Meredith reports modest gain in revenue, but records loss due to impairment charge
The Shape and Martha Stewart brand acquisitions helped the company see its magazine advertising revenues increase 6 percent to $527 million
What a fiscal year it has been for Meredith. The media company, which reported full year earnings today before the markets opened, looked about to merge with Media General when another bidder emerged and ruined the deal, claiming that Meredith’s ownership of print magazines was such a negative thing that a deal between two purely broadcast companies was far better.
In the end, though, Meredith was able to produce a fairly good looking year-end financial statement. Sure, the bottom line for Q4 looks bad as it shows a loss, but that was caused by taking an impairment charge.
Of course, it not a good sign when a company takes an impairment charge. Yes, it means the company will pay less, or no, taxes as they are reducing the amount of profit they are claiming. But an impairment charge is used to reduce the value of a company’s asset – something that was worth a lot yesterday is worth much less today.
Going forward, because Meredith remains in the local broadcast game, the company sees that it will benefit from the November election, where so many dollars will be spent in swing states, especially by the cash rich Clinton campaign. On problem, however, is that Meredith’s TV stations are not located in many swing states, its KVVU-TV station in Las Vegas being an exception.
2016 was most interesting for Meredith, and I’m sure it did not end quite the way they thought it would. But it’s financials sure look decent compared to some other traditional media companies. (It will be interesting to see Time Inc.’s earnings report which comes out late next week.)
Here is Meredith’s earnings announcement:
DES MOINES, Iowa – July 28, 2016 — Meredith Corporation – the leading media and marketing company with local television brands in large, fast-growing markets and national brands serving more than 100 million American women – today reported fiscal 2016 full-year earnings of $0.75 per share, including a net charge of $2.55 per share resulting from non-cash impairment charges and other special items.
Excluding these special items, earnings per share were $3.30, at the high end of previously stated expectations. Total Company revenues increased 3 percent to a record $1.65 billion.
“In fiscal 2016, we delivered very strong performance, generating the highest revenue in Company history and offsetting the expected cyclical drop in political advertising,” said Meredith Chairman and CEO Stephen M. Lacy. “We have fully integrated recent strategic acquisitions across our businesses – including television stations, national media brands and digital technology platforms – and they are meaningfully contributing to shareholder value. Additionally, we continued to execute our Total Shareholder Return strategy by raising our dividend more than 8 percent, and we strengthened our balance sheet by paying down $100 million of debt.
“Looking ahead to fiscal 2017, we expect to generate record full-year earnings of $3.50 to $3.80 per share,” Lacy continued. “Earnings growth is expected to be driven by a diverse range of business activities, including a robust political advertising cycle, higher retransmission contribution and strong digital advertising growth across the Company.”
Fourth quarter fiscal 2016 loss was $2.03 per share, compared to earnings of $0.94 per share in the prior-year period. Excluding special items in the fourth quarter of fiscal 2016, earnings per share grew 15 percent to $1.08. Total Company revenues increased to $436 million – a fiscal fourth-quarter record.
Meredith recorded special items in the fourth quarter of fiscal 2016 of $168 million comprised primarily of non-cash impairment of goodwill and other intangible assets related to acquisitions that were made in its National Media Group primarily between 2002 and 2008. These impairments are non-cash charges to earnings; do not affect Meredith’s liquidity, cash flows from operating activities or debt covenants; and do not have an impact on Meredith’s future operations.
FISCAL 2016 FULL-YEAR REVIEW
Meredith continued to aggressively execute a series of well-defined strategic initiatives in fiscal 2016 to generate growth in revenue, operating profit and free cash flow – and increase shareholder value over time. Highlights included:
- Expanding audiences across platforms and increasing Meredith’s reach to Millennial women:
- Meredith magazine readership grew to a record 127 million, according to the Spring 2016 GfK Mediamark Research & Intelligence Report.
- Meredith’s digital traffic increased to more than 80 million monthly unique visitors.
- Meredith’s reach to U.S. Millennial women grew to 72 percent, up 9 percent from the prior year.
- Meredith’s multi-channel reach among American women hit an all-time high of 102 million. Additionally, Meredith’s database has grown to 125 million American consumers.
- Nine of Meredith’s television stations ranked No. 1 or No. 2 in late news, and eight stations ranked No. 1 or No. 2 in morning news, in the May 2016 rating book data compiled by Nielsen.
- Growing magazine, digital and non-political television advertising revenues:
- National Media Group advertising revenues grew 6 percent, including a 16 percent increase in digital advertising revenues.
- Digital advertising revenues grew to 26 percent of total National Media Group advertising revenues.
- Meredith increased its share of magazine advertising in its competitive set to a record 41 percent.
- Local Media Group non-political advertising revenues grew 5 percent, including a 13 percent increase in digital advertising revenues.
- Increasing revenues from businesses that are not dependent on traditional advertising: Meredith’s brand licensing activities delivered record performance, led by strong sales of Better Homes and Gardens branded products at Walmart stores across the U.S., walmart.com, and an emerging presence in Mexico and China. Based on sales transactions, Meredith’s brand licensing activities are ranked No. 2 in the world, according to License!Global magazine. Additionally, Meredith delivered growth in retransmission consent fees and contribution, renewing contracts with providers reaching 40 percent of its audience in fiscal 2016.
- Continuing strong execution of its Total Shareholder Return 2.0 strategy: Meredith increased its dividend by 8 percent to $1.98 per share on an annualized basis. Meredith has paid a dividend for 69 straight years and increased it for 23 consecutive years, and the dividend is currently yielding approximately 3.5 percent. Also, Meredith has an ongoing share repurchase program with $84 million remaining under current authorizations.
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 more than 660 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 Local Media Group operating profit was $158 million, compared to $163 million in the prior year. Excluding special items in both years, fiscal 2016 operating profit was $159 million, compared to $169 million in the prior year. Fiscal 2016 revenues increased 3 percent to $548 million, despite $31 million less of high-margin political advertising revenues compared to the prior year. (See Tables 1-4 for supplemental disclosures regarding non-GAAP financial measures.)
“We delivered strong performance for an off-election year in fiscal 2016,” said Meredith Local Media Group President Paul Karpowicz. “Looking to the first half of fiscal 2017, we expect to generate significant revenue and operating profit growth, driven primarily by stronger advertising. I’m also excited about our continued strength in local news across the group, along with a new local digital audience initiative that is driving traffic to our station websites, creating new sales opportunities and generating incremental digital advertising revenues.”
Looking more closely at fiscal 2016 performance compared to the prior year:
- Non-political advertising revenues increased 5 percent to $374 million. Results were led by the addition of television stations WALA in Mobile-Pensacola and WGGB in Springfield, Mass., and strong performance from existing stations WGCL in Atlanta, KMOV in St. Louis and KCTV in Kansas City.
- Political advertising revenues were $13 million, with Meredith generating significant revenues from stations in Nevada, Missouri and Connecticut.
- Digital advertising revenues increased 13 percent as a series of growth strategies continued to drive higher advertising rates across the group’s digital businesses.
- 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.
Turning to ratings, Meredith stations in Portland, Hartford, Greenville, Las Vegas and Saginaw ranked No. 1 in late news in the coveted adults 25-54 demographic in the May 2016 rating book. Additionally, Meredith stations in Phoenix, Portland, Hartford, Mobile and Saginaw ranked No. 1 in morning news.
Fiscal 2016 fourth-quarter Local Media Group operating profit increased 7 percent to a record $43 million. Excluding special items in the fourth quarter of fiscal 2016, operating profit increased 10 percent to $44 million. Revenues increased 9 percent to a record $141 million.
NATIONAL MEDIA GROUP
Meredith’s National Media Group reaches more than 100 million unduplicated American women, and nearly 75 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 National Media Group operating loss was $18 million, compared to an operating profit of $123 million in the prior year. Excluding special items in both years, fiscal 2016 operating profit grew 10 percent to $150 million from $137 million in the prior year. Revenues increased 4 percent to $1.10 billion. (See Tables 1-4 for supplemental disclosures regarding non-GAAP financial measures.)
“We increased advertising and circulation revenues in fiscal 2016, reflecting the ongoing appeal of our brands to adult women of all ages,” said Meredith National Media Group President Tom Harty. “Additionally, we grew our digital reach to 80 million monthly unique visitors, and digital represented a record 26 percent of our ad revenues. In fiscal 2017, we’re expecting to see continued double-digit growth in digital advertising.”
Looking more closely at fiscal 2016 performance compared to the prior year:
- Total advertising revenues increased 6 percent to $527 million, led by the recently acquired Shape and Martha Stewart brands, as well as strong performance by the Allrecipes and EatingWell brands. The prescription drug, household supplies and food categories were particularly strong.
- Print advertising increased 3 percent, led by Shape and Martha Stewart, as well as strong performance by Allrecipes and EatingWell.
- Digital advertising revenues increased 16 percent. Growth was led by Shape; native and engagement-based advertising platform Selectable Media; as well as the Better Homes and Gardens, Parents and Allrecipes brands.
- Circulation revenues increased 5 percent to $329 million, reflecting the ongoing strength of Meredith’s 30 million subscriber base. Growth was led by Martha Stewart and Shape, as well as strong performance by EatingWell and Allrecipes – which both recently increased their rate bases. Additionally, Meredith continues to invest in strategies to increase contribution from circulation activities, including expanding the number of subscriptions that renew automatically.
- Brand licensing revenues continued to increase, led by continued strong sales of more than 3,000 SKUs of Better Homes and Gardens licensed products at more than 4,000 Walmart stores nationwide and at walmart.com. Recently, Meredith renewed its licensing relationships with Walmart and FTD Companies for programs under the Better Homes and Gardens brand; expanded its Better Homes and Gardens-branded Real Estate program with Realogy; and formed new licensing relationships based on the Allrecipes, EatingWell and Shape brands.
Fiscal 2016 fourth-quarter National Media Group operating loss was $109 million, compared to profit of $44 million in fiscal 2015. Excluding special items in fiscal 2016, fourth quarter operating profit grew 17 percent to $52 million. Revenues were $295 million.
OTHER FINANCIAL INFORMATION
Cash flow from operations grew 18 percent to $227 million in fiscal 2016. Total debt was $695 million, down $100 million from a year ago, and the weighted average interest rate was 2.7 percent, with $400 million effectively fixed at low rates. Meredith’s debt-to-EBITDA ratio for the trailing 12 months was 2.3 to 1 (as defined in Meredith’s credit agreements). All metrics are as of June 30, 2016.
Meredith continues to focus on its successful Total Shareholder Return program. Key elements include:
- An annualized dividend of $1.98 per share that’s yielding approximately 3.5 percent based on yesterday’s closing price. Meredith has paid dividends for 69 consecutive years and increased them for 23 years straight.
- An ongoing share repurchase program with $84 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 fourth-quarter and full-year comparisons are against the comparable prior-year period unless otherwise stated.
Meredith expects full year fiscal 2017 earnings per share to range from $3.50 to $3.80. In fiscal 2017, Meredith expects a total of $40 million to $50 million of political advertising revenues at its television stations, with the majority being booked in the second fiscal quarter.
Looking more closely at the first quarter of fiscal 2017 compared to the prior-year period, Meredith expects:
- Total Company revenues to be up in the mid-single digits.
- Total Local Media Group revenues to be up approximately 20 percent. Approximately one-third of total fiscal 2017 political advertising revenues are expected to be recorded in the first fiscal quarter.
- Total National Media Group revenues to be down in the low-single digits.
Meredith expects fiscal 2017 first-quarter earnings per share to range from $0.70 to $0.75, compared to $0.24, or $0.52 before special items, recorded in the prior-year period. (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 first quarter and full year fiscal 2017. 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.