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New York Times (NYT) Down 0.1% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for New York Times Co. (NYT). Shares have lost about 0.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is New York Times 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 drivers.

NY Times Q2 Earnings Miss, Digital Subscribers Rise

The New York Times Company’s positive earnings surprise streak came to an end with second-quarter 2019 results. The bottom line fell short of the Zacks Consensus Estimate, after surpassing the same in the preceding 11 quarters. The top line also came below the consensus mark. While total revenues continued to increase year over year, earnings remained flat with the year-ago period.

Nonetheless, the company registered higher digital-only subscriptions. Digital advertising also improved significantly during the quarter under review. However, management informed that the second half of 2019 is likely to be challenging for digital advertising as a result of comparisons against sturdy performance in the prior-year period.

The company delivered adjusted earnings from continuing operations of 17 cents a share that missed the Zacks Consensus Estimate by a couple of cents. The newspaper publisher's total revenue of $436.3 million rose 5.2% year over year but came below the Zacks Consensus Estimate of $443.7 million.

Let’s Delve Deep

Subscription revenue grew 3.8% to $270.5 million principally due to increase in the number of subscriptions to the company’s digital-only products. Revenue from digital-only subscriptions products jumped 14.1% to $112.6 million. Management now projects total subscription revenue in the third quarter to increase in the low to mid-single digits, while digital-only subscription revenue is likely to rise in the mid-teens.

Total advertising revenue came in at $120.8 million in the reported quarter, up 1.3% year over year. In the preceding quarter, total advertising revenue had edged down 0.4%. Total advertising revenue in the third quarter are expected to decline in the high-single digits.

Print advertising revenue fell 8% to $62.7 million in the quarter under review, following a decline of 11.9% in the preceding quarter.

Digital advertising revenue jumped 13.7% to $58 million, following an increase of 18.9% in the preceding quarter. Management expects digital advertising revenue to fall in the high-single digits during the third quarter.

We note that other revenue soared 29.7% to $45 million during the quarter under review mainly due to revenue earned from television series, “The Weekly,” and growth in commercial printing operations. Management expects other revenue to increase in the band of 25-30% during the third quarter.

Adjusted operating costs rose 7.2% to $380.7 million during the quarter. This year over year increase was due to increased content costs, comprising rise in the number of newsroom staff and expenses associated to television series, “The Weekly,” as well as labor and raw material costs from commercial printing and advertising costs.

Management now anticipates adjusted operating costs to increase in the high-single digits during the third quarter on account of sustained investment into growing digital subscription business. Total adjusted operating profit declined 6.4% to $55.6 million.

Other Financial Aspects

The New York Times Company ended the quarter with cash and marketable securities of about $846.5 million. The company incurred capital expenditures of about $13 million during the quarter. Management envisions capital expenditures of $50-$60 million in 2019.

Wrapping Up

The New York Times Company has come a long way from being a sole provider of news content and advertising on print publications. The company is no longer restricted to print. As readers swarmed to the Internet, advertisers followed suit and so did newspaper companies. Trimmed print operations paved way for online publications that led to the development of paywalls, as adopted by the company.

The company notified that the number of paid digital subscribers reached roughly 3,780,000 at the end of second quarter of 2019 – rising 197,000 sequentially and 30.7% year over year. The company has set a goal to reach 10 million total subscriptions by 2025.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -31.25% due to these changes.

VGM Scores

At this time, New York Times has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, New York Times has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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