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Washington Post Exceeds Estimate

Zacks Equity Research

The Washington Post Company (WPO) recently posted fourth-quarter 2011 results. The quarterly earnings from continuing operations came in at $8.75 per share, marking a substantial decrease from $11.49 delivered in the prior-year quarter. The decline reflected slump in the students’ enrollment and weak advertising demand.

However, the quarterly earnings surpassed the Zacks Consensus Earnings Estimate of $5.36 per share.

On a reported basis, including one-time items, the company posted quarterly earnings of $8.03 per share, reflecting a decline from earnings of $9.42 posted in the year-ago quarter.

Revenue for the quarter dropped 10% to $1,063.4 million from the prior-year quarter, reflecting sluggish performance in the Education, Newspaper Publishing and Television broadcasting division. However, the quarterly revenue came ahead of the Zacks Consensus Revenue Estimate of $1,038 million.

Education division’s revenue went down 14% to $597.7 million, reflecting 26% decrease in Higher Education revenue, 11% revenue drop in Test Preparation and 30% decline in Kaplan Corporate revenue, partially offset by 14% rise in Kaplan International revenue and 20% rise in Kaplan Ventures revenue. Total operating income for the division plunged 51% to $32.3 million during the quarter.

Due to lower student enrollments total Kaplan Higher Education enrollments plunged 23% to 74,550 as of December 31, 2011, excluding the Kaplan University School of Professional and Continuing Education.

Kaplan Higher Education launched a new program called ‘Kaplan Commitment,’ under which, the students of Kaplan University, Kaplan College and other Kaplan Higher Education schools may register to undergo classes to evaluate whether their educational experience commensurate with their needs before incurring a financial obligation. Kaplan will also carry out academic evaluation in order to gauge the probability of the student’s success in the chosen field of study.

The company also notified that those students who wish to withdraw from the program during the stipulated period, defined as risk-free period, and students who do not clear the academic assessments will not be required to pay for the coursework.

New student enrolments increased 3% during the quarter, primarily driven by the above mentioned initiatives undertaken by the company. However, new student enrolments dropped 30% during the full fiscal 2011, negatively impacted by number of students that chose to discontinue after the risk-free period along with sluggish demand.

Television Broadcasting revenue decreased 14% to $88.3 million during the quarter, whereas operating income decreased 10% to $40.9 million, reflecting lack of advertising demand. Moreover, Political advertising revenue also went down $18.9 million during the quarter.

Cable division’s revenue came in at $190.8, reflecting a marginal decrease from $191.3 million in the year-ago quarter. The division’s operating income was $41.9 million, up 12% compared with the previous-year quarter. The growth reflected reduced telephony and general and administrative expenses partially offset by increased programming expenses.

Newspaper Publishing revenue came in at $181 million, down 4% from $188.4 million in the year-ago quarter. Print advertising revenue at The Washington Post declined 6% to $77.1 million, reflecting a fall in classified, general and zoned advertising. Revenue from newspaper online publishing activities, principally washingtonpost.com and Slate, came down 12% to $31.5 million, whereas display online advertising revenue decreased 15%. Online classified advertising revenue on washingtonpost.com decreased 5%.

During the fiscal, the company marked a 6.3% decrease in daily circulation coupled with a 4% decrease in its Sunday circulation year over year.

The Newspaper divisions operating income stood at $7.4 million, reflecting a sharp descent from an operating income of $19.9 million witnessed in the prior-year quarter.

Currently we maintain our long-term Outperform recommendation on the stock. Moreover, The Washington Post which faces stiff competition from The New York Times Company (NYT) holds a Zacks #3 Rank, which translates into a short-term Hold rating.

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