Meredith (MDP) Beats on Q1 Earnings, Sales Lag Estimates

Meredith Corporation MDP reported mixed financial numbers for the first quarter of fiscal 2018, wherein earnings surpassed the Zacks Consensus Estimate but the top line missed the same. The company reported earnings per share of 69 cents, beating the consensus mark of 63 cents but declined 8% year over year. We note that the company’s earnings have topped the consensus estimate in 15 of the trailing 16 quarters.

Despite reporting better-than-expected earnings, the company reiterated guidance. The company continues to expect adjusted earnings in the band of $3.20-$3.50 per share, compared with fiscal 2017 earnings of $4.00 per share. For the second quarter, earnings are anticipated to be in the range of 87-92 cents a share, down from $1.30 reported in the prior-year quarter. The Zacks Consensus Estimate for the second quarter and fiscal 2018 are pegged at 88 cents and $3.34, respectively.

Sharp year over year decline in earnings projections for both second quarter and fiscal 2018 is primarily due to benefits of 54 and 85 cents, respectively, registered in the year-ago period from robust political advertising revenues.

Meredith’s total revenues came in at $392.8 million, down 1.8% year over year and fell short of the consensus estimate of $396 million, after beating the same in the trailing three quarters.

Advertising revenues declined 7.4% to $209.2 million, while circulation revenues increased 0.4% to $68.9 million. However, other revenues advanced 8.8% to $114.6 million. Digital advertising revenues grew 14% in the quarter. Digital traffic averaged 83 million unique visitors per month.

Strategic endeavors such as an increase in digital offerings, the launch of new magazine, The Magnolia Journal, and addition of newscasts across television stations, along with its focus on non-advertising revenue generating avenues such as retransmission fees, brand licensing and e-commerce bode well for the stock. Meredith also has brand licensing program with Wal-Mart Stores, Inc.

Adjusted operating profit came in at $53.5 million, down 11.9% from the prior-year period, while operating margin contracted 140 basis points to 13.6%.

Segment Details

Meredith’s National Media Group revenues fell 3.4% to $234 million due to 4.2% decline in advertising revenues to $120.1 million and 3.5% slump in Other revenues to $50 million, marginally offset by a 0.4% gain in circulation revenues to $68.9 million. The segment’s adjusted operating profit totaled $25 million, up 3.6% year over year.

Robust performance of Better Homes & Gardens and Martha Stewart Living drove the company’s share of total magazine industry advertising revenues to 13.4%, up from the prior year of 12%. Meredith now expects National Media Group’s second-quarter revenues to decline by mid-single digit.

Revenues at the company’s Local Media Group segment inched up 0.8% to $153.8 million. Non-political advertising revenues rose 4.3% to $87.8 million. Political advertising revenues came in at $1.4 million, down 91.6% from the year-ago quarter. Meanwhile, other revenues jumped 24.2% to $64.6 million. The segment’s adjusted operating profit came in at $40.9 million, down 19.1% from the year-ago period.

Management now expects Local Media Group’s non-political revenues to increase by high-teens.

Other Financial Details

Meredith ended the quarter with cash and cash equivalents of $27.8 million, long-term debt of $642.8 million and shareholders’ equity of $1,007.8 million. As of Sep 30, 2017, Meredith had $62 million remaining under its existing share repurchase authorization. The company generated cash flow from operations of $51 million in the quarter, up 45% year over year.

Zacks Rank and Stocks to Consider

Meredith, which has declined 14.1% in the past three months underperforming the industry’s gain of 3.7%, currently carries a Zacks Rank #4 (Sell). Better-ranked stocks worth considering include News Corporation NWSA, Netflix, Inc. NFLX and Sirius XM Holdings Inc. SIRI.  All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

News Corporation has an impressive long-term earnings growth rate of 11.5%.

In the past six months, Netflix stock has increased 28.2%.

Sirius XM Holdings has an impressive long-term earnings growth rate of 16%.

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