Cost reductions help offset fall in print ad revenue, drives higher profits for The New York Times
Newspaper also says it has passed the 1 million mark for digital-only subscribers as of Thursday, July 30
The New York Times Co. reported second quarter earnings before the bell today, with operating income increasing to $64.4 million versus $55.7 million in the same quarter last year.
Advertising revenue continues to fall, however, decreasing nearly 13 percent in the quarter, though digital advertising did grow more than 14 percent (for the exact numbers, see the statement below).
The driver of profits was cost reductions. Costs fell 4.9 percent, with the company saying the decreases were “mainly as a result of print distribution efficiencies as well as declines in depreciation and amortization, raw materials costs and outside printing expenses.”
The company will hold its investor conference call later this morning. (Probably reflecting the lack of interest in media stocks, NYT shares are unchanged in pre-market trading.)
The company also announced this morning that it had passed the 1 million mark for digital-only subscribers. And though media reporters are gushing over the number, the reality is that the paper had reached this point in its last AAM consolidated report (so this is really just a technical thing, and I guess many reporters don’t read the circ statements). But it’s still a good number, and one the paper can be proud of.
“This is a major milestone for our digital consumer business, which we launched in 2011 and has continued a strong and steady growth trajectory,” Mark Thompson, president and CEO, said. “It puts us in a unique position among global news providers. We believe that no other news organization has achieved digital subscriber numbers like ours or comparable digital subscription revenue. It’s a tribute to the hard work and innovation of our marketing, product and technology teams and the continued excellence of our journalism.”
The NYT also has 1.1 print plus digital subscribers, the company said.
Here is the full earnings statement:
NEW YORK, NY – August 6, 2015 – The New York Times Company announced today adjusted diluted earnings per share from continuing operations of $.13 in the second quarter of 2015 compared with $.07 in the second quarter of 2014. Diluted earnings per share from continuing operations were $.10 in the second quarter of 2015 compared with $.06 in the same period of 2014.
Adjusted operating profit grew to $64.4 million in the second quarter of 2015 from $55.7 million in the second quarter of 2014, as digital revenue growth combined with cost reductions more than offset a decline in print revenues. Operating profit was $38.1 million in the second quarter of 2015 compared with $16.5 million in the same period of 2014.
“Our Company’s digital progress continued in the second quarter, with double-digit year-over-year growth in both digital advertising and digital subscription revenue,” said Mark Thompson, president and chief executive officer. “We added 33,000 net digital subscribers in the quarter. That means that, in addition to our 1.1 million print-and-digital subscribers, we ended Q2 with 990,000 paid digital-only subscribers. And as we announced separately this morning, we surpassed the million digital subscriber milestone just last week. The number of digital subscriber additions in the second quarter was higher than in the same quarter in either 2014 or 2013, despite the impact of our decision to switch NYT Now from a subscription to a free product. Strong growth in international subscriptions and improved retention contributed to the result.
“Digital advertising also saw another strong quarter – finishing up 14 percent and rounding out a full year of double-digit revenue growth that started in the second half of 2014. Q2’s digital strength was again driven by growth in mobile, Paid Posts and video.
“Cost declines outpaced the decrease in overall revenues, which was primarily driven by continued pressure on print advertising, and led to strong adjusted operating profit growth in the quarter. Expense management will remain a top priority as we head into the second half of 2015, although our emphasis on digital investment and execution is also more intense than ever.
“We recently initiated several important relationships – with Apple, Facebook and Starbucks – all of which we believe will enable us to reach new audiences for our journalism as well as provide incremental revenue.”
Unless otherwise noted, all comparisons are for the second quarter of 2015 to the second quarter of 2014. Discontinued operations in 2014 include post-sale adjustments related to the New England Media Group (NEMG), which was sold in 2013.
This release presents certain non-GAAP financial measures, including diluted earnings per share from continuing operations excluding severance, non-operating retirement costs and special items (or adjusted diluted earnings per share from continuing operations); operating profit before depreciation, amortization, severance, non-operating retirement costs and special items (or adjusted operating profit); and operating costs before depreciation, amortization, severance and non-operating retirement costs (or adjusted operating costs). The exhibits include a discussion of management’s reasons for the presentation of these non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures, as well as an explanation of non-operating retirement costs.
There were no special items in the second quarter of 2015. Second-quarter 2014 results included the following special items:
- A $9.5 million ($5.7 million after tax or $.03 per share) pension settlement charge in connection with a lump-sum payment offer to certain former employees.
- A $9.5 million ($.06 per share) income tax benefit primarily due to a reduction in the Company’s reserve for uncertain tax positions.
The Company had severance costs of $1.9 million ($1.1 million after tax or $.01 per share) and $2.2 million ($1.3 million after tax or $.01 per share) in the second quarters of 2015 and 2014, respectively.
Results from Continuing Operations
Total revenues for the second quarter of 2015 decreased 1.5 percent to $382.9 million from $388.7 million. Circulation and other revenues increased 0.9 percent and 4.5 percent, respectively, while advertising revenues declined 5.5 percent.
Circulation revenues rose as revenues from the Company’s digital subscription initiatives and January’s increase in home-delivery prices for The New York Times more than offset a decline in print copies sold. Circulation revenue from the Company’s digital-only subscription products was $47.5 million in the second quarter, an increase of 13.8 percent from the second quarter of 2014.
Paid subscribers to the Company’s digital-only subscription products totaled approximately 990,000 as of the end of the second quarter of 2015, an increase of 19 percent compared to the end of the second quarter of 2014.
Second-quarter print advertising revenue decreased 12.8 percent while digital advertising revenue increased 14.2 percent. Digital advertising revenue was $48.3 million, or 32.5 percent of total Company advertising revenues, compared with $42.3 million, or 26.9 percent, in the 2014 second quarter.
Other revenues rose 4.5 percent in the second quarter primarily due to increases in revenues from the Company’s Crossword product and rental income.
Operating costs decreased 4.9 percent in the second quarter to $344.8 million from $362.7 million. Costs decreased mainly as a result of print distribution efficiencies as well as declines in depreciation and amortization, raw materials costs and outside printing expenses. Adjusted operating costs decreased 4.4 percent to $318.5 million.
Non-operating retirement costs increased to $8.7 million from $8.3 million in the second quarter. The exhibits in this release include the detail of those expenses.
Raw materials costs decreased in the second quarter to $18.3 million from $21.6 million due to paper price and volume declines.
Interest Expense, net
Interest expense, net decreased to $9.8 million from $13.2 million due to a lower level of debt outstanding as a result of the repayment, at maturity, of the Company’s 5.0 percent senior notes in the first quarter of 2015 and debt repurchases made in 2014.
The Company had income tax expense of $11.7 million and an effective tax rate of 41.9 percent in the second quarter of 2015. The Company had an income tax benefit of $5.7 million on pre-tax income of $3.3 million in the second quarter of 2014. The tax benefit was primarily due to a reduction in the Company’s reserve for uncertain tax positions.
As of June 28, 2015, the Company had cash and marketable securities of $879.7 million (excluding restricted cash of $29.0 million primarily to collateralize certain workers’ compensation obligations). Total debt and capital lease obligations were $428.8 million.
Capital expenditures totaled approximately $6 million in the second quarter of 2015 and approximately $11 million in the first six months of 2015.
Total circulation revenues in the third quarter of 2015 are expected to increase at a rate similar to that of the second quarter of 2015.
Total advertising revenues in the third quarter of 2015 are expected to decrease in the mid-single digits compared with the third quarter of 2014.
Operating costs are expected to decrease in the low-single digits in the third quarter of 2015 compared with the third quarter of 2014, while adjusted operating costs are expected to be flat to slightly down.
The Company expects the following on a pre-tax basis in 2015:
- Results from joint ventures: breakeven,
- Depreciation and amortization: $60 million to $65 million,
- Interest expense, net: $40 million to $45 million, and
- Capital expenditures: approximately $35 million.