The New York Times Company (NYT) posted third-quarter 2014 earnings of 3 cents a share which fared better than the Zacks Consensus Estimate of a loss of one cent and improved by a couple of cents from the year-ago quarter. The strength witnessed across digital advertising supported the bottom line to turn around from a negative earnings surprise of 12.5% in the second quarter.
Our quantitative model had rightly predicted that The New York Times Company would beat the Zacks Consensus Estimate, as it had the right combination of two key ingredients – a positive Earnings ESP and a Zacks Rank #2 (Buy).
Including one-time items, the company posted a loss of 8 cents a share that narrowed substantially from a loss of 16 cents incurred in the prior-year quarter.
In the reported quarter, The New York Times Company registered an increase in its digital subscription packages and rise in both circulation and digital advertising revenues. However, the quarter saw a decline in print advertising revenue and an increase of 2.5% in adjusted operating costs. Management now expects adjusted operating costs to remain almost the same year over year in the fourth quarter of 2014.
The New York Times Company’s top line grew 0.8% year over year to $364.7 million, following a decline of 0.6% in the previous quarter. Revenues also came marginally above the Zacks Consensus Estimate of $363 million.
Circulation revenue increased 1.3% to $206.7 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 jumped 13.3% to $42.8 million. Management now projects total circulation revenue in the fourth quarter to increase at a rate in line with the quarter under review.
Total advertising revenue came in at $137.9 million, down 0.1% year over year. Print advertising revenue declined 5.3%, while digital advertising revenue climbed 16.5% to $38.2 million. The diversified media conglomerate hinted that total advertising revenue in the fourth quarter would decline in the mid-single-digit range. The market seems concerned over this prediction.
The company experienced a rise of 10.1% and 3.7% in Retail and Classified advertising, respectively, which failed to offset the 1.9% fall in National advertising.
Total adjusted operating profit fell 11% to $40 million, while adjusted operating margin contracted 140 basis points to 11%.
Other Financial Aspects
The New York Times Company ended the quarter with cash and marketable securities of about $966 million, and total debt and capital lease obligations of approximately $669 million. The company incurred capital expenditures of about $8 million during the quarter. Management now foresees total capital expenditures of $35 million for 2014.
Conclusion
Advertising, which remains a significant source of revenue, is largely dependent on 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 also been 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. Earlier this month, The New York Times Company stated its plan to trim 100 staff across the newsroom section and a few more from other business operations to rein in costs amid dwindling print advertising demand and divest resources to digital offerings.
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 875,000 at the end of the reported quarter, rising 44,000 sequentially and over 20% year over year.
The New York Times Company remains committed to streamline its cost structure, strengthen its balance sheet, and rebalance its portfolio.
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