Meredith Gains Share in Quarter

Shares of Meredith Corporation (MDP) are surging 14% after posting FY3Q09 (March 31) financial results that reflect significant progress in its turnaround plan.

The publisher of popular women’s magazines, including Better Homes and Gardens, Parents and Ladies Home Journal, reported EPS from continuing operations of $0.55, a 56% drop from the year-ago quarter. Earnings were in line with consensus, but the company's outlook is improving.

Publishing ad revenue slid 12.5% in 1Q09, substantially out-performing the industry, and appears to be stabilizing. Revenue declines eased markedly from the 19.8% drop in the December quarter, and slipped just 3% sequentially.

Meredith’s market share grew to 11.1% in the March quarter from 9.4% a year earlier. It appears ad price discounting contributed to the gains. Nevertheless, ad revenue per page declined just 1%, as page count was reduced.

Traffic on Meredith’s websites remains robust, with ad revenues growing 7% in 1Q09 and page views per month rising 25% year-over-year. Page views and unique visitors declined slightly from the December quarter, however.

Meredith’s TV broadcasting operations continue to suffer, as a 31% plunge in ad revenue shrank operating profit to $1.3 million in FY3Q09 from $57 million in the year-earlier quarter. Revenues appear to be stabilizing, however, with quarter-to-date pacings for the TV operations, which account for 20% of Meredith’s revenue, down 32% and the outlook is improving – ratings in the March sweeps were stronger at most of Meredith’s TV stations.

Operating costs shrunk 6%, slower than the fall in revenue but impressive given the 7% increase in paper prices, which together with postage and printing account for 40% of publishing’s operating costs.

Despite the sinking economy, the company continues to generate relatively healthy cash flow, which it is using to repay 20% of its debt in FY2009 (June) and to fund its recent 5% dividend increase.

We are raising our rating to Buy on shares of Meredith. The best of breed publishing house is investing for long-term growth by expanding its revenue streams from online operations and non-advertising based licensing platforms. In turn, it is well positioned to recoup lost revenue after the recession and maintain its lengthy record of superior free cash flow and high returns on invested capital.

Read the full analyst report on MDP