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NY Times (NYT) Falls Despite Q2 Earnings Beat: Here's Why

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Shares of The New York Times Company (NYT - Free Report) tumbled roughly 7% during the trading session on Aug 8, in spite of reporting better-than-expected second-quarter 2018 results. Analysts pointed that slower growth in paid digital subscriber and fall in digital advertising raised investors’ concerns. They even ignored the fact that this was the eighth straight quarter, when this NY-based company delivered positive earnings surprise, while revenue also beat the Zacks Consensus Estimate for the third consecutive quarter.

The company delivered adjusted earnings from continuing operations of 17 cents a share beating the Zacks Consensus Estimate of 14 cents. However, the figure came in line with the year-ago quarter figure. The newspaper publisher's total revenue of $414.6 million rose 1.8% year over year, and came ahead of the Zacks Consensus Estimate of $410.8 million.

Let’s Delve Deep

Subscription revenue grew 4.2% to $260.6 million, primarily due to increase in the number of subscriptions to the digital-only products. Revenue from digital-only subscriptions products surged 19.6% to $98.7 million. Management now projects total subscription revenue in the third quarter of 2018 to increase in the mid-single digits, while digital-only subscription revenue is likely to rise in the high-teens.

Total advertising revenue came in at $119.2 million in the reported quarter, down 9.9% year over year. In the preceding quarter, total advertising revenue had declined 3.4%. Total advertising revenue in the third quarter is projected to decline in the low-single digits.

Print advertising revenue fell 11.5% to $68.2 million in the quarter under review, following a decline of 1.8% in the preceding quarter.

Digital advertising revenue slid 7.5% to $51 million, following a decline of 6% in the preceding quarter. Management expects digital advertising revenue to increase roughly 10% in the third quarter.

Adjusted operating costs came in at $355.2 million during the quarter, up 3.7% year over year on account of rise in marketing and commercial printing costs. Management now anticipates adjusted operating costs to increase roughly 10% in the next quarter due to increased marketing costs and rise in commercial printing operations.

Total adjusted operating profit declined 8.2% to $59.4 million as growth in both digital subscription and other revenues was offset by lower advertising revenues and increased marketing costs.

The New York Times Company Price, Consensus and EPS Surprise

 

The New York Times Company Price, Consensus and EPS Surprise | The New York Times Company Quote

Other Financial Aspects

The New York Times Company ended the quarter with cash and marketable securities of about $779.2 million, and total debt and capital lease obligations of approximately $251.9 million. The company incurred capital expenditures of about $15 million during the quarter. Management envisions capital expenditures in the band of $65-$75 million for 2018.

Wrapping Up

The New York Times Company has come a long way from being a sole provider of news content and advertising on print publications. The company is no longer restricted to print. As readers swarmed to the Internet, advertisers followed suit and so did newspaper companies. Trimmed print operations paved way for online publications that led to the development of paywalls.

The New York Times Company’s pricing system for NYTimes.com. The company notified that the number of paid digital subscribers reached 2,892,000 at the end of second-quarter 2018 – rising 109,000 sequentially and 24% year over year. We note that the company had added 139,000 and 157,000 subscribers during the first quarter and final quarter of 2017, respectively.

Industry experts cited that focus on new avenues of revenue generation is necessary to counter the dwindling print advertising revenues. Surely, The New York Times Company has succeeded in this space but the recent fall in the number of users signing up for digital subscriptions did alarm investors.

Nevertheless, the company’s efforts to aid growth have led this Zacks Rank #3 (Hold) stock to surge roughly 22% in a year compared with the industry’s growth of 25%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other publishing companies such as New Media Investment Group Inc. (NEWM - Free Report) , Gannett Co., Inc. (GCI - Free Report) and The McClatchy Company (MNI - Free Report) are also trying to adapt to different revenue generating ways.

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