Downturn for Publisher Meredith

Meredith Corp (MDP - Analyst Report) is a best-of-breed publishing house, boasting a lengthy track record superior free cash flow growth and returns on invested capital. Nevertheless, the company is suffering from the secular downturn occurring in the print media industry, exacerbated by a tightening vise of slowing economic growth and rising paper and postage costs.

The gold standard in publishing, Meredith’s portfolio of women's magazines have a strong track record of relatively stable circulation and ad revenue and superior investment returns. Looking forward, the company’s revenue and earnings growth should be bolstered by international expansion. However, circulation revenue is declining (down nearly 5.4 percent in the first nine months of fiscal 2008) and we expect ad revenue to fall at a low-to-mid double-digit rate over the next couple quarters.

Worse than the cyclical slowdown, in our view, are secular pressures that will erode fundamentals over the long-term. We continue to see no visibility on improvement in circulation as the print industry loses share to the Internet, and growth in Meredith’s online operations will not likely fill the gap, in our opinion. We note, however, that the magazine industry, particularly the women’s titles have suffered lesser circulation declines than the newspaper industry.

Near-term, the company appears set to offset increasing input costs with expense cuts, while investing for long-term growth by expanding its revenue streams from online operations and non-advertising based licensing platforms. However, we would not recommend owning the shares until we see visibility to a sustainable improvement in ad revenue.

Sumit Singh contributed to this report.

Read the full analyst report on MDP