TEGNA Inc. (TGNA - Free Report) reported first-quarter 2018 non-GAAP earnings of 33 cents per share, which surpassed the Zacks Consensus Estimate by 3 cents. The figure increased 32% on a year-over-year basis and 3.1% sequentially.
On a GAAP basis, revenues increased 9.4% year over year and 2.4% on a sequential basis to $502.1 million, which came ahead of the Zacks Consensus Estimate of $496.4 million. The top-line growth was driven by continued increase in total paid subscribers, strong performance of TEGNA stations, improved advertising and political revenues.
Additionally, TEGNA reported adjusted revenues of $470.4 million, which excludes the impact of Olympics, Super Bowl and political revenues. The figure also reflects year-over-year growth of 5.5%.
Top Line in Detail
TEGNA reports revenues in four categories.
Advertising and Marketing Services: The company generated $282.9 million of revenues from this category, which was up 5.2% on a year-over-year basis but down 4.6% sequentially. The year-over-year growth was driven by strong Olympics and Super Bowl advertising revenues, which came in $50 million out of which $38 million was contributed by Olympics and $12 million was contributed by Super Bowl. Further, NBC stations gained traction for Olympic event and this remained positive for the top-line growth.
Subscription: This category generated $205.6 million revenues in the reported quarter, up 12.8% and 15.2% from the year-ago quarter and on a sequential basis, respectively. This was driven by increasing paid up subscribers of both MVPD and new virtual MVPD services. Moreover, subscribers from OTT streaming services increased in first quarter.
Political: This category generated $7.6 million of revenues, which increased 245.5% from the year-ago quarter but decreased 23.3% sequentially. The year-over-year growth was driven by growing presence in political advertising sector.
Other: TEGNA generated $5.9 million of revenues from this category, which were up 5.3% year over year as well as sequentially.
Per the company report, operating expenses in first quarter were $365.1 million, up 8.7% year over year due to increasing cost for Olympics and Super Bowl, programming fees and growing investments.
Operating margin came in 27.3%, which expanded 50 basis points (bps) from the year-ago quarter.
Further, adjusted EBITDA was $157.3 million, which grew 8% year over year.
Balance Sheet & Cash Flows
As of Mar 31, 2018, total cash was $8.3 million, which decreased from $98.8 million as of Dec 31, 2017. Also, long-term debt outstanding was $3.2 billion compared to $3 billion in the last quarter. This increase was due to funding of KFMB acquisition through cash in hand and revolver.
In the first quarter, TEGNA generated $51.2 million of cash from operations compared with $139.9 million in the prior-year quarter. Free cash flow was $40.5 million compared with $121 million in the year-ago period.
For second-quarter 2018, TEGNA expects subscription and political revenues to drive total revenues on a GAAP basis, which is anticipated to reflect a year-over-year increase by mid-single digit.
For 2018, the company raised subscription revenue guidance and expects it to be up in mid-teens.
We believe the company is poised to benefit from growing paid up subscriptions, which in turn is driving the top-line growth. TEGNA currently has 1 million subscribers for its virtual MVPD services.
Further, the company’s strong presence in gubernatorial and U.S. Senate races will boost political revenues.
Additionally, TEGNA’s division, Premion will continue to aid business growth with the help of strategic partnerships. The extended partnership between Major League Baseball (MLB) and Premion will help TEGNA to advertise on MLB.TV and has the authority to sell OTT ads in 39 markets.
Also the launch of Premion Audience Selects, a data management platform will improve the company’s advertiser base as it will help the advertisers focus on specific audiences by providing data on connected TVs and streaming devices.
Moreover, TEGNA partnered with Pearl TV business alliance for the Phoenix TV market remains positive.
Zacks Rank & Stocks to Consider
TEGNA carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the consumer discretionary sector are NutriSystem (NTRI - Free Report) , GoPro (GPRO - Free Report) and Central Garden & Pet Company (CENT - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Long-term earnings growth rate for NutriSystem, GoPro and Central Garden & Pet Company is pegged at 16.67%, 10% and 10%, respectively.
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