Earnings Preview: Meredith

Zacks

Meredith Corporation. (MDP) is slated to report its fourth-quarter 2012 financial results on Thursday, July 26. The current Zacks Consensus Estimate for the quarter stands at 64 cents a share, reflecting an estimated year-over-year decrease of about 4.5%. Revenue, as per the Zacks Consensus Estimate, is $376 million.

Third-Quarter Overview

Meredith’s quarterly earnings of 66 cents a share surpassed the Zacks Consensus Estimate by a penny, but dropped 2.9% from 68 cents earned in the prior-year quarter. On a reported basis, including one-time items, earnings dipped 29.9% to 47 cents from 67 cents delivered in the year-ago quarter.

Total revenue for the quarter inched up 2% year over year to $345.5 million, reflecting an increase of 3.4% in advertising revenue to $191.5 million and a jump of 14.9% in circulation revenue to $76.3 million, partially offset by a decline of 10.9% to $77.7 million in other revenue. However, total revenue fell short of the Zacks Consensus Estimate of $350 million.

Guidance

Management now expects earnings in the range of 63 cents to 66 cents for the fourth quarter and between $2.47 and $2.50 per share for fiscal 2012. The quarterly as well as fiscal projections are diluted by 10 cents and 12 cents, respectively, due to the impact of the acquisition of Allrecipes.com.

Agreement of Estimate Revisions

During the last 30 days, 1 out of 4 estimates have been revised downwards, while none were raised for the upcoming quarter. Moreover, for fiscal 2012, story remains same with 1 out of 5 estimates being revised downward, while none moving in the opposite direction.   

Magnitude of Estimate Revisions

The Zacks Consensus Estimate for the quarter remained stable over the last 30 days. The analysts remain constructive on the stock based on the company’s growth potential. However, softness in print advertising is likely to weigh upon revenues in the near term. 

Positive Surprise History

With respect to earnings surprises, Meredith has topped the Zacks Consensus Estimate over the last four quarters in the range of 1.5% to 4.5%. The average remained at 3.4%, indicating that the company has surpassed the Zacks Consensus Estimate by the same magnitude in the trailing four quarters.

Our Take

It has been a constant endeavor of Meredith to explore and add alternative revenue generating channels through acquisitions or by entering into strategic alliances. Thereby, the company attempts to reduce its dependence on conventional advertising.

The sluggish economy prompted Meredith to diversify and add significant revenue streams beyond traditional advertising by leveraging its brands through strategic alliances. Brand licensing revenue supplemented the sales of the company, led by a rise in sales of Better Homes and Gardens-branded products at Wal-Mart Stores Inc. (WMT).

The company extended its contract with Wal-Mart Stores through 2016, which 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.

Meredith remains committed to make strategic investments to increase its revenue generating capabilities while enhancing its profitability. The company is aggressively expanding its brands through online platforms, televisions, videos, mobile applications, and is expanding its reach of food and lifestyle content across tablet products, such as the iPad, NOOK Color, Kindle Fire, and Samsung Galaxy.

However, in the recent years, Meredith has been facing stiff competition across its magazine, books, and related publishing products as well as its television and radio stations with other mass media, including the Internet and other broadcasting stations, on the attributes of advertising rates, circulation levels, and reader demographics. This may weigh upon the company’s top- and bottom-lines results.

Currently, we maintain a long-term Neutral recommendation on the stock. However, Meredith retains a Zacks #2 Rank that translates into a short-term Buy rating.

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