(NYT) The New York Times Company Earnings Beat Expectations – Profit Drops

The New York Times Company (NYT) recently posted better-than-expected fourth-quarter 2011 results. The quarterly earnings of 45 cents a share beat the Zacks Consensus Estimate of 42 cents, but dropped 2.2% from 46 cents earned in the prior-year quarter.

On a reported basis, including one-time items, quarterly earnings came in at 39 cents, down 11.4% from 44 cents a share delivered in the year-ago quarter.

Let’s Dig Deep

The quarter reflects favorable response to the digital subscription packages, increase in digital advertising revenue at News Media Group, improvement in circulation revenue and fall in attrition rate as subscribers to the New York Times’ print version are able to access content or articles online as well as on all applications of The Times for no additional charge. However, these failed to offset waning print advertising.

The New York Times Company’s top-line continues to fall. After declining 3.1% in the third quarter, total revenue slipped 2.8% to $643 million in the quarter, and also fell short of the Zacks Consensus Estimate of $647 million.

The diversified media conglomerate professed of a challenging economic environment, which we believe will continue to dampen advertising revenue. Management hinted that the advertising revenue trends in the first quarter of 2012 will be similar to what witnessed in the fourth quarter of 2011.

The ongoing slouch in the advertising market continues to weigh upon The New York Times Company, the publisher of The New York Times, the International Herald Tribune, The Boston Globe and 15 other daily newspapers. Total advertising revenue slid by 7.1% to $358.5 million in the fourth quarter, as against a fall of 8.8% registered in the third quarter.

The New York Times Company also notified that it has been effectively managing its operating costs. Operating costs, excluding one-time items, depicted a decline of 4.5% to $491.9 million during the quarter. Management said that operating costs is expected to rise in the low-single digits in the first quarter of 2012.

Segment Discussion

By segment, News Media Group revenue tumbled 1.5% to $616.8 million. Advertising revenue dropped 5.3% to $333.9 million. Digital advertising jumped 5.3% to $71.1 million, reflecting growth registered in national and retail display advertising. Print advertising fell 7.8% but portrayed an improvement over a decline of 10.4% witnessed in the third quarter. Circulation revenue climbed 4.7% to $241.6 million.

Management now expects total circulation revenue to rise in the high-single digits in the first quarter of 2012, gaining from digital subscription initiatives and increase in print circulation price at The New York Times. Adjusted operating profit for the segment climbed 6.5% to $151.2 million due to cost reduction.

The company in the News Media Group experienced fall in all major advertising categories, with significant decline witnessed in real estate classified advertising, which dropped 17.3%, followed by automotive that fell 10.5%. National and retail advertising dipped 4% and 6%, respectively.

About Group segment’s revenue plummeted 25.9% to $26.1 million due to fall witnessed in both cost-per-click and display advertising. Adjusted operating profit plunged 43.8% to $10.7 million, reflecting a decline in advertising revenue.

Digital advertising revenue for New York Times’ Digital business, which includes NYTimes.com, About.com, Boston.com, dropped 4.9% to $95.7 million, and now accounts for 26.7% of total advertising revenue, up from 26.1% in the prior-year quarter.

Other Financial Aspects

The company ended the quarter with cash and short-term investments of $280 million and total debt and capital lease obligations of approximately $773.1 million. The New York Times Company incurred capital expenditures of approximately $12 million during the quarter and about $45 million in full 2011. Management now anticipates capital expenditures between $50 million and $60 million in fiscal 2012.

Divestiture Activities

The New York Times Company sold its Regional Media Group segment – consisting of 16 regional newspapers, print publications and associated ventures – to Halifax Media Holdings LLC, the proprietor of The Daytona Beach News Journal in Florida, for $143 million in cash.

The deal will result in after-tax proceeds of approximately $150 million. The company hinted that the after-tax gain on the sale will be recorded in the first quarter of 2012, and will be utilized for general business purposes.

Waning print advertising revenue, in an economy in turmoil, compelled The New York Times Company to take this tough decision of divesting Regional Media Group, part of The New York Times Media Group. This would allow the company to re-focus on its core newspapers, which include The New York Times, The Boston Globe and The International Herald Tribune, and pay more attention to its online activities. The decision to offload the division is also considered as a part of the cost containment efforts undertaken to stay afloat in this turbulent environment.

The New York Times Company also agreed to shed 100 of its remaining units in Fenway Sports Group, the owner of the Boston Red Sox, for an aggregate amount of $30 million. The company is waiting for approval from Major League Baseball.

Let’s Conclude

The company’s advertising volume came under pressure as advertisers shied away from making any upfront commitments, in an economy which is still fraught with risks.

Despite hiccups in the economy, what still promises a guaranteed revenue generation avenue is The New York Times Company’s pricing system for NYTimes.com, which was launched on March 28, 2011. The company notified that the number of paid digital subscribers reached 390,000 at the end of the fourth quarter.

The company also launched a pay and read model for BostonGlobe.com for a weekly subscription of $3.99. The number of paid digital subscribers reached 16,000 at the end of the quarter.

The publishing industry has long been grappling with sinking advertising revenue. This comes in the wake of a longer-term secular decline as more readers choose free online news, thereby making the print-advertising model increasingly irrelevant. To curb shrinking advertising revenue and seeking new revenue avenues, the publishing companies contemplated charging readers for online content.

Another media conglomerate, News Corporation (NWSA) has also moved towards an online subscription-based model for general news content. News International, a subsidiary of News Corporation, began charging readers for online content for The Times of London and Sunday Times of London effective June 2010.

The New York Times Company remains committed to streamlining its cost structure, strengthening its balance sheet and rebalancing its portfolio. Currently, we have a long-term Neutral rating on The New York Times Company. Moreover, considering the fundamentals, we prefer to have a short-term Buy recommendation on the stock, which is defined by its Zacks #2 Rank.

NEWS CORP INC-A (NWSA): Free Stock Analysis Report

NY TIMES A (NYT): Free Stock Analysis Report

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