Meredith (MDP) Q3 Results Solid, Soft Earnings View Hurts

Meredith Corporation (NYSE:MDP) reported third-quarter fiscal 2019 results, wherein earnings and revenues grew year over year. Results gained from robust performances in the National and Local Media Groups. Robust growth in non-political spot advertising in Local Media Group and solid advertising revenues in the National Media Group, along with reduced debt, contributed to the strong quarterly results.

Despite the robust results, the company’s shares dipped 5.7% on May 10 mainly due to the soft bottom-line view. Although the stock has gained 1.5% in the past three months, it underperformed the industry’s 3.9% growth.

FY19 Outlook

Management raised its sales view for fiscal 2019. However, it lowered the adjusted EBITDA view and also tweaked the guidance for earnings from continuing operations, excluding special items. The company now anticipates total revenues of $3.12-$3.16 billion in fiscal 2019 compared with $3-$3.2 billion mentioned earlier. Revenues for the National Media Group are expected to be $2.26-$2.29 billion while revenues for the Local Media are estimated to be $860-$870 million.

Adjusted EBITDA is expected to be $700-$710 million, down from the previously stated $720-$750 million.

The company expects earnings from continuing operations, excluding special items, to be $204-$212 million in fiscal 2019 compared with previously mentioned $205-$225 million. Earnings per share from continuing operations, excluding special items, are envisioned to be $2.78-$2.95 compared with $2.78-$3.20 stated earlier.

Q3 Highlights

Meredith’s adjusted earnings per share increased 36.9% to $1.52 from $1.11 in the prior-year quarter. Adjusted net income rose 40.8% to $88.4 million in the reported quarter from $62.8 million in the prior-year period.

Meredith’s total revenues improved 14% to $743.4 million from $651 million recorded in the prior-year period.

The company’s advertising revenues rose 12.7% to $365.6 million from $324.4 million in the year-ago quarter. Meanwhile, consumer-related revenues improved 27.6% to $359 million in the fiscal third quarter from $281.4 million in the year-ago period. However, other revenues decreased 58.4% to $18.8 million.

Adjusted EBITDA was $160 million, which increased 43% from $111.7 million in the prior-year period. Adjusted EBITDA margin expanded 430 basis points from the prior-year period to 21.5%.

Segment Details

Meredith’s National Media Group revenues surged 15.4% to $555.6 million from $481.6 million in the year-ago period. This upside was driven by 17% and 30% growth, respectively, in the segment’s advertising and consumer-related revenues to $264.9 million and $274.3 million. However, growth was somewhat offset by a decline of 62.6% in the segment’s other revenues. Rise in advertising revenues was driven by strong performance of brands in the legacy Meredith and Time Inc. portfolios. Meanwhile, the segment’s consumer-related revenues were aided by strong newsstand and affinity marketing performance. The segment’s adjusted EBITDA totaled $120.2 million compared with $74.9 million in the prior-year quarter.

Revenues at the company’s Local Media Group segment grew 10.8% to $188.4 million. This improvement was driven by a 6% increase in non-political spot advertising revenues, which summed $79.9 million. Non-political spot advertising revenues were aided by strength in Meredith's CBS affiliated television stations due to the Super Bowl broadcasts in the reported quarter. However, political spot advertising revenues dropped 69.6% to $0.7 million. Additionally, advertising-related revenues for the segment were up 4% while consumer-related revenues grew nearly 20%. The segment’s adjusted EBITDA was $52.2 million, up from $47.2 million in the year-ago period.

Financial Update

This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $52.5 million, long-term debt of $2,459.4 million, and total shareholders’ equity of $1,038 million. The company still has $50 million remaining under its share repurchase plan as of Mar 31, 2019.

Management is on track to lower debt by $1 billion by the end of fiscal 2019. Notably, the company repaid nearly $700 million of debt as of Mar 31, 2019. This included $573 million of its 7-year senior secured term loan and $127 million of unsecured notes. The company targets net debt-to-EBITDA ratio of 2.0 to 1 or better, by the end of fiscal 2020. Further, it expects EBITDA to be $1 billion and net debt to be lower than $2 billion by the end of fiscal 2020.

Meredith hiked the annualized dividend rate by 5.5% to $2.30 on Feb 2, 2019, marking the 26th straight year of a dividend hike. Concurrent to the earnings release, the company declared a quarterly dividend of 57.5 cents per share, which is payable on Jun 14 to shareholders with record as on May 31.

Other Developments

Meredith is progressing well with the integration of TIME Inc. with its business. As a result, the company delivered on its advertising performance goals for third-quarter fiscal 2019 and anticipates further improvement in advertising revenues in the fiscal fourth quarter.

Meredith is also on track to realize at least $550 million of cost-saving synergies from the TIME Inc. acquisition by the end of fiscal 2020. Of this, the company realized about $320 million synergies as of Mar 31, 2019. It anticipates incremental synergies of $60 million to be realized in the fiscal fourth quarter. Furthermore, the company expects additional synergies of $170 million in fiscal 2020.

Meredith realized about $340 million proceeds from the sale of non-core assets in fiscal 2019. Further, the company expects to finalize deals to sell the Sports Illustrated, MONEY brands and a 60% equity investment in Viant Brands in fiscal 2019. Additionally, the company is working to grow high-margin consumer-related revenues by expanding brands. It recently participated in Apple (NASDAQ:AAPL) News+’s subscription service to boost consumer-related revenues. Notably, consumer-related revenues accounted for nearly 50% of total National Media Group revenues in third-quarter fiscal 2019.

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