Meredith Beats on Q1 Earnings

Meredith Corporation’s (MDP) first-quarter fiscal 2014 earnings of 53 cents a share came a penny ahead of the Zacks Consensus Estimate, owing to strong performance of the Local media groups, partly offset by lower political advertising revenues. However, on a year-over-year basis, earnings fell 3.6%.

Going forward, management expects second-quarter fiscal 2014 earnings per share to be in the range of 65 cents to 70 cents. Moreover, for fiscal 2014, earnings are projected between $2.60 and $2.95 per share. The Zacks Consensus Estimate for fiscal 2014 is pegged at $2.78.

Revenues & Margins

Total revenue for the quarter inched up 0.6% year over year to $356.5 million, reflecting 14.9% increase in other revenues to $82.2 million and 0.3% rise in circulation revenues to $75.7 million, partly offset by a 4.1% fall in advertising revenues to $198.5 million. However, total revenue fell short of the Zacks Consensus Estimate of $361 million.

Total operating expenses for the quarter rose 1.6% to $313.6 million, reflecting an increase of 3.0% in SG&A expenses and 0.1% rise in production, distribution and editorial costs.

Operating profit grew 5.5% to $42.8 million, whereas operating margin contracted 79 basis points to 12.0%.

Segment Details

Meredith’s National Media Group revenues marginally fell year over year to $266.9 million, whereas the segment’s operating profit decreased 4.6% year over year to $28.1 million.

Meredith now projects National Media Group advertising revenues to remain even or fall marginally in the second quarter of fiscal 2014.

Meredith’s Local Media Group revenues rose 2.7% to $89.6 million, attributable to non-political advertising revenues and a 94% increase in other revenues to $24.7 million. The segment’s operating income fell 7.1% to $25.6 million.

Non-political advertising revenues increased 3.4% to $64.4 million in the reported quarter.

However, Political advertising revenues fell significantly to $511,000 from $12.2 million in the year-ago quarter.

Management now expects Local Media Group’s non-political advertising revenues to increase in the mid-to-high single-digit range during the second quarter of fiscal 2014.

Meredith’s Growth Catalysts

Meredith, which competes with Martha Stewart Living Omnimedia Inc. (MSO), boasts a strong portfolio of women’s magazines, which helps it to gain market share. Further, the company remains focused on bolstering advertising revenues, primarily in the digital space and is increasingly concentrating on brand licensing, marketing services and e-Commerce to counter possible economic downturns going forward.

In Nov 2013, Meredith will launch Allrecipes magazine, the media industry's most important print extension of a digital brand. Advertising interest has been strong, with Procter and Gamble, Hershey as well as General Motors making commitments.

Meredith is also an ideal pick for investors seeking both growth and income. The company, through its total shareholder return (:TSR) strategy, intends to boost shareholders’ value through dividends, share repurchases and strategic investments in business to drive growth. Since its commencement, the company has hiked its dividend by 60% and repurchased $75 million worth of shares.

The company has a history of regularly paying dividends for 66 consecutive years. Over the last two decades, it has increased its dividend consistently, which now stands at $1.63 per share.

Moreover, the company constantly seeks to venture into arenas and add alternative revenue generating channels through strategic acquisitions and collaborations. Meredith’s contract with Wal-Mart Stores Inc. (WMT) 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.

Alongside, this Zacks Rank #3 (Hold) stock renewed its long-term affiliation agreements with CBS Corporation (CBS) and Fox Broadcasting Co. We expect such measures to help the company in reducing its dependency on traditional advertising and provide ample growth opportunities to increase revenues.

Other Financial Details

Meredith ended the quarter with cash and cash equivalents of $16.4 million, total debt of $370 million and shareholders’ equity of $857.8 million. In first-quarter 2014, the company repurchased 1.0 million shares. As of Sep 30, 2013, the company had $26 million worth of shares remaining under share repurchase authorization. The company’s leverage ratio (debt to EBITDA) was 1.4 to 1 for the 12 months period ended Sep 30, 2013.

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