Washington Post's Profit Falls

The Washington Post Company (WPO - Analyst Report) recently posted dismal first-quarter 2012 results. The quarterly earnings from continuing operations came in at 83 cents a share, down substantially from $4.33 earned in the prior-year quarter. The decline reflected a slump in student enrollment and weak advertising demand.

On a reported basis, including one-time items and discontinued operations, the company posted quarterly earnings of $4.07 per share, up from $1.87 posted in the year-ago quarter.

Revenue for the quarter dropped 7% to $972.5 million from the prior-year quarter, reflecting sluggish performance in the Education and Newspaper Publishing divisions, partially offset by strength witnessed in Broadcasting division.

Education division’s revenue went down 11% to $553.4 million, reflecting a 20% fall in Higher Education revenue, a 14% drop in Test Preparation revenue and a 15% decline in Kaplan Ventures revenue, partially offset by a 16% rise in Kaplan International revenue and a 4% growth in Kaplan Corporate. The Education division experienced an operating loss of $13.2 million compared with an operating income of $20 million in the prior-year quarter.

Total student enrollment plunged 18% year-over-year but improved 2% sequentially to 75,984. The company hinted that new student enrollment rose 5% during the quarter at Kaplan University and Kaplan Higher Education Campuses.

Television Broadcasting revenue climbed 13% to $81.5 million during the quarter, whereas operating income surged 58% to $31 million, attributable to healthy advertising demand. Moreover, Political advertising also contributed $2.2 million to the revenue. Cost containment efforts helped in improving operating results.

Cable division’s revenue of $190.2 million remained almost flat compared with the prior-year quarter revenue of $190.3 million. The division benefited from revenue growth registered across internet and telephone service revenues, but was neutralized by higher promotional discounts and fall in basic video subscribers’ base. The division’s operating income dropped 13% to $32.8 million attributable to higher programming expenses and sales costs.

Basic video subscribers fell 4% to 622,339. On the other hand, high-speed data subscribers rose 5% to 463,443 and telephony subscribers grew 12% to 186,009.

Newspaper Publishing revenue came in at $142.3 million, down 8% from the year-ago quarter. Print advertising revenue at The Washington Post tumbled 17% to $52.7 million, reflecting a fall in classified, general and preprint advertising.

Revenue from newspaper online publishing activities, principally washingtonpost.com and Slate, fell 7% to $24.2 million, whereas display online advertising revenue decreased 11%. Online classified advertising revenue on washingtonpost.com dropped marginally by 1%.

During the quarter, daily and Sunday circulation at the Post fell 9.8% and 5.2%, respectively, from the year-ago quarter.

The Newspaper division’s operating loss widened to $22.6 million from a loss of $12.8 million witnessed in the prior-year quarter.

Currently we maintain our long-term Outperform recommendation on the stock. However, The Washington Post Company, which faces stiff competition from The New York Times Company (NYT - Analyst Report) and Apollo Group Inc. (APOL - Analyst Report), holds a Zacks #3 Rank that translates into a short-term Hold rating.