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The current economic situation doesn’t seem promising for publishing companies, who are bearing the brunt of waning advertising demand. Amidst such a scenario, The New York Times Company (NYT - Analyst Report) remains no exception.
The company posted a loss per share of 1 cent that significantly missed the Zacks Consensus Estimate of earnings of 8 cents but remained flat compared with the prior-year quarter.
On a reported basis, including one-time items, the company posted quarterly earnings of 2 cents a share that dropped substantially from 10 cents earned in the year-ago quarter.
However, the quarter reflects favorable response to the digital subscription packages and increase in circulation revenue. But, these failed to offset diminishing print and digital advertising revenues.
Publishing companies have been divesting assets that have no direct relation to the core operations. The New York Times Company on September 24 completed the sale of About Group, which it acquired in 2005, to InterActiveCorp (IACI - Snapshot Report) for a consideration of $300 million. In October, the company sold its stake in Indeed.com, a job portal, for approximately $167 million.
Another example of shedding assets by the company is the sale of Regional Media Group in December 2011, which had once been the part of News Media Group. The company now reports through one reportable segment, News Media Group, which now includes The New York Times Media Group and New England Media Group.
The New York Times Company’s top-line portrayed a marginal decline of 0.6% to $449 million, and also fell short of the Zacks Consensus Estimate of $478 million attributable to drop in advertising revenue. However, increase in circulation revenue provided some cushion. The New York Times Media Group revenue fell 0.4% to $355.3 million and New England Media Group revenue decreased 1.1% to $93.7 million.
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 8.9% to $182.6 million in the quarter.
The New York Times Company’s print advertising declined 10.9% during the quarter. Digital advertising revenue for New York Times’ Digital business, which includes NYTimes.com, Boston.com and BostonGlobe.com, fell 2.2% to $44.6 million, and now accounts for 24.4% of total advertising revenue, up from 22.8% in the prior-year quarter.
The company experienced fall in all major advertising categories. Both national and retail advertising dipped 9.5% during the quarter. Total classified advertising dropped 7.9%. Within classified, real estate advertising plunged 19.5%. However, automotive and help-wanted advertising grew 2.4% and 4.1%, respectively.
The diversified media conglomerate hinted that total advertising revenue trends in the fourth quarter would be somewhat similar to the third quarter.
What came as a respite during the quarter was a rise in circulation revenue. It climbed 7.4% to $234.9 million. Management now expects total circulation revenue to jump in the mid to high-single digits in the fourth quarter, gaining from digital subscription initiatives and increase in print circulation price at The New York Times and The Boston Globe.
Total adjusted operating profit tumbled 28.7% to $34 million, whereas operating margin contracted 300 basis points to 7.6%.
Other Financial Aspects
The company ended the quarter with cash and short-term investments of $614.1 million and total debt and capital lease obligations of approximately $776.9 million. The company has no outstanding borrowings under its revolving credit facility of $125 million as of September 23, 2012.
The New York Times Company incurred capital expenditures of approximately $5 million during the quarter. Management now anticipates capital expenditures to be $35 million in 2012.
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 March 28, 2011. The company notified that the number of paid digital subscribers for The New York Times and the International Herald Tribune reached 566,000 at the end of the quarter, reflecting a jump of about 11% since the end of the second 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 26,000 at the end of the quarter, representing an increase of 13% since the end of the previous quarter.
The increase the subscriber base was due to the company’s decision to limit the number of free articles that can be read by online traffic visiting the website of its flagship newspaper. Online visitors cannot access more than 10 free articles per month, which is exactly half of what the pay-and-read model offered when the system was launched.
Another media conglomerate, News Corporation (NWSA - Analyst Report) 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 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.
Currently, we have a long-term Neutral recommendation on the stock. Moreover, the stock holds a Zacks #3 Rank that translates into a short-term Hold rating.