A month has gone by since the last earnings report for Tegna (TGNA - Free Report) . Shares have lost about 3.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Tegna due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Higher Subscription Revenues Aided TEGNA
TEGNA Inc. reported first-quarter 2019 non-GAAP earnings of 29 cents per share, which beat the Zacks Consensus Estimate by 2 cents. However, the figure declined 12.1% on a year-over-year basis.
On a GAAP basis, revenues increased 2.9% year over year to $516.7 million. The figure also beat the Zacks Consensus Estimate of $515 million. Top-line growth was primarily driven by increase in subscription revenues, partially offset by lack of political, Olympic and Super Bowl revenues in the reported quarter.
TEGNA’s adjusted revenues, which exclude political advertising and incremental Olympic and Super Bowl revenues, were up 7.6% year over year to $506 million.
Top Line in Detail
Advertising and marketing services (51.2% of total revenues): The category generated $264.4 million, down 6.6% on a year-over-year basis. The year-over-year decline was due to lack of political, Olympic and Super Bowl revenues in the reported quarter. Notably, revenues remained flat year over year, after excluding the impact of sports events.
Subscription (46.7%): This category generated $241.6 million in the reported quarter, up 17.5% from the year-ago quarter. This was driven by higher rates negotiated in fourth-quarter 2018, “impact of rate escalators” and stable paying subscribers.
Notably, TEGNA expects its paying subscriber base to exceed the industry’s base owing to its global presence in key markets. Moreover, the company stated that it will reprice about 85% of its subscribers between the fourth-quarter 2019 and fiscal 2020.
Political (0.5%): This category generated $2.7 million in first-quarter 2019 compared with $7.61 million in first-quarter 2018 due to lack of political spending in the reported quarter.
Other (1.6%): TEGNA generated $8.1 million of revenues from this category, up 34.8% year over year.
Non-GAAP adjusted EBITDA declined 2.6% year over year to $153.2 million. Adjusted EBITDA margin was 29.6%, down 170 basis points (bps) year over year.
GAAP operating expenses (74.3% of total revenues) in the first quarter were $384 million, up 5.2% year over year primarily due to increased programming fees, primarily higher reverse compensation fees.
Notably, reimbursement of $4 million for Federal Communications Commission (FCC) spectrum repacking and gain of $3 million in real-estate sale lowered operating expenses in the reported quarter.
Non-GAAP operating income fell 5.5% year over year to $129.5 million. Operating margin contracted 220 bps from the year-ago quarter to 25.1% due to lack of political, Olympic and Super Bowl revenues, offset by higher subscription revenues.
Balance Sheet & Cash Flow
As of Mar 31, 2019, total cash was $3.8 million compared with $135.9 million as of Dec 31, 2018. The decline can be attributed to the string of acquisitions made/being made by the company.
Long-term debt outstanding was $2.9 billion, down $53 million. Non-GAAP free cash flow was $109 million compared with $123.4 million in the year-ago period.
TEGNA signed a deal with Nexstar Media to acquire 11 local TV stations for an all-cash deal worth $740 million on Mar 20, 2019. Notably, the TV stations located in eight markets comprise eight Big Four affiliates. The addition of the four key markets to TEGNA’s portfolio is likely to aid political revenues as political spend is expected to increase owing to the 2020 presidential elections.
The company stated that the acquisition will be immediately accretive to free cash flow per share and to earnings per share within a year after close. However, TEGNA’s acquisition of the 11 TV stations is dependent on the completion of Nexstar and Tribune Media merger. The merger is expected to close by the end of third-quarter 2019 or at the beginning of fourth-quarter 2019.
This apart, TEGNA announced an agreement with Cooper Media to acquire 85% stake in Justice Network and Quest, two leading 24/7 multicast networks, for an all-cash deal worth $77 million.
Notably, the networks, which offer free ad-supported content to TV users are “among the top distributed entertainment multicast networks in the U.S.” TEGNA expects the acquisition to help it leverage growth in over-the-air TV audiences.
TEGNA has acquired or is in the process of acquiring assets worth more than $900 million that have enhanced the company’s strategic value to date in fiscal 2019.
Additionally, Daily Blast LIVE’s (DBL) household reach grew 17% year over year. Moreover, women viewership rates in the age group 25-54 increased 17% year over year.
Further, in the current quarter, TEGNA received the highest number of awards ever in its history at Regional Edward R. Murrow awards. The company, which took home 91 awards in 2019, also became the top media company with most awards.
TEGNA expects GAAP revenues to increase in the low single-digit range. Non-GAAP revenues (excluding political) are anticipated grow in the mid-single digit range. Total operating expenses are anticipated to increase in mid-single digits.
Notably, subscription revenue growth will be partially offset by lack of political ad spend.
TEGNA expects subscription revenues to increase in mid-teens on a year-over-year basis. Total capital expenditures are anticipated in the range of $70 - $75 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Tegna has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Tegna has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.