Nielsen (NLSN) Down 9.7% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Nielsen (NLSN). Shares have lost about 9.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Nielsen due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Nielsen’s Q4 Earnings Miss Estimates, Revenues Beat

Nielsen Holdings plc reported adjusted fourth-quarter 2018 net earnings of 51 cents per share, missing the Zacks Consensus Estimate of 54 cents. However, the figure was up 10.9% from the year-ago quarter.

Total revenues came in at $1.658 billion, decreasing 5.8% year over year. Also, the reported revenues decreased 3.5% on a constant-currency basis. However, the top line surpassed the Zacks Consensus Estimate of$1.64 billion.

Starting from the fourth quarter of 2018, the company has reorganized into two new segments, namely Nielsen Global Media and Nielsen Global Connect.

Global Media revenues during the fourth quarter were $869 million (52% of its total revenues), reflecting a decrease of 3.6% from the year-ago level or 2.9% on a constant-currency basis.

Global Connect revenues during the quarter were $789 million (48% of the total revenues), reflecting a decrease of 8.3% from the year-ago period or 4.2% on a constant-currency basis.

Operating Results

Watch business revenues were $881million (accounting for 53% of total fourth-quarter revenues), reflecting a decrease of 3.5% year over year or 2.8% on a constant-currency basis. Nevertheless, Audience Measurement of Video and Text revenues increased 0.8% from the prior-year quarter, driven by ongoing investments and continued client adoption. However, Marketing Effectiveness revenues decreased 23% year over year.

Buy business revenues were $777 million (47% of the total revenues), reflecting a decrease of 8.4% from the year-ago quarter or 4.4% on a constant-currency basis. Excluding foreign currency impact, revenues from the Developed market declined 7.1% on a constant-currency basis. Revenues from emerging markets were down 4.9% but increased 4% on a constant-currency basis, driven by continued demand for the company’s services to local clients, partially offset by continued pressure from multinationals.

Gross margin was 57.4%, down 90 basis points (bps) from the year-ago period.

Nielsen’s operating expenses, namely selling, general and administrative expenses,were $507 million, increasing 6.1% from the year-ago figure.

Adjusted EBITDA was $488 million in the fourth quarter, decreasing 15.3% from the prior-year level. Also, Adjusted EBITDA margin contracted 328 bps to 29.4% due to softer revenues, along with continued investments in Buy and Watch segments, partly offset by productivity initiatives.

Balance Sheet & Cash Flow

Nielsen exited the quarter with a cash balance of approximately $524 million compared with $446 million in the last reported quarter.

Net debt (gross debt excluding cash and cash equivalents) was $7.86 billion, and net debt leverage ratio was 4.25 at the end of 2018.

Cash flow from operations was $546 million, capex totaled $149 million and free cash flow amounted to $397 million in the fourth quarter.

Guidance

Management issued its guidance for full-year 2019. It expects total revenues to be approximately $6.4 billion on a constant-currency basis. Adjusted earnings per share are expected to remain in the range of $1.63-$1.77 per share.

The company expects free cash flow in the range of $525-$575 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted -34.76% due to these changes.

VGM Scores

Currently, Nielsen has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Nielsen has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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