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Meredith Corporation (MDP - Analyst Report) posted third-quarter fiscal 2013 adjusted earnings of 72 cents a share, surpassing the Zacks Consensus Estimate of 69 cents and jumping 9% year over year, owing to strong circulation revenues and  increased readership.  

However, including one time items, earnings came in at 65 cents a share compared with 47 cents in the year-ago quarter.  

Going forward, management expects earnings to be at the upper end of its earlier guidance range of $2.60 – $2.95 per share for fiscal 2013. Moreover, for the fourth quarter, earnings are projected in the range of 68 cents – 73 cents.

Revenue & Margins

Total revenue for the quarter strengthened 7% year over year to $369.6 million, reflecting an increase of 2% in advertising revenues to $195.2 million coupled with a rise of 19.8% in circulation revenues to $91.5 million and a 6.7% increase in other revenues to $82.9 million. Moreover, total revenue surpassed the Zacks Consensus Estimate of $357 million.

Adjusted total operating expenses for the quarter rose 7.5% to $314.5 million, reflecting an augmentation of 3.8% in production, distribution and editorial costs coupled with a rise of 11.8% in adjusted SG&A expenses.  

Adjusted operating profit grew 4.1% to $55.1 million, whereas adjusted operating margin decreased 40 basis points to 14.9%.

Segment Details

Meredith’s National Media Group revenues increased 6.2% to $284.2 million, attributable to an improvement of 4.7% in advertising revenues and a 19.8% rise in circulation revenues.  

Segment’s adjusted operating profit increased 16.8% year over year to $43 million, reflecting increased advertising and circulation revenues along with growth at brand licensing activities and Meredith Xcelerated Marketing.

The company hinted that Meredith magazine readership attained a record of 116 million while digital traffic rose more than 45% during the third quarter.

For the quarter, total advertising revenues grew 5% year over year, whereas digital advertising revenues surged 55%. Circulation revenues increased, reflecting healthy performance of the recently acquired brands like “Allrecipes.com”, “EveryDay with Rachael Ray” and “FamilyFun”.

Meredith now projects National Media Group advertising revenues to go down marginally or remain flat during the fourth quarter of fiscal 2013.

Meredith’s Local Media Group revenues rose 9.6% to $85.4 million, attributable to a significant rise in other revenues that came in at $18.9 million compared with $9.4 million in the prior-year quarter.

Political advertising revenues plunged to $0.4 million compared with $1.8 million in the year-ago quarter. Non-political advertising revenues decreased marginally to $66.1 million during the quarter.  

Segment’s adjusted operating income inched up 1% to $24.1 million compared with $23.8 million in the prior-year quarter.

Meredith stated that other revenues marked an improvement on account of higher retransmission revenues during the quarter. The company has renewed its long-term affiliation agreements with CBS Corporation (CBS - Analyst Report) and News Corp.’s (NWSA - Analyst Report) Fox Broadcasting Co.     

Management now expects Local Media Group’s total revenue to increase in the mid-single digits, while non-political advertising revenues are expected to remain flat or increase marginally during the fourth quarter.

Meredith’s Growth Catalysts

Meredith has been constantly endeavoring to explore and add alternative revenue generating channels through acquisitions or strategic alliances. Thereby, the company is attempting to reduce its dependence on conventional advertising.

The sluggish economy prompted Meredith to diversify and add significant revenue streams beyond traditional advertising by leveraging its brands through strategic alliances. Brand Licensing revenues supplemented the sales of the company, led by a rise in sales of Better Homes and Gardens' branded products at Wal-Mart Stores Inc. (WMT - Analyst Report). The company extended its contract with Wal-Mart Stores through 2016, which includes an expansion of the Better Homes and Gardens branded home decor and garden program at Wal-Mart stores across the United Statesand Canada.

Meredith remains committed to making strategic investments to increase its revenue generating capabilities while enhancing its profitability. The company is aggressively expanding its brands through online platforms, televisions, videos, mobile applications, and is broadening its reach of food and lifestyle content across tablet products, such as the iPad, NOOK Color, Kindle Fire, and Samsung Galaxy.

Following its growth trajectory, Meredith acquired “Every Day with Rachael Ray” the award-winning magazine of Reader's Digest Association, and assets of “FamilyFun”: magazine from Disney Publishing Worldwide.

Meredith, the media and publishing company, also acquired the world's No. 1 digital food site, “Allrecipes.com” for about $175 million, to expand its digital platform. The transaction will be modestly incremental to its earnings per share and free cash flow in fiscal 2013.

Going forward, management’s strategy will be focused upon bolstering advertising revenue, primarily in the digital space, enhancing online consumer transactions, especially magazine subscription orders, focusing on non-advertising depending activities, such as brand licensing, marketing services and e-Commerce, and attaining operational efficiencies.

Other Financial Details

Meredith ended the quarter with cash and cash equivalents of $24.5 million, total debt of $355 million and shareholders’ equity of $831.7 million. During the first nine months of fiscal 2013 the company repurchased 1.1 million shares.  The company’s leverage ratio (debt to EBITDA) was 1.4 to 1 for the 12 months period ended Mar 31, 2013.

Currently, shares of Meredith hold a Zacks Rank #2 (Buy).

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