Meredith reports higher revenue, due in part to recent acquisitions
The publishing side of Meredith reported strong growth in digital revenue, with digital now accounting for 25 percent of all National Media Group advertising revenues
There remains uncertainty about the Meredith-MediaGeneral merger, but while that all gets sorted out Meredith was able to report strong revenue growth in its first quarter 2016 earnings this morning.
The publisher of Better Homes and Gardens and other magazines, and the owner of coveted local TV stations, reported that revenue increased in the quarter to $385 million. But net earnings came in at $11.029 million, versus $29.365 million in the same quarter of last year as expenses increased in all three reporting areas.
Driving the growth was acquisition in both its broadcast – called the Local Media Group – and its publishing side – called the National Media Group. Total revenue for the magazine side of the business increased 2 percent, thanks to the addition of Shape, Martha Stewart Living and mywedding.com brands. Without those acquisitions Meredith would have likely reported a decline in total magazine revenue.
The strongest area of growth for Meredith’s publishing side was digital> Digital advertising revenue grew nearly 50 percent and now accounts for 25 percent of total National Media Group advertising revenues.
Here is Meredith’s Q1 206 earnings press release:
DES MOINES, Iowa – October 29, 2015 — Meredith Corporation, the leading media and marketing company serving more than 100 million unduplicated American women and over 60 percent of U.S. millennial women, today reported fiscal 2016 first quarter results:
- Earnings per share were $0.24, including special items related primarily to transaction expenses resulting from Meredith’s merger agreement with Media General, Inc.
- Excluding special items, earnings per share were $0.52. This compares to earnings per share of $0.65 in the prior-year period. Meredith recorded $11 million – or $0.15 of earnings per share – less of political advertising revenues in the first quarter of fiscal 2016 than in the prior-year period, as expected in an off-election year. (See Table 1 for supplemental disclosures regarding non-GAAP financial measures.)
- Total revenues rose 4 percent to $385 million.
Strong digital performance and contributions from our recent acquisitions in both businesses – along with solid non-political advertising in our Local Media Group – partially offset the absence of political advertising in the quarter,” said Meredith Chairman and CEO Stephen M. Lacy. “Looking ahead to our second quarter of fiscal 2016, we’re pleased to see much stronger advertising demand for our National Media Group brands – which we now expect will be up more than 15 percent and produce strong operating profit growth for the Group.”
Looking at Meredith’s performance in the first quarter of fiscal 2016 compared to the prior year:
- Local Media Group total revenues increased to $126 million. Growth was driven primarily by the addition of television stations WALA in Mobile-Pensacola and WGGB in Springfield, Mass., and higher retransmission consent fees. Non-political advertising revenues increased 12 percent.
- National Media Group total revenues increased 5 percent, led by the additions of the Martha Stewart and Shape media properties, and growth from digital advertising and brand licensing. Total advertising revenues increased 2 percent.
- Total Company digital advertising revenues grew 40 percent, driven by recent acquisitions and organic growth.
On September 8, 2015, Meredith announced a definitive agreement to merge with Media General to create Meredith Media General, a powerful multiplatform and diversified media company with television stations reaching 30 percent of U.S. households; a digital audience of more than 200 million monthly unique visitors; magazine readership of more than 110 million; a Top 3 global licensing program; and a leading content-driven digital marketing services business. The transaction is expected to close by June 30, 2016.
“We are excited about the opportunity to create a powerful new media company with significant operations on both the local and national level,” Lacy said. “This merger will create a strong and efficient company positioned to realize the significant earnings and cash flow potential of local broadcasting; leverage the unparalleled reach and rich content-creation capabilities of Meredith’s national brands; and capture the rapidly developing growth potential of the digital media space. It also positions Meredith Media General to deliver enhanced total shareholder return and participate in future industry consolidation.”
OPERATING GROUP DETAIL
LOCAL MEDIA GROUP
Meredith’s Local Media Group includes 17 owned or operated television stations reaching 11 percent of U.S. households. Meredith’s portfolio is concentrated in large, fast-growing markets, including seven stations in the nation’s Top 25 and 13 in Top 50 markets. Meredith’s stations produce approximately 650 hours of local news and entertainment content each week.
Fiscal 2016 first quarter Local Media Group revenues increased 1 percent to $126 million. Operating profit was $29 million ($28 million before special items), compared to $36 million in the prior-year period. Meredith recorded $11 million less of political advertising revenues in the first quarter of fiscal 2016 than in the prior-year period. (See Table 1 for supplemental disclosures regarding non-GAAP financial measures.)
Looking more closely at fiscal 2016 first quarter performance compared to the prior year:
- Non-political advertising revenues grew 12 percent to $89 million. Results were led by the addition of stations in Mobile-Pensacola and Springfield, and growth in the professional services, retail and restaurants categories.
- Other revenues and operating expenses increased, due primarily to growth in retransmission revenues from cable and satellite television operators and higher programming fees paid to affiliated networks, along with increases from recent acquisitions.
Meredith continued to increase its deep connection with local viewers through expansions of local programming. In Phoenix, Meredith now operates one of the largest local news operations in the U.S., producing more than 100 hours of local news per week. In St. Louis, KMOV added two newscasts to expand its commitment to the local community. Meredith also launched a community-wide campaign, #endviolenceSTL, to help heal the wounds in the St. Louis community.
Additionally, Meredith furthered its digital advertising initiatives by bringing programmatic sales efforts in-house. Controlling the programmatic sales operations allows further customization and 100 percent of the revenue is retained by Meredith.
“We were pleased to deliver solid growth in non-political advertising revenues, which speaks to the fundamental strength of our television broadcasting business,” said Meredith Local Media Group President Paul Karpowicz. “We continue to focus on producing local news that engages our viewers, monetizing the strength of our audiences and expanding our digital business.”
NATIONAL MEDIA GROUP
Meredith’s National Media Group reaches 100 million unduplicated American women, and over 60 percent of U.S. millennial women. Meredith is a leader in creating content across media platforms and life stages in key consumer interest areas such as food, home, parenthood and health. It also features robust brand licensing activities and innovative business-to-business marketing services. Meredith expects to continue to grow its National Media Group organically and through strategic acquisitions.
Fiscal 2016 first quarter National Media Group revenues increased 5 percent to $258 million. Operating profit was $23 million ($26 million excluding special items), compared to $29 million in the prior-year period. (See Table 1 for supplemental disclosures regarding non-GAAP financial measures.)
Looking more closely at fiscal 2016 first quarter performance compared to the prior year:
- Total advertising revenues grew 2 percent to $127 million. Performance was led by the addition of the Shape, Martha Stewart Living and mywedding.com brands, along with digital advertising platform Selectable Media. From a category standpoint, the household supplies, home and travel categories were stronger.
- Digital advertising revenues increased nearly 50 percent and accounted for 25 percent of total National Media Group advertising revenues.
- Circulation revenues increased 10 percent to $72 million, primarily due to the additions of Martha Stewart Living and Shape magazines. Meredith continued to expand its digital consumer marketing activities, driving approximately 40 percent of magazine subscription acquisitions via digital sources in the last 12 months.
Meredith’s consumer engagement remains robust. During the quarter, Meredith increased the ratebase of Allrecipes magazine to 1.25 million – up from 500,000 at launch fewer than two years ago. It also increased the ratebase of EatingWell magazine to 1 million, up from 350,000 when Meredith acquired it four years ago.
Meredith Brand Licensing delivered strong results, as both revenues and operating profit increased, driven by sales of more than 3,000 SKUs of Better Homes and Gardens licensed products at over 4,000 Walmart stores nationwide.
Meredith Digital continued to enhance its positioning with consumers and clients:
- Allrecipes.com, the world’s largest digital food brand with more than 1.3 billion visits annually, unveiled the new Allrecipes.com, a more personal, shareable and responsive web experience that transforms the site into the world’s most food-focused social network.
- Meredith further expanded its digital shopper marketing capabilities with the acquisition of Qponix, a grocery server technology. The Qponix platform combines hyperlocal targeting of consumer packaged goods brands and grocery retail outlets to reach consumers with relevant product offers at the exact moments they are developing weekly shopping lists and navigating grocery aisles.
“We’re pleased with the revenue growth provided by our recently acquired businesses, along with record digital performance,” said Meredith National Media Group President Tom Harty. “Looking ahead, the prescription drug and food categories are experiencing strong growth, driving projected advertising growth of more than 15 percent and strong operating profit growth in our second fiscal quarter.”
OTHER FINANCIAL INFORMATION
Consistent with its Total Shareholder Return (TSR) strategy, Meredith repurchased approximately 125,000 shares of stock in the first quarter of fiscal 2016, and $94 million remained under the current repurchase authorization. Total debt was $819 million, and the weighted average interest rate was 2.5 percent, with $450 million effectively at a fixed rate. Meredith’s debt-to-EBITDA ratio for the trailing 12 months was 2.8 to 1 (as defined in Meredith’s credit agreements). All metrics are as of September 30, 2015.
Key elements of Meredith’s TSR strategy are: (1) An annual dividend of $1.83 per share, a 6 percent increase over the prior year and a nearly 80 percent increase since Meredith launched its TSR strategy in October 2011; (2) An ongoing share repurchase program; and (3) Strategic investments to scale the business and increase shareholder value.
All earnings per share figures in the text of this release are diluted. Both basic and diluted earnings per share can be found in the attached Condensed Consolidated Statements of Earnings. All fiscal 2016 first-quarter comparisons are against the comparable prior-year period unless otherwise stated.
Meredith continues to expect full year fiscal 2016 earnings per share to range from $2.90 to $3.25, excluding special items. As a reminder, Meredith will be cycling against a record $44 million (or $0.59 of earnings per share) in net political advertising revenues recorded by its Local Media Group in fiscal 2015.
Looking more closely at the second quarter of fiscal 2016 compared to the prior-year period:
- Total Company revenues are expected to be up in the low-single digits.
- Total National Media Group revenues are expected to be up in the high-single digits, including advertising revenue growth of more than 15 percent.
- Total Local Media Group revenues are expected to be down in the high-single digits, as expected in an off-election year. Non-political advertising revenues are expected to grow in the high-single digits.
- Meredith expects fiscal 2016 second quarter earnings per share to range from $0.75 to $0.80, compared to $0.87 in the prior-year period ($1.00 excluding special items – See Table 2 for supplemental disclosures regarding non-GAAP financial measures). Meredith will be cycling against $29 million, or $0.40 of earnings per share, in net political advertising revenues recorded in the prior-year second quarter.
A number of uncertainties remain that may affect Meredith’s outlook as stated in this press release for the second quarter and full year fiscal 2016. These and other uncertainties are referenced below under “Cautionary Statement Regarding Forward-Looking Statements” and in certain filings with the U.S. Securities and Exchange Commission.