The New York Times Company (NYT) posted second-quarter 2014 earnings of 7 cents a share that missed the Zacks Consensus Estimate by a penny and plunged 46.2% from 13 cents earned a year ago. Management stated that a decline in print advertising revenues and higher investment in digital products hurt its bottom line.
Including one-time items, earnings came in at 6 cents a share, down 53.8% from the prior-year quarter.
In the reported quarter, New York Times witnessed an increase in its digital subscription packages and rise in both circulation and digital advertising revenues. However, these failed to offset the soft print advertising demand and rise in operating costs. Management expects low-to mid single-digit increase in operating costs in the third quarter of 2014.
The New York Times Company’s top line declined 0.6% year over year to $388.7 million and came almost in line with the Zacks Consensus Estimate of $389 million. The year-over-year drop in revenue was mainly due to a decline in advertising revenue. Print advertising revenue dropped 6.6%, while digital advertising revenue climbed 3.4% to $41.5 million.
The company experienced a rise of 8% and 1.2% in Retail and Classified advertising, respectively, which failed to offset the 6.5% fall in National advertising. This resulted in a 4.1% decline in total advertising revenue of $156.3 million.
The diversified media conglomerate carrying a Zacks Rank #4 (Sell) hinted that total advertising revenue in the third quarter would decline in the mid single-digit range.
Circulation revenue increased 1.4% to $209.8 million primarily on its digital subscription initiatives and rise in the home delivery price of The New York Times. Circulation revenue from digital-only subscription packages, e-readers and replica editions jumped 13.5% to $41.7 million.
Management now expects total circulation revenue in the third quarter to remain flat with the year-ago period.
Total adjusted operating profit fell 21.1% to $55.7 million, while adjusted operating margin contracted 380 basis points to 14.3%.
Other Financial Aspects
The New York Times Company ended the quarter with cash and marketable securities of about $972 million, and total debt and capital lease obligations of approximately $686 million. The company incurred capital expenditures of about $7 million during the quarter. Management now foresees total capital expenditures between $40 million and $50 million for 2014.
Conclusion
Advertising, which remains a significant source of revenue, is largely dependent upon the global financial health. Softness in advertising demand has been weighing on The New York Times Company’s performance. Consequently, the company is trying every means to shield itself from the impact of an unstable market and contemplating on new revenue generating avenues. The company has been also offloading assets that bear no direct relation to its core operations in order to re-focus on its core newspapers and pay more attention to its online activities.
The New York Times Company has been adding diverse revenue streams, such as a pay-and-read model, to make it less vulnerable to economic conditions. The company is also adapting to the changing face of the multiplatform media universe, and has already included mobile and reader application products to its portfolio. Other publishing companies such as Journal Communications, Inc. (JRN), The E.W. Scripps Co. (SSP) and Gannett Co., Inc. (GCI) are also trying to adapt to different revenue generating ways.
Despite hiccups in the economy, what still promises revenue generation 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 831,000 at the end of the reported quarter, rising 32,000 sequentially and 19% year over year. The launch of new digital products such as NYT Now, NYT Opinion and Times Premier also contributed to the growth.
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.
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