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The New York Times Company (NYT - Analyst Report) posted fourth-quarter 2013 earnings of 26 cents a share that surpassed the Zacks Consensus Estimate of 16 cents but plunged 16.1% from the year-ago quarter earnings of 31 cents.

Including one-time items and discontinued operations, quarterly earnings came in at 41 cents a share, substantially down from $1.15 posted in the prior-year period.

The quarter reflects favorable response to the digital subscription packages, increase in circulation revenue (excluding the extra week in the fourth quarter of 2012) and effective cost management. But, these failed to offset the diminishing advertising revenue.

The current economic situation does not seem promising for publishing companies, which are bearing the brunt of waning advertising demand, and this Zacks Rank #3 (Hold) stock is no exception. Other publishing companies such as Journal Communications, Inc. (JRN - Snapshot Report), The E.W. Scripps Co. (SSP - Snapshot Report) and Gannett Co. Inc. (GCI - Analyst Report) are also encountering similar headwinds.

Consequently, the company is contemplating on introducing a new line of digital products and services, and targeting global customers to counter the headwinds.  

Publishing companies have been divesting assets that have no direct relation to the core operations. The New York Times Company divested its remaining stake (210 Class B units) in the Fenway Sports Group in May 2012. The company also completed the sale of Regional Media Group in Dec 2011 to re-focus on its core newspapers and pay more attention to its online activities. The company in Sep 2012 completed the sale of About Group, and in Oct 2012 sold its stake in Indeed.com.

Most recently on Oct 24, 2013, it completed the sale of New England Media Group, including The Boston Globe and its allied properties to an acquisition company spearheaded by John W. Henry, who owns Fenway Sports Group, for about $70 million in cash.

The New York Times Company’s top line decreased 5.2% to $443.9 million but came ahead of the Zacks Consensus Estimate of $440 million. The ongoing slouch in the advertising market continues to weigh upon The New York Times Company, the publisher of The New York Times and the International New York Times. Total advertising revenue slid 6.3% to $212.1 million in the fourth quarter of 2013, following a decline of 2% in the third quarter.

The New York Times Company’s print advertising revenue declined 6.3% to $159.1 million, while digital advertising revenue fell 6.5% to $53 million during the quarter. Revenue from digital-only subscription packages, e-readers and replica editions jumped 13.7% to $39.1 million.

Excluding the extra week in the fourth quarter of 2012, total revenue rose 0.4%. On the other hand, total advertising revenue fell by 1.3% and digital-only subscription revenue surged 22.1%. Print and digital advertising revenues tumbled 1.6% and 0.2%, respectively.

The company experienced a fall in major advertising categories. Both retail and classified advertising dipped 8.7% and 7.3%, respectively, during the quarter. Within classified, real estate and help-wanted advertising fell 7.8% and 11.8%, respectively. Automotive advertising tumbled 44.2%. However, national advertising inched up 1%.

The diversified media conglomerate hinted that total advertising revenue trends in the first quarter of 2014 would be at a level similar to that witnessed in the fourth quarter of 2013.

Circulation revenue fell 3.9% to $207.7 million. However, excluding the extra week in the fourth quarter of 2012, circulation revenue climbed 2.7%. Management now expects total circulation revenue to jump in the low single digits in the first quarter of 2014, gaining from digital subscription initiatives and increase in print home-delivery price.

Total adjusted operating profit declined 12.2% to $96.6 million, whereas adjusted operating margin contracted 170 basis points to 21.8%.

Other Financial Aspects

The New York Times Company ended the quarter with cash and marketable securities of about $1 billion, and total debt and capital lease obligations of approximately $684.2 million. The company incurred capital expenditures of approximately $13.1 million during the quarter. Management now anticipates capital expenditures between $35 million and $45 million in 2014.

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 showing an uneven recovery. 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 seek new revenue avenues, the publishing companies contemplated charging readers for online content.

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 Mar 28, 2011. The company notified that the number of paid digital subscribers reached 760,000 at the end of the quarter, reflecting a jump of 19% year-over-year.

The New York Times Company remains committed to streamline its cost structure, strengthen its balance sheet, and rebalance its portfolio. However, we remain apprehensive about risks that the company faces due to its high dependence on advertising revenue. The company intends to transform itself and lessen its reliance on traditional advertising.

In doing so, the company wishes to launch lower-priced as well as premium subscription based model to target different masses according to their appetite, and emphasize on online video production and brand extension. The company also rechristened International Herald Tribune as the International New York Times to represent itself as a single brand identity in order to attract international digital subscribers.

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