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Monster Beats in 3Q, Revs Down

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Monster Worldwide reported a net income of $38.9 million or 35 cents per diluted share from continuing operations in the third quarter of 2012 compared to a net income of $18.6 million or 15 cents in the year-ago quarter.

Excluding one-time charges, net income from continuing operations came in at 9 cents per share, comfortably beating the Zacks Consensus Estimate of 5 cents per share. 
Monster reported revenues of $222 million in the third quarter of 2012, down 10.8% year over year. Currency translation had a negative impact of $9.0 million on revenues in the third quarter.
Bookings (representing the dollar value of contractual orders received, and considered a key indicator of future revenues) decreased 14.5% year over year to $213 million. Currency translation had a negative impact of $7.0 million on bookings in the third quarter. The growth in North America’s Staffing and Newspaper verticals were offset by weakness in Europe and Asia, which remain affected by global economic challenges and currency translation. 
Careers North America revenue came in at $115.5 million, down 6.7% year over year. Careers-International revenue was also down 15.6% year over year to $103.6 million. Internet Advertising & Fees revenue of $21.8 million was down 13.7% year over year. 
Effective July 1, 2011, Monster decided against engaging further in the arbitrage lead generation business, a portion of the Internet Advertising & Fees (IAF) business. This was due to the lack of profitability and constraints in the business.
Margins & Balance Sheet
Operating margin (excluding one-time items) came in at 7.4%, down from 12.5% in the year-ago quarter. 
In the third quarter of 2012, Monster generated $7.7 million in cash from operations and incurred $13.6 million in capital expenditures. Monster ended the quarter with cash and equivalents of $175.1 million, up from $157.5 million at the end of the previous quarter. 
As of September 30, 2012, deferred revenue was $332.7 million, down from $372.3 million at the end of the previous quarter.
During the third quarter of 2012, Monster repurchased 1.1 million shares for $6.16 per share, totaling $7 million. The company still has approximately $143 million worth shares remaining under the authorized $250 million share repurchase program.
Concurrent with the earning release, Monster announced a series of restructuring actions in order to focus on its core business and improve its cost structure, thereby boosting profitability and cash flow.
The restructuring actions include the sale of the ChinaHR business and classifying the revenues from the same as discontinued operations. Secondly, Monster intends to curtail losses in developing markets. Thirdly, Monster aims to continue and accelerate the redeployment of expenses into marketing and sales in Monster’s core markets, while reducing the run rate of operating expenses. 
On a consolidated basis, these initiatives are expected to reduce operating expense by approximately $130 million on an annualized basis. 
Due to the uncertain macroeconomic environment and the restructuring actions undertaken by the company, Monster did not provide any guidance for bookings and revenue.  
Nevertheless, the company provided earnings guidance. Monster, which continues to face competition from upcoming players such as LinkedIn Corporation , expects earnings from continuing operations to come around 5 cents to 10 cents per share in the third quarter. For 2012, Monster expects earnings per share to come around 29 cents – 34 cents. 
The company had earlier announced that it is exploring strategic alternatives with respect to maximizing shareholder value, and retained Stone Key Partners LLC and BofA Merrill Lynch as financial advisors in connection with this review. Management stated that the company will not provide additional details as of now. 
We continue to maintain a long-term Outperform recommendation on Monster. However, we currently have a Zacks #3 Rank on the stock, which translates into a short-term Hold rating.

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