The New York Times reports higher revenue, income as digital subscriptions surge in Q1
The newspaper grew digital subscriptions by more than 300K in first quarter of the year, likely helped along by the president’s tweeting about ‘the failing New York Times’
The New York Times doesn’t look to be failing, Mr. President. At least not according to its first quarter earnings report. Operating profit rose to $29.0 million in the first quarter of 2017 as digital advertising increased, and the company added new digital subscribers — likely thanks to the new president, by the way.
“We added an astonishing 308,000 net digital news subscriptions, making Q1 the single best quarter for subscriber growth in our history,” said Mark Thompson, president and CEO of The New York Times Company.
Total revenue rose 5.1 percent to $398.8 million, thanks to an 11.2 percent rise in circulation revenue. Ad revenue still fell, 6.9 percent, but this is a company that is betting the farm that readers will pay the bills going forward.
That philosophy will be tested in Q2 as the NYT has a lot of readers mad at it for hiring the WSJ’s eminent climate change skeptic Bret Stephens, but the first quarter was a good one, and we all know who get credit for that, right?
Here is the company’s Q1 earnings statement:
NEW YORK, NY — May 3, 2017 – The New York Times Company (NYSE: NYT) announced today first-quarter 2017 diluted earnings per share from continuing operations of $.08 compared with diluted loss per share of $.05 in the same period of 2016. Adjusted diluted earnings per share from continuing operations (defined below) were $.11 in the first quarter of 2017 compared with $.10 in the first quarter of 2016.
Operating profit rose to $29.0 million in the first quarter of 2017 compared to $27.9 million in the same period of 2016, with higher costs more than offset by a growth in overall revenue, principally driven by very strong digital revenues. Adjusted operating profit (defined below) was $52.7 million in the first quarter of 2017 compared with $51.5 million in the first quarter of 2016.
Mark Thompson, president and chief executive officer, The New York Times Company, said, “These results show the current strength and future potential of our digital strategy not just to reach a large audience, but also to deliver substantial revenue. We added an astonishing 308,000 net digital news subscriptions, making Q1 the single best quarter for subscriber growth in our history.
“Digital advertising revenue grew 19 percent year-over-year, a vindication of our decision to pivot towards mobile, branded content and a broader suite of marketing services, and to focus on innovation. Despite continued pressure on print advertising, we were able to grow overall revenues by 5 percent in the quarter.
“On costs, we are investing to support our growing digital businesses, most notably this quarter in brand marketing and consumer acquisition. We continue to keep a close eye on costs across the business and remain committed to aggressively managing profitability.”
Unless otherwise noted, all comparisons are for the first quarter of 2017 to the first quarter of 2016.
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.
First-quarter 2017 results included the following special item:
• A $2.4 million pre-tax expense ($1.4 million after tax or $.01 per share) related to the planned redesign and consolidation of space in our headquarters building.
First-quarter 2016 results included the following special item:
• A $41.4 million pre-tax loss ($20.1 million after tax and net of noncontrolling interest, or $.13 per share) from joint ventures related to the announced closure of the paper mill operated by Madison Paper Industries, in which the Company has an investment through a subsidiary.
The Company had severance costs of $1.6 million ($1.0 million after tax or $.01 per share) and $3.6 million ($2.2 million after tax or $.01 per share) in the first quarters of 2017 and 2016, respectively.
Results from Continuing Operations
Total revenues for the first quarter of 2017 increased 5.1 percent to $398.8 million from $379.5 million in the first quarter of 2016. Circulation revenues increased 11.2 percent, while advertising revenues declined 6.9 percent and other revenues increased 20.9 percent.
Circulation revenues in the first quarter of 2017 rose as revenues from the Company’s digital subscription initiatives and the 2017 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 40.0 percent compared with the first quarter of 2016, to $75.8 million. Circulation revenue from digital-only subscriptions to our news products increased 39.9 percent to $72.9 million.
Paid digital-only subscriptions totaled approximately 2,201,000 at the end of the first quarter of 2017, a net increase of 348,000 subscriptions compared to the end of the fourth quarter of 2016 and a 62.2 percent increase compared to the end of the first quarter of 2016. Of the 348,000 additions, 308,000 came from the Company’s digital news products, while the remainder came from the Company’s Crossword product.
First-quarter print advertising revenue decreased 17.9 percent while digital advertising revenue increased 18.9 percent. Digital advertising revenue was $49.7 million, or 38.2 percent of total Company advertising revenues, compared with $41.8 million, or 29.9 percent, in the first quarter of 2016. 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 channels and branded content, partially offset by a decrease in traditional website display advertising.
Other revenues rose 20.9 percent in the first quarter largely due to affiliate referral revenue associated with the product review and recommendation websites, The Wirecutter and The Sweethome, which the Company acquired in October 2016.
Operating costs increased in the first quarter of 2017 to $367.4 million compared with $351.6 million in the first quarter of 2016, largely due to higher marketing costs and costs from acquired companies, which were partially offset by lower print production and distribution costs as well as lower severance, international operations, technology and non-operating retirement costs. Adjusted operating costs increased to $346.1 million from $328.0 million in the first quarter of 2016, largely due to higher marketing costs and costs from acquired companies, which were partially offset by lower print production and distribution, international operations and technology costs.
Non-operating retirement costs, which exclude special items, decreased to $3.5 million from $4.5 million in the first quarter of 2017, due to lower multiemployer pension plan withdrawal obligations.
Raw materials costs decreased to $16.9 million compared with $17.9 million in the first quarter, largely due to volume declines.
Interest Expense, net
Interest expense, net decreased in the first quarter of 2017 to $5.3 million compared with $8.8 million in the first quarter of 2016 as a result of the repayment, at maturity, of the Company’s 6.625 percent senior notes in the fourth quarter of 2016.
The Company had income tax expense of $10.7 million in the first quarter of 2017 compared to an income tax benefit of $9.2 million in the first quarter of 2016. The increase in income tax expense was primarily due to higher income from continuing operations in the first quarter of 2017. Income tax expense also increased as a result of the Company’s recent adoption of new accounting guidance related to stock-based compensation.
As of March 26, 2017, the Company had cash and marketable securities of approximately $752.5 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 $247.8 million.
Capital expenditures totaled approximately $6 million in the first quarter of 2017.
Total circulation revenues in the second quarter of 2017 are expected to increase at a rate similar to that of the first quarter of 2017. Growth in the number of paid digital-only subscriptions to our news products in the second quarter of 2017 is expected to be slower than the prior two quarters.
Total advertising revenues in the second quarter of 2017 are expected to decrease in the low- to mid-single digits compared to the second quarter of 2016.
Operating costs and adjusted operating costs are expected to increase in the mid-single digits in the second quarter of 2017 compared with the second quarter of 2016.
The Company expects the following on a pre-tax basis in 2017:
- Depreciation and amortization: $60 million to $65 million,
- Interest expense, net: $20 million to $25 million, and
- Capital expenditures: $85 million to $90 million.