Meredith Corporation (MDP) reported adjusted earnings of 65 cents per share for the first quarter of fiscal 2015, ahead of the Zacks Consensus Estimate of 63 cents and up 22.6% on a year-over-year basis.
The company’s results mainly gained from improvement in advertising trends, with sustained strength seen in the digital section, and favorable outcome from the recently acquired assets.
Management reiterated its fiscal 2015 earnings per share guidance of $3.00 to $3.25. Moreover, for the second quarter of fiscal 2015, the company expects earnings to be around 95 cents to $1.00 per share as compared with 67 cents in the prior-year period. The Zacks Consensus Estimate for the second quarter and fiscal 2015 are pegged at 98 cents and $3.15, respectively.
Revenues & Margins
Total revenue for the quarter grew 4% to $371.2 million and surpassed the Zacks Consensus Estimate of $368 million. Top-line growth was driven by a 9.8% increase in Advertising revenues to $218.0 million and 6.2% growth in Other revenues to $87.3 million, offset by a 12.9% decline in Circulation revenues to $65.9 million.
For second quarter of fiscal 2015, total revenue is anticipated to increase in the low-teens range.
Total operating expenses for the quarter increased 1.5% to $318.3 million owing to a 1.6% rise in selling, general, and administrative expenses, an 8.5% increase in depreciation and amortization charges and a marginal increase in production, distribution and editorial costs.
Operating profit grew 23.6% to $52.9 million, while operating margin expanded 230 basis points to 14.3%.
Segment Details
Meredith’s National Media Group revenues fell 7.7% year over year to $246.3 million, due to a 6.7% decline in advertising revenues to $125 million and 12.9% decline in Circulation revenues to $65.9 million. The segment’s operating profit increased 3% to $29 million.
Meredith now projects National Media Group advertising revenues to fall in low- to mid-single digits in the second quarter of fiscal 2015.
Meredith’s Local Media Group revenues rose nearly 39% to $124.9 million due to a 43% increase in advertising revenue to $93 million and a 6.2% increase in other revenues to $87.3 million. During the quarter, non-political advertising revenues grew substantially to $80 million, while political advertising revenues were at $13 million. The segment’s operating income grew over 40% to $36 million.
Management now expects Local Media Group’s revenues to increase 45%—50%, excluding political advertising revenues of $22—$25 million.
Meredith’s Growth Catalysts
Meredith boasts of a strong portfolio of women’s magazines, which helps it in gaining market share. Further, the company is 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, 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, to enhance its television portfolio. Under the deal, Meredith acquired KTVK, an independent station in Phoenix, KASW, the CW affiliate in Phoenix, and KMOV, the CBS affiliate in St. Louis.
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.
On Oct 15, 2014, Meredith acquired the rights to Martha Stewart Living and Martha Stewart Weddings magazines and the www.marthastewart.com and www.marthastewartweddings.com websites, effective Nov 1, 2014. Under the deal, which spans for 10 years, Meredith will take control of advertising sales, marketing, circulation, production and other non-editorial functions, while the content will still be provided by Martha Stewart's editorial team.
Furthermore, on Aug 20, 2014, Meredith agreed to acquire the broadcast assets of WALA, the Fox affiliate in Mobile-Pensacola. The deal is expected to be completed by the end of 2014. The company expects these acquisitions to be accretive to its earnings and cash flow in fiscal 2015, in line with its Total Shareholder Return strategy.
Meredith is also an ideal pick for yield-seeking investors. The company, through its total shareholder return (TSR) strategy, intends to boost shareholder 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 67 years. Over the last two decades, it has increased its dividend consistently, which now stands at $1.73 per share. The company’s last dividend hike of 6% was in Feb 2014.
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 8% 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 the U.S.
Other Financial Details
Meredith ended the year with cash and cash equivalents of $30.3 million, long-term debt of $659.4 million and shareholders’ equity of $901.2 million. During the quarter, the company has bought back 365,000 shares.
As of Sep 30, 2014, Meredith had $100 million worth of shares remaining under its existing share repurchase authorization. The company’s leverage ratio (debt to EBITDA) was 2.6 to 1 for the 12 month-period ended Sep 30, 2014.
Currently, Meredith carries a Zacks Rank #4 (Sell).
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