July 31, 2017 Last Updated 11:24 am

Diversification remains the name of the game: Meredith profits from local broadcast properties

Those televisions stations were attractive to one media company looking to merge with Meredith, will another come along, or will Meredith actually expand its print holdings now that Rodale and Time Inc. have become sellers?

Next week News Corp reports its quarterly earnings, and though I cannot stand the type of journalism practiced by Rupert Murdoch and his eager group of miscreants, I do admire his commitment to his print products, and the way he has made sure that the new News Corp, though burdened by declining newspaper properties, is still a diversified company (it contains Harper Collins and the growing digital real estate unit, as well as the in-store marketing company News America Marketing).

One magazine publisher is also a good example of diversification: Meredith. Unlike News Corp, it doesn’t contain lots of units, but is basically broken out into two major divisions: the Local Media Group, with includes 17 television stations, and the National Media Group, which contains the magazines.

Last week Meredith reported it fourth quarter and full year earnings for fiscal year 2017, and they had much to crow about: operating profits grew 18 percent, and total company revenue grew 4 percent.

The reason Meredith continues to outperform many other magazine companies is that it has managed to minimize print ad losses, which continuing to perform well due to its broadcast properties. In the year just ended, Meredith recorded 62.5 million in political advertising, versus 13.0 million the year before. Of course, 2016 was a national election year, so going up against those numbers will be difficult.

But before we give too much credit to Meredith, it might be good to look at those numbers a little closer.

The 2016 year was an odd one for Meredith, compared to 2017. As mentioned, most of the political advertising it enjoyed actually fell into its 2017 fiscal year (which began July 1, 2016). Also, Meredith in had two giant items fall into its 2016 P&L that were not repeated in 2017: a giant impairment charge that lowered earnings, and a termination fee that boosted it slightly (from the failed merger with Media General).

Still, taking those two items out, Meredith would have still beaten 2016, thanks to the election. But there is no shame in reaping political advertising if you are company that owns broadcast properties. And it should be remembered that the reason Media General was going to merge with Meredith was precisely because of their local television stations. Instead, Nexstar, a company only in broadcast, merged with Media General. Had Meredith completed the merger instead, many believe the magazines would have been sold off.

Now what happens, now that Sinclair is acquiring Tribune Media. Will someone look at Meredith and covet those 17 stations, putting at risk its print properties again? Or will Meredith actually expand its print holdings now that Rodale and Time Inc. are sellers?

Here is Meredith’s earnings statement:

DES MOINES, Iowa — July 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 every month — reported today record fiscal 2017 full year and fourth quarter results.

“We delivered record revenue and profit in fiscal 2017 as we continue to aggressively execute our multi-platform growth strategies, including rapid expansion of our highly profitable digital activities,” said Meredith Chairman and CEO Stephen M. Lacy.  “Additionally, we delivered strong cash flow and higher profit margins.  This enabled us to continue successful execution of our Total Shareholder Return (TSR) strategy.”

Fiscal 2017 financial highlights, compared to the prior year, included:

  • Earnings per share were $4.16, compared to $0.75.
  • Excluding special items in both periods, earnings per share grew to $4.00, an increase of more than 20 percent. (See Tables 1-5 for supplemental disclosures regarding non-GAAP financial measures.)
  • Operating profit margin grew to 18 percent.
  • Total Company revenues grew 4 percent to a record $1.7 billion, and total advertising revenues grew 2 percent to $934 million.

“We expanded our audience across media platforms and launched new products to strengthen our competitive position with Millennial consumers and advertisers wanting to reach them,” said Meredith President and COO Tom Harty. “We continued to deliver double-digit gains in digital advertising revenue, which offset print declines on a comparable basis.  Additionally, we generated a record $63 million of political advertising revenues and increased net retransmission contribution.”

Fiscal 2017 fourth quarter earnings per share were $0.95, compared to a loss of $2.03 per share in the prior-year period.  Excluding special items in both periods, earnings per share were $1.07, compared to $1.08 in the prior-year period.  Fourth quarter fiscal 2017 total Company revenues increased to $445 million.

FISCAL 2017 FULL-YEAR REVIEW

Meredith continued to aggressively execute a series of well-defined strategic initiatives in fiscal 2017 to generate growth in revenue and operating profit, and increase shareholder value over time.  These included:

  • Increasing Meredith’s powerful consumer connection – Consumer engagement expanded across Meredith’s media platforms, including magazine readership, digital and mobile traffic and sales of branded product at retail.
  • Rapidly growing digital, mobile, video and social platforms – Total Company digital advertising revenues grew 20 percent. National Media Group digital advertising increased more than 20 percent and represented more than 30 percent of its total advertising. Local Media Group digital advertising rose more than 15 percent. Traffic across Meredith’s digital properties averaged 86 million unique visitors per month, an increase of 8 percent over the prior year.
  • Generating record political advertising revenues – Meredith’s television stations generated $63 million of political advertising revenues, an increase of 43 percent compared to the fiscal 2015 election cycle.
  • Expanding Meredith’s media portfolio:
    • In its Local Media Group, Meredith acquired Peachtree TV (WPCH) in Atlanta, the nation’s 10th largest market. With WPCH, Meredith created its fifth owned-and-operated duopoly. To further strengthen its competitive position, Meredith added newscasts in Atlanta, Phoenix, Portland, Nashville, Greenville and Flint/Saginaw.
    • In its National Media Group, Meredith launched The Magnolia Journal, an extension of Joanna and Chip Gaines’ popular Magnolia brand. It quickly became the strongest-selling newsstand title in Meredith’s recent history and is currently selling more than 900,000 copies of each issue.
  • Successful renewal of key strategic agreements:
    • In its Local Media Group, Meredith renewed its CBS affiliation agreements for its stations in Atlanta, Phoenix, Kansas City and Flint/Saginaw into fiscal 2021. It also extended its FOX agreements in Portland, Las Vegas, Greenville, Mobile and Springfield into fiscal 2019.
    • In its National Media Group, Meredith renewed its licensing program with Walmart. This program features more than 3,000 SKUs of Better Homes & Gardens branded products at 5,000 Walmart stores and on walmart.com. In addition, Meredith launched several new brand licensing programs, including a very well-received EatingWell line of frozen entrées and a Shape line of apparel for women.
  • Successful execution of its TSR strategy – Meredith generated TSR of 18 percent in Fiscal 2017. Meredith increased its dividend by 5.1 percent to $2.08 per share on an annualized basis, its 24th consecutive year of dividend growth. The dividend is currently yielding approximately 3.5 percent.

OPERATING GROUP DETAIL

LOCAL MEDIA GROUP

Meredith’s Local Media Group includes 17 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 highly profitable local news and entertainment content each week.  Meredith expects to continue to grow its Local Media Group organically and through strategic acquisitions.

Fiscal 2017 Local Media Group operating profit grew 36 percent to $215 million and EBITDA increased 27 percent to $250 million, compared to the prior year.  Revenues increased 15 percent to $630 million.  All represented record highs. (See Tables 1-5 for supplemental disclosures regarding non-GAAP financial measures.)

Looking more closely at fiscal 2017 performance compared to the prior year:

  • Total advertising revenues grew 7 percent to a record $414 million, driven by strong demand for political advertising.
  • Political advertising revenues were $63 million, with Meredith generating significant revenues from stations in the Las Vegas, St. Louis, Phoenix, Kansas City and Atlanta markets.
  • Non-political advertising revenues were $352 million, compared to $374 million, due primarily to political advertising displacement, the Super Bowl moving to FOX from CBS and the Summer Olympic games on NBC.
  • Digital advertising revenues grew more than 15 percent. Meredith relaunched all of the mobile news, weather and traffic apps across its station group, yielding record app opens and unique page views.
  • Other revenues and operating expenses increased, primarily due to growth in retransmission revenues from cable and satellite television operators, partially offset by higher programming fees paid to affiliated networks.

Turning to ratings, Meredith delivered strong performance during the May rating period.  Meredith stations in 10 of its 12 markets ranked No. 1 or No. 2 in morning or late news, and Meredith stations in six of its markets were No. 1 or No. 2 from sign-on to sign-off.

Fiscal 2017 fourth quarter Local Media Group operating profit grew 9 percent to $46 million and EBITDA grew 6 percent to $55 million, compared to the prior-year period.  Revenues increased 8 percent to $152 million.

NATIONAL MEDIA GROUP

Meredith’s National Media Group reaches more than 110 million unduplicated American women every month, 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 National Media Group operating profit was $147 million, compared to a loss of $18 million in the prior year.  Excluding special items in both years, operating profit was $142 million, compared to $150 million.  Revenues were $1.1 billion.  (See Tables 1-5 for supplemental disclosures regarding non-GAAP financial measures.)

Looking more closely at fiscal 2017 performance compared to the prior year:

  • Total advertising revenues were $520 million, off 1 percent, but up slightly on a comparable basis, which excludes MORE and Siempre Mujer magazines.
  • Digital advertising revenue grew more than 20 percent, and accounted for more than 30 percent of total National Media Group advertising revenues. Growth was led by highly profitable native, engagement-based video, and programmatic advertising, along with shopper marketing.
  • Meredith’s share of total magazine advertising revenues increased to 13.3 percent from 12.0 percent, according to the most recent data from Publishers Information Bureau. The Better Homes & Gardens, Family Circle, Martha Stewart and Midwest Living brands were particularly strong, while the food, media and entertainment, household supplies and beauty advertising categories were growth leaders.
  • Circulation revenues were $322 million, off 2 percent, but flat on a comparable basis.
  • Expenses declined 16 percent, and were down 1 percent excluding special items in both periods as Meredith continued to pursue operational efficiencies.

Fiscal 2017 fourth quarter National Media Group operating profit was $34 million, compared to a loss of $109 millionin the prior-year period.  Excluding special items in both periods, fiscal 2017 fourth quarter operating profit was $43 million compared to $52 million.  Total revenues were $293 million and advertising revenues were $135 million.

OTHER FINANCIAL INFORMATION

Cash flow from operations was $219 million.  Total debt was $698 million and the weighted average interest rate was 2.8 percent, with $350 million effectively fixed at low rates.  Meredith’s debt-to-EBITDA ratio for the trailing 12 months was 1.9 to 1 (as defined in Meredith’s credit agreements).  All metrics are as of June 30, 2017.

Meredith continues to focus on its successful TSR strategy.  Key elements include:

  • Ongoing dividend increases – Meredith raised its regular stock dividend by 5.1 percent to $2.08 on an annualized basis in January 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 several years.
  • Share repurchases – Meredith’s ongoing share repurchase program has $68 million remaining under current authorizations as of June 30, 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 full year and fourth-quarter comparisons are against the comparable prior-year period unless otherwise stated.

OUTLOOK

Meredith expects full year fiscal 2018 earnings per share to range from $3.20 to $3.50.  Meredith will be cycling against a record $63 million (or $0.85 per share) in political advertising revenues recorded by its Local Media Group in fiscal 2017.

Looking more closely at the first quarter of fiscal 2018 compared to the prior-year quarter, Meredith expects:

  • Total Company revenues to be flat to up slightly.
  • National Media Group revenues to be flat to up slightly.
  • Local Media Group revenues to be flat to down slightly.
  • Meredith expects fiscal 2018 first quarter earnings per share to range from $0.60 to $0.65. Meredith will be cycling against $16 million (or $0.22 per share) in political advertising revenues recorded in the prior-year period

Comments are closed.