The New York Times reports revenue nearly flat in Q3, but higher costs bites into profits
Print ad revenue fell sharply, though digital ad revenue was sharply higher, and now accounts for more than a third of total ad revenue
There is so much news today that the NYT’s Q3 earnings slipped right by me. I suppose that is good, because if the company’s earnings were the biggest story today it would have been because they were a disaster – they weren’t, though the publisher continues to see its ad revenue decline.
Circulation revenue grew 3 percent, while ad revenue fell 7 percent – but because ad revenue is now such a smaller portion of overall revenue, the two numbers almost evened out.
But the ad numbers are still startling. Print advertising at the NYT fell 18.5 percent, the biggest drop seen in the industry this quarter. Digital, on the other hand, was the highest gainer of the quarter, up 21.4 percent. Digital ad revenue now accounts for 35.5 percent of total ad revenue. The NYT is slowly, but surely moving towards a digital-only future.
Here is The New York Times Company’s third quarter earnings statement:
NEW YORK, NY – November 2, 2016 — The New York Times Company announced today a third-quarter 2016 diluted earnings per share from continuing operations of $.00 compared with diluted earnings per share of $.06 in the same period of 2015. Adjusted diluted earnings per share from continuing operations (defined below) were $.06in the third quarter of 2016 compared with $.09 in the third quarter of 2015.
Operating profit decreased to $9.0 million in the third quarter of 2016 from $21.9 million in the same period of 2015. The decline was driven by severance expense associated with workforce reductions as well as lower print advertising revenues and higher advertising and technology costs. Adjusted operating profit (defined below) was $39.2 million in the third quarter of 2016 compared with $47.6 million in the third quarter of 2015. The decline was driven by lower print advertising revenues and higher costs, which were partially offset by higher circulation revenues.
“This quarter proved yet again that The New York Times has a very compelling digital revenue story to tell,” said Mark Thompson, president and chief executive officer, The New York Times Company. “We saw exceptional gains in our digital consumer business, with a net increase of 116,000 subscriptions to our news products, more than twice as many as the same quarter last year and far more than any quarter since the pay model launched in 2011.
“The gains are due in part to the extraordinary work of our newsroom during an incredible news cycle, which has led to record audiences for Times journalism and deep levels of engagement, as well as optimization of our marketing activity and our investment in international.
“We had a strong quarter in digital advertising as well, returning to growth in the quarter, 21 percent year-over-year. We saw solid performances in virtual reality, video, branded content and programmatic advertising.
“The quarter was also marked by real pressure on print advertising both for us and for the rest of the industry. We expect print advertising to remain challenged in the fourth quarter and while we will continue innovating and investing where we think it makes sense, we will remain focused on our cost structure and on rapidly growing our digital business.”
Unless otherwise noted, all comparisons are for the third quarter of 2016 to the third quarter of 2015.
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.
Third-quarter 2016 results included the following special items:
- A $2.9 million ($1.8 million after tax or $.01 per share) charge in connection with the streamlining of the Company’s international print operations (consisting of severance costs).
- A $5.0 million ($3.0 million after tax or $.02 per share) gain in connection with an ongoing arbitration matter related to a multiemployer pension plan.
There were no special items in the third quarter of 2015.
The Company had severance costs (in addition to those associated with the streamlining of the Company’s international print operations) of $13.0 million ($7.8 million after tax or $.05 per share) and $1.0 million ($0.6 million after tax or $0.00 per share) in the third quarters of 2016 and 2015, respectively.
Results from Continuing Operations
Total revenues for the third quarter of 2016 decreased 1.0 percent to $363.5 million from $367.4 million in the third quarter of 2015. Circulation revenues increased 3.0 percent, while advertising revenues declined 7.7 percent and other revenues increased 1.0 percent.
Circulation revenues rose as revenues from the Company’s digital subscription initiatives and the 2016 increase in home-delivery prices at The New York Times newspaper more than offset a decline in print copies sold. Circulation revenue from the Company’s digital-only subscriptions (which includes news product and Crossword product subscriptions) increased 16.4 percent compared with the third quarter of 2015, to $58.6 million. Circulation revenue from digital-only subscriptions to our news products increased 15.4 percent to $56.1 million.
Paid digital-only subscriptions totaled approximately 1,557,000 as of the end of the third quarter of 2016, a net increase of 129,000 subscriptions compared to the end of the second quarter of 2016 and a 30 percent increase compared to the end of the third quarter of 2015. Of the 129,000 net additions, 116,000 net additions came from the Company’s digital news products, while the remainder came from the Company’s Crossword product.
Third-quarter print advertising revenue decreased 18.5 percent while digital advertising revenue increased 21.4 percent. Digital advertising revenue was $44.4 million, or 35.5 percent of total Company advertising revenues, compared with $36.5 million, or 27.0 percent, in the third quarter of 2015. The decrease in print advertising revenues resulted primarily from a decline in display advertising. The increase in digital advertising revenues primarily reflected increases in revenue from our mobile platform, our programmatic buying channels and branded content, partially offset by a decrease in traditional website display advertising.
Operating costs increased in the third quarter of 2016 to $356.6 million compared with $345.5 million in the third quarter of 2015, largely due to higher severance, advertising and technology costs, which were partially offset by lower print production and distribution costs as well as lower non-operating retirement costs. Adjusted operating costs increased to $324.4 million from $319.8 million in the third quarter of 2015 as savings in print production and distribution were offset by higher costs in advertising and technology.
Non-operating retirement costs, which exclude special items, decreased to $3.8 million from $9.4 million in the third quarter, driven by a change in the methodology of calculating the discount rate applied to retirement costs. The exhibits in this release include the detail of non-operating retirement costs.
Raw materials costs were flat at $18.2 million compared with $18.4 million in the third quarter as price increases were offset by volume declines.
Interest Expense, net
Interest expense, net was flat in the third quarter of 2016 at $9.0 million compared with $9.1 million in the third quarter of 2015.
The Company had income tax expense of $0.1 million in the third quarter of 2016 and $3.6 million in the third quarter of 2015. The decrease in income tax expense is due to lower income from continuing operations in the third quarter of 2016.
As of September 25, 2016, the Company had cash and marketable securities of approximately $944.9 million(excluding restricted cash of approximately $24.9 million, the majority of which is set aside to collateralize certain workers’ compensation obligations). Total debt and capital lease obligations were approximately $434.9 million.
Capital expenditures totaled approximately $6.0 million in the third quarter of 2016.
Total circulation revenues in the fourth quarter of 2016 are expected to increase at a rate similar to that of the third quarter of 2016.
Total advertising revenues in the fourth quarter of 2016 are expected to decrease at a rate similar to that of the third quarter of 2016.
Operating costs and adjusted operating costs are expected to increase in the mid to high-single digits in the fourth quarter of 2016 compared with the fourth quarter of 2015.
The Company expects the following on a pre-tax basis in 2016:
- Depreciation and amortization: $60 million to $65 million,
- Interest expense, net: $35 million to $40 million, and
- Capital expenditures: approximately $30 million.