Nielsen Holdings N.V. (NLSN) reported adjusted third-quarter 2013 earnings of 48 cents per share, beating the Zacks Consensus Estimate of 45 cents on higher revenues and solid global expansion. The adjusted earnings per share exclude one-time items but include stock-based compensation expenses.
Revenues
Nielsen reported revenues of $1.39 billion in the third quarter, up 2.7% from the year-ago quarter. The increase was due to higher demand for the company's analytics services and growth in its television ratings business.
Revenues by Segment
Buy business, which accounted for 63% of third-quarter revenues, were $871 million, up 2.2% year over year or 3.3% on a constant currency basis. Within the segment, Information Services contributed $664 million, up 2% on a constant currency basis. Insights Services grew 8.4% on a constant currency basis, driven by increased client demand for analytic services.
Revenues from developing markets grew 7.5% on a constant currency basis. Management expects to see strong growth in these markets, driven by growing local clients.
Watch business, which accounted for the remaining 37% of third-quarter revenues, were $516 million, up 3.4% year over year or 4.2% on a constant currency basis. The increase was driven by constant currency growth in core Television measurement, which was partially offset by the ongoing exit of certain international online legacy products. The Watch segment includes such services as TV ratings, Internet and mobile audience measurement.
Operating Results
Reported gross margin for the quarter was 58.7%, down 60 basis points (bps) from the comparable year-ago quarter due to unfavorable mix.
Nielsen reported total operating expenses of $571.0 million, up 2.5% from $557.0 million incurred in the year-ago quarter. As a percentage of sales, selling, general and administrative expenses decreased from the year-ago quarter. GAAP operating margin was 17.5%, down from 18.1% in the year-ago quarter.
Net Income
On a GAAP basis, Nielsen recorded a net profit of $134 million or 35 cents per share compared with $105 million or 29 cents per share in the year-ago quarter.
On a non-GAAP basis, Nielsen generated adjusted net profit of $204.0 million compared with $175.0 million in the year-ago quarter. Pro forma earnings came in at 53 cents per share compared with 46 cents in the year-ago quarter.
Balance Sheet & Cash Flow
Nielsen exited the third quarter with cash balance of approximately $737 million versus $1.2 billion in the last quarter. Gross debt was $6,882 million versus $6,255 million in the prior quarter.
Net debt (gross debt excluding cash and cash equivalents) was $6,145 million and net debt leverage ratio was 3.93x at the end of the quarter.
Cash flow from operations was $236.0 million versus $258.0 million in the year-ago quarter. Capex was $85 million versus $73 million in the year-ago quarter. Free cash flow decreased 8.5% year over year to $236 million.
Guidance
For the fourth quarter of 2013, Nielsen expects total revenue to be up 3% to 4% on a constant currency basis.
Our Take
Nielsen Holdings is an information and measurement company which provides clients with media and marketing information about what consumers watch and buy on a global and local basis. The company’s third-quarter earnings were above the Zacks Consensus Estimate driven by higher revenues and solid international growth.
Management stated that the company’s product launches such as TV/social media report and the Nielsen Twitter TV Ratings are making good progress and will lead to revenue expansion in the near term. The company also provided decent fourth-quarter revenue guidance, indicating improving demand, going forward.
However, lack of visibility and macro uncertainty may keep the share price range bound in the near term.
Currently, Nielsen has a Zacks Rank #3 (Hold). Other stocks that have been performing well and are worth a look include Melco Crown Entertainment Ltd (MPEL), Kemper Corp. (KMPR) and Fiserv, Inc. (FISV). All these stocks carry a Zacks Rank #1 (Strong Buy).
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