It has been about a month since the last earnings report for Nielsen Holdings Plc (NLSN - Free Report) . Shares have lost about 4.5% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is NLSN due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Nielsen Holdings reported first-quarter 2018 net earnings of 20 cents per share, flat with the year-ago quarter.
Reported revenues came in at $1.610 billion, increasing 5.5% year over year. On a constant-currency basis, revenues increased 2.4%.
The increase was driven by continued strength in the company’s Watch segment and growth in emerging markets, partially offset by weakness in the U.S. Buy segment.
Revenues by Segment
Watch business revenues were $834 million (52% of total first-quarter revenues), reflecting an increase of 8.5% year over year or 7.1% on a constant-currency basis. The increase came on the back of continued strength in Audience Measurement. Audience Measurement of Video and Text revenues increased 12.0% from the prior-year quarter, driven by ongoing investments and continued client adoption. Marketing Effectiveness revenues increased 24.6% year over year, driven by consistent investment in product portfolio and continued strength in product initiatives.
Buy business revenues were $776 million (48% of total revenues), reflecting an increase of 2.5% from the year-ago quarter but a decrease 2.1% on a constant-currency basis. Excluding foreign currency impact, revenues from the Developed market declined 5.2% on a constant-currency basis due to softness in the U.S. market. However, revenues from emerging markets were up 10.1% or 6.1% on a constant-currency basis, driven by coverage expansion and broad product offerings.
Reported gross margin was 55.3%, down 140 basis points (bps) from the year-ago period.
Nielsen’s operating expenses, namely selling, general and administrative expenses of $493 million, increased 4.2% from the year-ago figure. Therefore, operating margin decreased 50 bps year over year to 12.9%.
Adjusted EBITDA was $423 million in the first quarter, increasing 0.7% from the prior-year quarter but decreasing 0.7% on a constant-currency basis.
On a GAAP basis, Nielsen registered net profit of $72 million or 20 cents per share compared with $71 million or 20 cents in the year-ago quarter.
Balance Sheet & Cash Flow
Nielsen exited the quarter with cash balance of approximately $462 million compared with $656 million in the last quarter.
Net debt (gross debt excluding cash and cash equivalents) was $8.18 billion and net debt leverage ratio was 4.04x at the end of the quarter.
Cash flow from operations was ($117) million, capex was $128 million and free cash flow was ($245) million in the first quarter.
The company repurchased $20 million of shares in the first quarter of 2018. It has a total of $278 million shares remaining under the existing share repurchase program.
On Apr 19, 2018, the company approved a $0.01 increase in the quarterly cash dividend to $0.35 per share. The dividend is payable Jun 20 to stockholders of record at the close of business on Jun 6, 2018.
For full-year 2018, management maintained its guidance. It expects total revenue growth of 3% and adjusted EBITDA margin improvement of approximately 60 bps on a constant-currency basis. Also, free cash flow is expected to be nearly $800 million.
However, the company increased its GAAP net income per share to range within $1.50-$1.56, higher than its previous expectation of $1.40-$1.46.
Nielsen Holdings is an information and measurement company, offering media and marketing information on what consumers watch and buy locally.
The company's regular investments in innovative technologies bode well for its product portfolio expansion. Recently, Nielsen launched Advanced Audience Forecasting tool that provides forecasts of TV audiences, defined by advanced audience segments to its clients. Further, the company introduced Connected Partner Program, which helps companies to connect their network, discover new connected partners and utilize the measurement data provided by Nielsen.
Continued share repurchase reflects Nielsen’s financial strength and commitment toward returning value to its shareholders. However, continued investments in technology and infrastructure could weigh on margins and profitability, going forward.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. There have been six revisions lower for the current quarter.
At this time, NLSN has a poor Growth Score of F, however its Momentum is doing a lot better with a C. The stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than momentum investors.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, NLSN has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.