell at an accelerating rate. After declining 2.2% in the second quarter, total revenue slipped 3.1% to $537.2 million in the quarter under review from the prior-year quarter, and also fell short of the Zacks Consensus Estimate of $545 million.
The diversified media conglomerate professed a further deepening of the slump in advertising revenue, thereby raising alarm about rough weather in the economy, and its susceptibility to such conditions.
The ongoing slouch in the advertising market continues to weigh upon The New York Times Company, the publisher of The New York Times, the International Herald Tribune, The Boston Globe and 15 other daily newspapers. Total advertising revenue slid by 8.8% to $261.8 million in the third quarter of 2011, as against a fall of 4% registered in the second quarter.
However, The New York Times Company hinted that advertising revenue trends in the first half of October portrayed a modest improvement over the quarter under review, reflecting strength across digital advertising in News Media Group.
The New York Times Company also notified that it has been effectively managing its operating costs. Operating costs, excluding one-time items, depicted a decline of 4.2% to $471.8 million during the quarter. Management said that operating costs is expected to decrease in the low to mid-single digits in the fourth quarter.
Segment Discussion
By segment, News Media Group revenue tumbled 2% to $511.5 million. Advertising revenue dropped 7.3% to $237.3 million. Print advertising fell 10.4%, whereas digital advertising jumped 6.2%. Circulation revenue climbed 3.4% to $237 million. Management now expects total circulation revenue to rise in the low to mid-single digits in the fourth quarter. Adjusted operating profit for the segment surged 6.3% to $59.7 million due to cost reduction.
About Group segment’s revenue plummeted 20.8% to $25.7 million due to fall witnessed in both cost-per-click and display advertising.Adjusted operating profit plunged 26.8% to $12.3 million, reflecting a decline in advertising revenue.
Digital advertising revenue for New York Times’ Digital business, which includes NYTimes.com, About.com, Boston.com, dropped 4.5% to $74.8 million, and now accounts for 28.6% of total advertising revenue, up from 27.3% in the prior-year quarter.
Other Financial Aspects
The company ended the quarter with cash and short-term investments of $263.4 million and total debt and capital lease obligations of approximately $772 million. The New York Times Company incurred capital expenditures of approximately $11 million during the quarter. Management now anticipates capital expenditures to be $50 million in fiscal 2011.
The New York Times Company has been focusing on improving its liquidity position and debt portfolio. The company recently prepaid its $250 million 14.053% notes on August 15, 2011. The notes were due to mature on January 15, 2015. We believe it is prudent on the part of the company to repay the high cost obligations amidst dwindling global credit market.
Consequently, the company registered a pre-tax charge of $46.4 million in the quarter on account of the prepayment. However, it will save over $39 million per year through January 15, 2015.
Let’s Conclude
The company’s advertising volume for all its print publications and online came under pressure as advertisers shied away from making any upfront commitments, in an environment where the fear of another possible recession is gaining ground.
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 March 28, 2011. The company notified that the number of paid digital subscribers reached 324,000 at the end of the third quarter.
The company recently launched a pay and read model for BostonGlobe.com for a weekly subscription of $3.99. However, subscribers to the newspaper’s print version will be able to access content or articles online without shelling out a penny.
The publishing industry has long been grappling with sinking advertising revenue. 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 curb shrinking advertising revenue and seeking new revenue avenues, the publishing companies contemplated charging readers for online content.
Another media conglomerate, News Corporation (NWSA) has also moved towards an online subscription-based model for general news content. News International, a subsidiary of News Corporation, began charging readers for online content for The Times of London and Sunday Times of London effective June 2010.
The New York Times Company remains committed to streamlining its cost structure, strengthening its balance sheet and rebalancing its portfolio. Currently, we have a long-term Neutral rating on The New York Times Company. However, counting the pulse of the economy and waning advertising revenue, we prefer to have a short-term Sell recommendation on the stock, which is well defined by our Zacks #4 Rank.
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