Meredith Corp. Beats on Q2 Earnings, Raises Outlook - Analyst Blog

Meredith Corporation (MDP) reported adjusted earnings of $1.00 per share for the second quarter of fiscal 2015, ahead of the Zacks Consensus Estimate of 98 cents and up 45% on a year-over-year basis.

Including certain one-time items, the company reported earnings of 87 cents, up 30% year over year.

The company continues to gain from improvement in advertising trends, especially political, with sustained strength seen in the digital section and favorable outcome from the recently acquired assets.

Along with the earnings announcement, management stated that it will be acquiring Shape magazine and the digital assets of Shape, Natural Health, and Fit Pregnancy brands from American Media Inc.

Buoyed by recent acquisitions, including that of Shape and media properties of Martha Stewart Living Omnimedia Inc. (MSO), management raised its earnings per share guidance for fiscal 2015. The company now expects earnings to be around $3.25 to $3.35 up from the earlier forecast of $3.00 to $3.25.

Further, third-quarter earnings are expected to be in the range of 66 to 71 cents compared with adjusted earnings per share of 70 cents reported in the prior-year quarter. The Zacks Consensus Estimate for the third quarter and fiscal 2015 are pegged at 70 cents and $3.30, respectively.

Revenues & Margins

Total revenue for the quarter grew 13% to $399 million and surpassed the Zacks Consensus Estimate of $393 million. Top-line growth was driven by a 25% increase in Advertising revenues to $241.4 million and 5.62% growth in Other revenues to $98 million, offset by a 12.2% decline in Circulation revenues to $59.5 million.

For the third quarter of fiscal 2015, total revenue is anticipated to increase in the high-single digits range.

Adjusted operating profit was up 13.7% year over year to $78.3 million.

Segment Details

Meredith’s National Media Group revenues fell 2.9% year over year to $242.4 million due to a 12.2% decline in Circulation revenues to $59.5 million, partly offset by 1.9% rise in adverting revenues. The segment’s adjusted operating profit increased 7% to $30.2 million.

Meredith now projects National Media Group revenues to increase in low single digits in the third quarter of fiscal 2015.

Meredith’s Local Media Group revenues rose nearly 50% to $156.5 driven by acquisition of MOV in St. Louis, KTVK in Phoenix and WGGB in Springfield and higher retransmission fees. Also, in the quarter, non-political advertising revenues grew 21.8% to $95.3 million, while political advertising revenues were substantially higher at $29 million. The segment’s adjusted operating income grew over 64% to $60 million.

Management now expects Local Media Group’s revenues to increase 25%—30%.

Meredith’s Growth Catalysts

Meredith boasts of a strong portfolio of women’s magazines, which helps it in gaining market share. Further, the company is focused on bolstering advertising revenues, primarily in the digital space, and is increasingly concentrating on brand licensing, marketing services and eCommerce to counter possible economic downturns.

On Jan 7, 2015, Meredith acquired New York-based digital advertising company Selectable Media for an undisclosed amount. Meredith stands to benefit from Selectable Media's forte in digital video and branded content distribution. Moreover, Selectable Media’s impressive customer base — including prominent clients like PetSmart Inc. (PETM), Merck & Co. Inc. and Capital One Financial — are expected to unlock significant opportunities for this Des Moines, IA-based media company while increasing the scope for its existing clients.

On Dec 22, 2014, Meredith announced that it has concluded the buyout of WALA-TV, the FOX affiliate in the Mobile Pensacola market. The company acquired the television station from Media General, Inc. for an amount of $86 million.

On Oct 15, 2014, Meredith acquired the rights to Martha Stewart Living and Martha Stewart Weddings magazines and the www.marthastewart.com and www.marthastewartweddings.com websites, effective Nov 1, 2014. Under the deal, which spans 10 years, Meredith will take control of advertising sales, marketing, circulation, production and other non-editorial functions, while the content will still be provided by Martha Stewart's editorial team.

In Dec 2013, Meredith agreed to buy television stations in Phoenix and St. Louis from Gannett Co. Inc. (GCI) and Sander Media LLC, for $407.5 million in cash, to enhance its television portfolio. Under the deal, Meredith acquired KTVK, an independent station in Phoenix; KASW, the CW affiliate in Phoenix; and KMOV, the CBS affiliate in St. Louis.

In Nov 2013, Meredith launched Allrecipes magazine, the media industry's most important print extension of a digital brand. Advertising interest has been strong, with Procter and Gamble, Hershey as well as General Motors making commitments.

Meredith is also an ideal pick for yield-seeking investors. The company, through its total shareholder return (TSR) strategy, intends to boost shareholder value through dividend payouts, share repurchases and strategic investments in business to drive growth. Since the implementation of this strategy in October 2011, the company has hiked its dividend by 70% and initiated a $100 million share repurchase program.

The company has a history of regularly paying dividends. Over the last two decades, it has increased its dividend consistently, which now stands at $1.73 per share. The company’s last dividend hike of 6% was in Feb 2014.

Moreover, the company constantly seeks to venture into new arenas and add alternative revenue generating channels through strategic acquisitions and collaborations. Meredith’s contract with Wal-Mart Stores Inc. includes an expansion of the Better Homes and Gardens-branded home decor and garden program at Wal-Mart stores across the United States and Canada.

The company’s brand licensing revenues rose considerably in the quarter on account of continued robust sales of more than 3,000 SKU's of Better Homes and Gardens' approved products at more than 4,000 Wal-Mart outlets across the U.S.

Other Financial Details

Meredith ended the year with cash and cash equivalents of $18.1 million, long-term debt of $796.3 million and shareholders’ equity of $923.1 million. During the quarter, the company bought back 362,000 shares.

As of Jan 28, 2015, Meredith had $98 million worth of shares remaining under its existing share repurchase authorization. The company’s leverage ratio (debt to EBITDA) was 2.9 to 1 for the 12 month-period ended Dec 31, 2014.

Currently, Meredith carries a Zacks Rank #3 (Hold).

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