Meredith reports another healthy quarter as political advertising boosts its Local Media Group
Meredith may have failed to convince Time Inc.’s board to sell the whole company to them, but there is still a chance it might pick up a title or two from the struggling rival
The media company Meredith reported earnings last week on Thursday, and for whatever reason the notice slipped right by me. Meredith has been one of the few publishing companies to be able to report strong earnings of late and so it is always good to see how they are doing – and, all-in-all, earnings were quite good for the company’s third quarter of fiscal 2017.
Meredith’s P&L was complicated a bit by what happened in the prior year: it received a cash infusion due to the fact that their merger with MediaGeneral fell through. $59.7 million hit their bottom line, so net income this year actually fell, but that should be discounted due to the fee they received the prior year.
Revenue came in at $425 million, up slightly over the same quarter of 2016, with magazine revenue (National Media group) down only slightly, but up slightly excluding More revenue (their shuttered magazine).
What makes Meredith different from Time Inc. or other magazine companies is, of course, the companies broadcast holdings — its Local Media Group. For the first nine month so far, Local Media Group operating profit has grown 45 percent to $169 million, while revenues increased 17 percent to $478 million, including $58 million of political advertising. The 2016 election, in other words, were good to Meredith. Of course, now they will face the task of going up against those numbers this next year.
Meredith had been seen as the likely winner of any bid for Time Inc. But the talk is that the Time Inc. board thought Meredith’s bid too low at around $18. Once word was out that Time Inc. would not be selling, its stock, which had been at $18, fell to around $15 a share, where it is today. Time Inc. will need a few good quarters for their stock to rise again and for anyone to consider playing near $20 or above for the company.
In the meantime, it is possible that Meredith might pick up a couple of Time Inc.’s titles, such as Southern Living or Coastal Living, which would fit right in to their portfolio.
Here is Meredith’s Q3 2017 earnings statement:
DES MOINES, Iowa — April 27, 2017 — Meredith Corporation — the leading media and marketing company with local television brands in large, fast-growing markets and national brands serving more than 110 million American women — today reported fiscal 2017 third quarter and nine month results:
- Fiscal 2017 third quarter earnings per share were $0.87, compared to $1.79 in the prior-year quarter which included special items of $0.87 per share primarily related to a merger termination fee received. (See Tables 1-6 for supplemental disclosures regarding non-GAAP financial measures.)
- Excluding special items, fiscal 2017 third quarter earnings per share were $0.87, compared to $0.92 in the prior-year quarter when Meredith benefited from $0.05 per share of incremental high-margin political advertising from the Presidential primary season.
- Fiscal 2017 third quarter total Company revenues grew to $425 million.
- For the first nine months of fiscal 2017, earnings per share were a record $3.20, compared to $2.74 in the prior-year period. Excluding special items in both periods, earnings per share grew 30 percent to a record $2.92, up from $2.24in the prior-year period.
- For the first nine months of fiscal 2017, total Company revenues increased 4 percent to a record $1.3 billion, and total advertising revenues grew 3 percent to $704 million.
“We are pleased that continued strong execution of our multiplatform strategy — including our growing and profitable digital activities — has Meredith on track to deliver record revenue and operating profit for full-year fiscal 2017,” said Meredith Chairman and CEO Stephen M. Lacy. “Importantly, we continue to successfully execute our Total Shareholder Return strategy, including increasing our dividend for the 24th consecutive year.”
Looking at Meredith’s performance in the third quarter of fiscal 2017 compared to the prior-year quarter:
- Total Company digital advertising revenues grew nearly 25 percent to a third quarter record. National Media Group digital advertising increased 27 percent and represented nearly 30 percent of its total advertising. Local Media Group digital advertising rose nearly 10 percent. Traffic across Meredith’s digital and mobile sites grew to an average of nearly 90 million unique visitors per month.
- National Media Group operating profit grew nearly 20 percent to $41 million, and was up 8 percent excluding special items in the prior-year period. Total revenue increased to $283 million. Advertising revenues were off 1 percent, but increased on a comparable basis as growth in digital advertising more than offset expected print ad declines. Meredith’s National Media brands grew their reach to more than 110 million unduplicated consumers, including more than 70 percent of U.S. Millennial women.
- Local Media Group revenues increased to $142 million. Growth in retransmission-related revenues offset the effects of cyclical political advertising revenues and the Super Bowl airing on Fox in February 2017, compared to CBS in 2016. Meredith’s CBS affiliates have a larger reach than its Fox affiliates.
“Meredith continues to fire on all cylinders, generating strong profits while increasing our consumer reach across multiple platforms,” said Meredith President and Chief Operating Officer Tom Harty. “This includes rapid expansion of our digital offerings to consumers and advertisers alike; launching new products such as The Magnolia Journal; adding newscasts across our television station portfolio; and growing non-advertising sources of revenue such as retransmission fees, brand licensing and e-commerce.”
OPERATING GROUP DETAIL
LOCAL MEDIA GROUP
Meredith’s Local Media Group includes 17 owned and operated television stations reaching 11 percent of households. Meredith’s portfolio is concentrated in large, fast-growing markets, including seven stations in the nation’s Top 25 markets and 13 in the Top 50. Meredith’s stations produce 700 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 2017 third quarter Local Media Group operating profit was $41 million, and EBITDA was $50 million. Revenues increased to $142 million. (See Tables 1-6 for supplemental disclosures regarding non-GAAP financial measures.)
For the first nine months of fiscal 2017, Local Media Group operating profit grew 45 percent to $169 million. Excluding special items in both periods, operating profit grew 48 percent to $171 million and EBITDA grew 37 percent to $197 million. Revenues increased 17 percent to $478 million, including $58 million of political advertising. All represent fiscal first nine month records. Operating profit margin was 35 percent and EBITDA margin was 41 percent.
Looking more closely at fiscal 2017 third quarter performance compared to the prior-year quarter:
- Non-political advertising revenues were $84 million, compared to $91 million. Results reflect the Super Bowl airing on Fox in February 2017 compared to CBS in the prior year. Meredith has a larger footprint and reach with its CBS affiliates — which include Top 30 markets Atlanta, Phoenix, St. Louis and Hartford — compared to its FOX affiliates.
- Digital advertising revenues grew nearly 10 percent, as innovative growth strategies continue to drive stronger performance. Meredith recently relaunched all of the mobile news, weather and traffic apps across its station group, yielding record app opens and unique page views in the quarter.
- Other revenues and operating expenses increased due primarily to growth in retransmission revenues from cable and satellite television operators, partially offset by higher programming fees paid to affiliated networks.
Meredith delivered strong ratings performance in the third quarter of fiscal 2017. Eight Meredith stations ranked No. 1 or No. 2 in both morning and late news, and five stations were No. 1 from sign-on to sign-off.
On April 21, 2017, Meredith closed on its acquisition of the broadcast assets of Peachtree TV (WPCH) in Atlanta from Turner Broadcasting System, Inc. Meredith has assisted in the day-to-day operations of Peachtree TV since 2011, including advertising sales, marketing and promotions, and technical operations. With WPCH, Meredith creates its fifth owned-and-operated duopoly market, as Meredith also owns WGCL, the CBS affiliate in Atlanta. The acquisition will not have a material effect on Meredith’s fiscal 2017 results.
NATIONAL MEDIA GROUP
Meredith’s National Media Group reaches more than 110 million unduplicated American women, including more than 70 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, parenting and lifestyle. It also features robust brand licensing activities and innovative business-to-business marketing solutions provided by Meredith Xcelerated Marketing. Meredith expects to continue to grow its National Media Group organically and through strategic acquisitions.
Fiscal 2017 third quarter National Media Group operating profit grew 19 percent to $41 million compared to $35 million, or $38 million excluding special items, in the prior-year quarter. Revenues increased to $283 million. (See Tables 1-6 for supplemental disclosures regarding non-GAAP financial measures.)
Looking more closely at National Media Group fiscal 2017 third quarter performance compared to the prior-year quarter:
- Total advertising revenues were $125 million, off 1 percent, but up on a comparable basis, which excludes MOREmagazine. Digital advertising revenue rose 27 percent, and accounted for 28 percent of total National Media Group advertising revenues. Growth was led by native, engagement-based video, and programmatic advertising, along with shopper marketing.
- Meredith’s share of total magazine advertising revenues increased to 12.1 percent from 11.0 percent, according to the most recent data from Publishers Information Bureau. Martha Stewart Living, Allrecipes and Traditional Homeposted strong performance. The direct response, pets and household supplies advertising categories were growth leaders.
- Circulation revenues were flat at $96 million, but were up excluding MORE magazine.
- Other revenues increased 5 percent to $62 million, driven primarily by e-commerce revenue, along with Meredith Xcelerated Marketing and Brand Licensing.
- Expenses declined 2 percent, and were down 1 percent excluding special items in the prior-year quarter, as Meredith continued to pursue operational efficiencies.
Meredith’s National Media Group continues to extend its reach to American consumers and further diversify its revenue streams in fiscal 2017. For example:
- Meredith’s The Magnolia Journal, an extension of Joanna and Chip Gaines’ popular Magnolia brand, will officially become a subscription magazine with the May 2017 issue. It will be published quarterly and distributed nationally, with an expected ratebase of approximately one million by the fall. Launched as a newsstand only title in October 2016, it quickly became the strongest-selling newsstand title in Meredith’s recent history.
- Meredith’s e-commerce initiatives continued to grow, driven by new vendor relationships and capabilities, including consumer membership programs.
For the first nine months of fiscal 2017, National Media Group operating profit was $112 million, or $100 millionexcluding special items. Revenues were $790 million. Advertising revenues were $385 million, compared to $390 million, but were up slightly on a comparable basis.
OTHER FINANCIAL INFORMATION
Total debt was $631 million and the weighted average interest rate was 2.9 percent, with $350 million effectively fixed at low rates. Meredith’s debt-to-EBITDA ratio for the trailing 12 months was 1.7 to 1 (as defined in Meredith’s credit agreements). All metrics are as of March 31, 2017.
Meredith continues to focus on its successful Total Shareholder Return strategy. Key elements include:
- Ongoing dividend increases – Meredith raised its regular stock dividend by 5.1 percent to $2.08 on an annualized basis on January 28, 2017. This marked the 24th straight year of dividend increases for Meredith, which has paid an annual dividend for 70 consecutive years.
- Strategic investments to scale the business and increase shareholder value – Meredith has invested approximately $1 billion to acquire leading broadcast, digital and print properties in the last few years.
- Share repurchases – Meredith’s ongoing share repurchase program has $70 million remaining under current authorizations as of March 31, 2017.
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 2017 third quarter comparisons are against the comparable prior-year period unless otherwise stated.
For full-year fiscal 2017, Meredith continues to expect record earnings per share of $4.13 to $4.18 on a GAAP basis, and record earnings per share of $3.85 to $3.90 excluding special items recorded in fiscal 2017. (See Tables 1-6 for supplemental disclosures regarding non-GAAP financial measures.)
Looking more closely at the fourth quarter of fiscal 2017 compared to the prior-year quarter, Meredith expects:
- Total Local Media Group revenues to be up mid-single digits.
- Total National Media Group revenues to be down slightly.
- Total Company revenues to be up slightly.
- Fiscal 2017 fourth quarter earnings per share to range from $0.93 to $0.98.