NY Times Beats by a Penny

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The New York Times Company (NYT) posted fourth-quarter 2012 earnings of 32 cents a share that beat the Zacks Consensus Estimate by a penny but fell 17.9% from 39 cents delivered in the year-ago quarter. The current economic situation does not seem promising for publishing companies, which are bearing the brunt of waning advertising demand, and this Zacks Rank #3 (Hold) stock is no exception. The company cited that higher effective tax rate also weighed upon the bottom line.

Including one-time items, quarterly earnings came in at $1.14, substantially up from 39 cents a share in the prior-year quarter on the back of the sale of assets.

The quarter also reflects favorable response to the digital subscription packages, and increase in circulation and digital advertising revenues. But, these failed to offset the diminishing print advertising revenue.

Publishing companies have been divesting assets that have no direct relation to the core operations. The New York Times Company on Sep 24 completed the sale of About Group, which it acquired in 2005, to InterActiveCorp (IACI) for a consideration of $300 million. In October, the company sold its stake in Indeed.com, a job portal, for approximately $167 million.

Another example of shedding assets by the company is the sale of Regional Media Group in Dec 2011, which was once a part of News Media Group. Recently, The Washington Post Company (WPO) entered into a deal to sell its daily and Sunday newspaper, The Herald, to Black Press Ltd. and its subsidiary Sound Publishing.

The New York Times Company now reports through one reportable segment, News Media Group, which includes The New York Times Media Group and New England Media Group. The company’s top line rose 5.2% to $575.8 million, and came ahead of the Zacks Consensus Estimate of $572 million attributable to a rise in circulation and other revenues. The New York Times Media Group revenue jumped 5.7% to $468.1 million and New England Media Group revenue climbed 3.1% to $107.7 million.

The ongoing slouch in the advertising market continues to weigh upon The New York Times Company, the publisher of The New York Times, the International Herald Tribune, The Boston Globe and 15 other daily newspapers. Total advertising revenue slid 3.1% to $280 million in the quarter. However, excluding the extra week in the quarter, advertising revenue dropped 8.3%, a marginal improvement over the decline of 8.9% in the third quarter.

The New York Times Company’s print advertising declined 5.6% during the quarter, however, excluding the extra week, it tumbled 10.2%. Digital advertising revenue for New York Times’ Digital business, which includes NYTimes.com, Boston.com and BostonGlobe.com, grew 5.1% to $69 million, and now accounts for 24.7% of total advertising revenue, up from 22.7% in the prior-year quarter. Excluding the extra week, digital advertising revenue slid 1.7%.

The company experienced a fall in all major advertising categories. Both national and retail advertising dipped 3.4% and 2.9%, respectively, during the quarter. Total classified advertising dropped 3.4%. Within classified, real estate and help-wanted advertising fell 10.9% and 4% respectively. However, automotive advertising grew 9.4%.

The diversified media conglomerate hinted that total advertising revenue trends in the first quarter of 2013 would be somewhat similar to the fourth quarter of 2012.

What came as a respite during the quarter was a rise in circulation revenue. It climbed 16.1% to $257.8 million. Management now expects total circulation revenue to jump in the mid-single digits in the first quarter of 2013, gaining from digital subscription initiatives and increase in print circulation price at The New York Times.

Total adjusted operating profit edged down 1.8% to $124.5 million, whereas adjusted operating margin contracted 160 basis points to 21.6%.

Other Financial Aspects

The company ended fourth quarter with cash and short-term investments of about $955 million, which increased over $340 million sequentially on account of the divestment of About Group and the sale of stake in Indeed.com. Total debt and capital lease obligations was approximately $697.1 million. The company revoked its revolving credit facility of $125 million.

The New York Times Company incurred capital expenditures of approximately $6 million during the quarter. Management now anticipates capital expenditures between $40 million and $50 million in 2012.

Let’s Conclude

The company’s advertising volume came under pressure as advertisers shied away from making any upfront commitments in an economy which is showing an uneven recovery. The publishing industry has long been grappling with sinking advertising revenue. This comes in the wake of a longer-term secular decline as more readers choose free online news, thereby making the print-advertising model increasingly irrelevant.

To curb shrinking advertising revenue and seek new revenue avenues, the publishing companies contemplated charging readers for online content.

Despite hiccups in the economy, what still promises a guaranteed revenue generation avenue 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 for The New York Times and the International Herald Tribune reached 640,000 at the end of the quarter, reflecting a jump of about 13% since the end of the third quarter.

The company also launched a pay and read model for BostonGlobe.com. The number of paid digital subscribers reached 28,000 at the end of the quarter, representing an increase of 8% since the end of the previous quarter.

The increase in the subscriber base was due to the company’s decision to limit the number of free articles that can be read by online traffic visiting the website of its flagship newspaper. Online visitors cannot access more than 10 free articles per month, which is exactly half of what the pay-and-read model offered when the system was launched.

Another media conglomerate, News Corporation (NWSA) has also moved towards an online subscription-based model for general news content. News International, a subsidiary of News Corporation, began charging readers for online content for The Times of London and Sunday Times of London effective Jun 2010.

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 revenue.

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