Meredith reports higher revenue and income from magazine group in Q2 earnings report
Magazine division shows strong growth due to recent acquisitions, forecasts Q3 growth to be in mid-single digit range
DES MOINES, Iowa – January. 27, 2016 – Meredith Corporation – the leading media and marketing company with local television brands in large, fast-growing markets and national brands serving 100 million American women – today reported fiscal 2016 second quarter results:
- Earnings per share were $0.72, compared to $0.87 in the prior-year period.
- Excluding special items, comprised primarily of transaction expenses related to Meredith’s agreement to merge with Media General, Inc., earnings per share were $0.80. This compares to earnings per share excluding special items of $1.00 in the prior-year period. (See Tables 1-4 for supplemental disclosures regarding non-GAAP financial measures.)
- As expected in an off-election year, Meredith recorded $29 million, or $0.39 per share, less of high-margin, incremental political advertising revenues in the second quarter of fiscal 2016 than in the prior-year period.
“We’re pleased to report strong advertising performance – including growth on an organic basis – in our National Media Group during the second quarter of fiscal 2016,” said Meredith Chairman and CEO Stephen M. Lacy. “Additionally, our Local Media Group delivered excellent growth in non-political advertising revenues from both our existing stations and our recent strategic acquisitions.”
Looking closer at Meredith’s performance in the second quarter of fiscal 2016 compared to the prior year:
- National Media Group operating profit grew nearly 30 percent on 10 percent revenue growth. Performance was driven by 18 percent advertising growth – including the additions of the Martha Stewart and Shape media properties – and increased brand licensing revenues.
- Local Media Group non-political advertising revenues grew nearly 10 percent to a record $104 million. Growth was driven by the addition of television stations WALA in Mobile-Pensacola and WGGB in Springfield, Mass., and strong performance from existing stations WGCL in Atlanta, WFSB in Hartford, and KCTV in Kansas City. Additionally, retransmission consent fees were higher than in the prior-year quarter.
- Total Company digital advertising revenues grew more than 15 percent to a record high, driven by both recent acquisitions and organic growth. Digital advertising revenues accounted for a third of National Media Group total advertising revenues.
Fiscal 2016 first half earnings per share were $0.96, or $1.32 excluding special items. In comparison, prior-year earnings per share were $1.52, or $1.65 excluding special items. As expected in an off-election year, Meredith recorded $39 million, or $0.53 per share, less of high-margin, incremental political advertising revenues in the first half of fiscal 2016 than in the prior-year period. Total revenues grew 3 percent to $791 million.
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. Meredith expects to continue to grow its Local Media Group organically and through strategic acquisitions.
Fiscal 2016 second-quarter Local Media Group operating profit was $40 million, compared to $55 million in the prior-year period. As expected in an off-election year, Meredith recorded $29 million less of high-margin, incremental political advertising revenues in the second quarter of fiscal 2016 than in the prior-year period. Total Local Media Group revenues were $140 million, compared to $157 million.
Looking more closely at fiscal 2016 second quarter performance compared to the prior year:
- Non-political advertising revenues grew 9 percent to $104 million. Results were led by growth in the automotive, professional services and retail categories.
- Digital advertising revenues grew 20 percent as growth strategies, including Meredith bringing its programmatic sales efforts in-house, began to be realized. Handling its own programmatic sales allows greater customization and Meredith retains all the revenue.
- 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 St. Louis, KMOV recently added expanded morning and evening newscasts. KMOV also received an Alfred I. duPont-Columbia University Award as part of a community-wide campaign, #endviolenceSTL, targeted at healing the wounds in the St. Louis community.
“We’re very proud of our focus on the local viewer, and very pleased that our advertising clients continue to recognize the unique ability that television has to engage and inspire consumers,” said Meredith Local Media Group President Paul Karpowicz. “In particular, we are very pleased to see the strong growth in the Atlanta, Hartford and Kansas City markets.”
Fiscal 2016 first-half Local Media Group operating profit was $70 million ($69 million before special items), compared to $91 million in the prior-year period ($97 million before special items). As expected in an off-election year, Meredith recorded $39 million less of high-margin, incremental political advertising revenues in the first half of fiscal 2016 than in the prior-year period. Total Local Media Group revenues were $266 million, compared to $281 million. (See Tables 1-4 for supplemental disclosures regarding non-GAAP financial measures.)
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 second-quarter National Media Group operating profit grew 29 percent to $34 million, compared to $26 million in the prior-year period ($30 million before special items). Revenues were $267 million, compared to $242 million. (See Tables 1-4 for supplemental disclosures regarding non-GAAP financial measures.)
Looking more closely at fiscal 2016 second quarter performance compared to the prior year:
- Total advertising revenues grew 18 percent to $137 million. Performance was led by the addition of the Shape, Martha Stewart Living and mywedding.com brands, along with digital advertising platform Selectable Media. The prescription drug, beauty and direct response categories were stronger.
- Both print and digital advertising revenues each increased more than 15 percent. Digital advertising revenues were a record high, and accounted for 33 percent of total National Media Group advertising revenues.
- Circulation revenues increased 12 percent to $66 million, primarily due to the additions of Martha Stewart Living and Shape magazines. Meredith continued to expand its digital consumer marketing activities, driving more than one-third of magazine subscription acquisitions via digital sources in the last 12 months.
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. Additionally during the second quarter of fiscal 2016, Meredith renewed its licensing relationship with FTD Companies for flower arrangements under the Better Homes and Gardens brand.
Meredith continued to expand its measurement of advertising effectiveness for clients by launching a partnership with Nielsen to measure total Return on Advertising Spend for Digital Shopper Marketing campaigns at the individual product level. This capability is powered by a proprietary technology platform Meredith acquired earlier this year. It follows the recent launch of a magazine industry guarantee of print magazine advertising results modeled after the successful Meredith Sales Guarantee.
“We are pleased to deliver strong growth in operating profit in the quarter, led by growth in organic advertising and contributions from our recent acquisitions,” said Meredith National Media Group President Tom Harty. “Additionally, we expanded and refined our measurement programs that demonstrate advertising in Meredith media properties – both print and digital – increases retail sales of our clients’ products.”
Fiscal 2016 first-half National Media Group operating profit grew to $56 million ($60 million before special items), compared to $55 million in the prior-year period ($59 million before special items). Revenues increased to $525 million, compared to $489 million.
OTHER FINANCIAL INFORMATION
Total debt was $799 million, and the weighted average interest rate was 2.6 percent, with $450 million effectively fixed at low rates. 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 December 31, 2015.
Meredith continues to focus on its successful Total Shareholder Return program. Key elements include:
- An annual dividend of $1.83 per share that’s yielding 5 percent based on yesterday’s closing price. Meredith has paid dividends for 68 consecutive years and increased them for 22 years straight.
- An ongoing share repurchase program with $94 million remaining under current authorizations.
- 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 second-quarter comparisons are against the comparable prior-year period unless otherwise stated.
Based on the delivery of solid results for the first half of Meredith’s fiscal 2016, and a more favorable outlook for the second half than originally anticipated, Meredith now expects full year fiscal 2016 earnings per share to range from $3.05 to $3.25, excluding special items, compared to the previous range of $2.90 to $3.25. As a reminder, Meredith is 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 third quarter of fiscal 2016 compared to the prior-year period:
- Total Company revenues are expected to be up in the mid-single digit range.
- Total National Media Group revenues are expected to be up slightly.
- Total Local Media Group revenues are expected to be up in the low-double digit range.
- Meredith expects fiscal 2016 third quarter earnings per share to range from $0.77 to $0.82, compared to $0.56 in the prior-year period ($0.71 excluding special items – See Table 5 for supplemental disclosures regarding non-GAAP financial measures).
A number of uncertainties remain that may affect Meredith’s outlook as stated in this press release for the third 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.