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Nielsen's (NLSN) Q2 Earnings Decline Y/Y, Revenues Miss

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Nielsen Holdings plc (NLSN - Free Report) reported second-quarter 2018 net earnings of 20 cents per share, down 46% from the year-ago quarter.

Weakness in the U.S. Buy segment and emerging markets continue to be a concern.

Reported revenues came in at $1.647 billion, increasing 0.2% year over year. The increase was driven by strength in the company’s Watch segment.

However, on a constant-currency basis, revenues decreased 0.7%. Also, revenues missed the Zacks Consensus Estimate of $1.71 billion.

During the quarter, Nielsen announced that Mitch Barns, the current CEO will retire at the end of 2018 and James Attwood would be appointed as the Executive Chairman of the company.

Shares of Nielsen have lost approximately 25.9% in the past 12 months against the industry’s rally of 25.3%.

Revenues by Segment

Watch business revenues were $858 million (52% of the total second-quarter revenues), reflecting an increase of 4.5% year over year or 4.0% on a constant-currency basis. The increase was due to continued strength in Audience Measurement. Audience Measurement of Video and Text revenues increased 7.4% from the prior-year quarter, driven by ongoing investments and continued client adoption. Marketing Effectiveness revenues increased 7.2% year over year, driven by consistent investment in product portfolio and continued strength in product initiatives.

Buy business revenues were $789 million (48% of the total revenues), reflecting a decrease of 4.1% from the year-ago quarter and 5.4% on a constant-currency basis. Excluding foreign currency impact, revenues from the Developed market declined 6.9% on a constant-currency basis due to increased pressure on spending from large multinational clients. Also, revenues from emerging markets were down 1% or 0.3% on a constant-currency basis, due to weakness in multinational client spending in markets like South East Asia and China, partly offset by growth in Eastern Europe, Africa, and some markets in Latin America.

Operating Results

Gross margin was 57.6%, down 120 basis points (bps) from the year-ago period.

Nielsen’s operating expenses, namely selling, general and administrative expenses of $494 million, increased 4.2% from the year-ago figure. Therefore, operating margin decreased 570 bps year over year to 13.8%.

Adjusted EBITDA was $468 million in the second quarter, decreasing 8.1% from the prior-year quarter. Also, Adjusted EBITDA margin contracted 254 basis points to 28.4% due to softer revenues, and continued investments in Buy and Watch segments, partly offset by productivity initiatives.

Net Income

On a GAAP basis, Nielsen registered net profit of $72 million or 20 cents per share compared with $131 million or 37 cents in the year-ago quarter.

Balance Sheet & Cash Flow

Nielsen exited the quarter with cash balance of approximately $394 million compared with $462 million in the last reported quarter.

Net debt (gross debt excluding cash and cash equivalents) was $8.27 billion, and net debt leverage ratio was 4.16x at the end of the quarter.

Cash flow from operations was $242 million, capex totaled $118 million and free cash flow came in at $124 million in the second quarter.

Share Repurchase

The company repurchased $40 million of shares in the second quarter of 2018. It has a total of $238 million shares remaining under the existing share repurchase program.

Outlook

For full-year 2018, management lowered its guidance. It expects total revenues to decline approximately 1% versus prior growth expectation of 3% on a constant-currency basis. Also, free cash flow is expected in the range of $550-$575 million versus previous expectation of $800 million.

However, the company decreased its GAAP net income per share to the range of $0.95-$1.00, lower than prior expectation of $1.50-$1.56.

Nielsen Holdings Plc Price, Consensus and EPS Surprise

 

Nielsen Holdings Plc Price, Consensus and EPS Surprise | Nielsen Holdings Plc Quote

Zacks Rank & Stocks to Consider

Currently, Nielsen carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry are Groupon (GRPN - Free Report) , IAC/InterActiveCorp (IAC - Free Report) and FactSet Research Systems Inc. (FDS - Free Report) . While Groupon and IAC/InterActiveCorp sport a Zacks Rank #1 (Strong Buy), FactSet holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Groupon, IAC/InterActiveCorp and FactSet is currently projected to be 3%, 7.5% and 10.62%, respectively.

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