The New York Times Company (NYT) posted third-quarter 2013 loss of one cent a share that fared better than the Zacks Consensus Estimate of loss of 4 cents and the year-ago quarter loss of 2 cents.
Including one-time items and discontinued operations, quarterly loss came in at 16 cents a share compared with earnings of 2 cents posted in the prior-year period.
The quarter reflects favorable response to the digital subscription packages, increase in circulation revenue and effective cost management. But, these failed to offset the diminishing advertising revenue, which portrayed a lowest quarterly decline in 3 years.
The current economic situation does not seem promising for publishing companies, which are bearing the brunt of waning advertising demand, and this Zacks Rank #4 (Sell) stock is no exception. Other publishing companies such as Journal Communications, Inc. (JRN), The E.W. Scripps Company (SSP) and Gannett Co. Inc. (GCI) are also encountering similar headwinds.
Consequently, the company is contemplating on introducing a new line of digital products and services, and targeting global customers to counter the headwinds.
Publishing companies have been divesting assets that have no direct relation to the core operations. The New York Times Company divested its remaining stake (210 Class B units) in the Fenway Sports Group in May 2012. The company also completed the sale of Regional Media Group in Dec 2011 to re-focus on its core newspapers and pay more attention to its online activities. The company in Sep 2012 completed the sale of About Group, and in Oct 2012 sold its stake in Indeed.com.
Most recently on Oct 24, 2013, it completed the sale of New England Media Group, including The Boston Globe and its allied properties to an acquisition company spearheaded by John W. Henry, who owns Fenway Sports Group, for about $70 million in cash.
The New York Times Company’s top line increased by 1.8% to $361.7 million but fell short of the Zacks Consensus Estimate of $417.
The ongoing slouch in the advertising market continues to weigh upon The New York Times Company, the publisher of The New York Times and the International Herald Tribune. Total advertising revenue slid 2% to $138 million in the third quarter, following a decline of 5.8% in the second quarter of 2013.
The New York Times Company’s print advertising declined 1.6% during the quarter. Digital advertising revenue fell 3.4% to $32.8 million, and now accounts for 23.8% of total advertising revenue compared with 24.1% in the prior-year quarter.
The company experienced a fall in major advertising categories. Both retail and classified advertising dipped 15% and 11.8%, respectively, during the quarter. Within classified, real estate and help-wanted advertising fell 11.5% and 10.4%, respectively. Automotive advertising tumbled 59.4%. However, national advertising jumped 1.8%.
The diversified media conglomerate hinted that total advertising revenue trends in the fourth quarter of 2013 would decline in the low single digits.
On the brighter side, the rise in circulation revenue came as a respite. It climbed 4.8% to $204.2 million. Management now expects total circulation revenue to jump in the low single digits in the fourth quarter of 2013, gaining from digital subscription initiatives and increase in print circulation price at The Times.
Total adjusted operating profit surged 35.1% to $39.9 million, whereas adjusted operating margin expanded 270 basis points to 11%. The growth reflected sturdy circulation revenue and effective cost management.
Other Financial Aspects
The New York Times Company ended the quarter with cash and marketable securities of about $938 million, and total debt and capital lease obligations of approximately $683 million.
The company also restored its quarterly dividend of 4 cents a share, which it suspended in Feb 2009 citing recessionary headwinds.
The company bought back 6.625% senior notes of approximately $12 million due to mature in 2016. The company incurred capital expenditures of approximately $5 million during the quarter. Management now anticipates capital expenditures between $15 million and $20 million in 2013.
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 727,000 at the end of the quarter, reflecting a jump of over 28% year-over-year.
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. The company intends to transform itself and lessen its reliance on traditional advertising.
In doing so, the company wishes to launch lower-priced as well as premium subscription based model to target different masses according to their appetite, and emphasize on online video production and brand extension. The company also rechristened International Herald Tribune as the International New York Times to represent itself as a single brand identity in order to attract international digital subscribers.