Meredith (MDP) Q4 Earnings Improve Y/Y, Revenues Decline

Meredith Corporation (NYSE:MDP) reported fourth-quarter fiscal 2019 results, wherein earnings improved but revenues declined from the year-ago period. Lower revenue at National Media Group hurt the top line. While digital advertising increased, print advertising fell year over year. Nonetheless, the company notified that National Media Group’s comparable advertising performance improved in every quarter of the fiscal year.

We also note that non-political spot advertising in Local Media Group grew marginally, while political spot advertising decreased sharply during the quarter under review. Moreover, the company’s fiscal 2020 bottom line projection portrays year-over-year decline. Also, management stated “we begin fiscal 2020 at a lower profit point than originally expected.”

These were enough to hurt investor sentiment, and as a result shares of this Zacks Rank #4 (Sell) company plunged 23.1% during the trading session on Sep 5. In the past three months, the stock has tumbled 35% compared with the industry’s decline of 12%.

Q4 Highlights

Meredith’s earnings from continuing operations before special items increased to 85 cents a share from 25 cents in the prior-year quarter. Notably, adjusted earnings came in at $1.79, up from $1.31 reported in the year-ago period.

Lower SG&A costs, fall in production, distribution, and editorial expenses and decline in depreciation and amortization provided support to the bottom line. Total revenues fell 1.6% to $785.6 million from $798.7 million recorded in the prior-year period.

The company’s advertising revenues declined 5.2% year over year to $400.8 million. Notably, consumer-related revenues improved 5.6% to $355.9 million, while other revenues plunged 25.5% to $28.9 million.

Adjusted EBITDA was $169.3 million, which improved 5.8% from $160 million in the prior-year period. Adjusted EBITDA margin expanded 160 basis points from the prior-year period to 21.6%.

Segment Details

Meredith’s National Media Group revenues fell 2.2% to $587.5 million from the year-ago period. While advertising revenues declined 3.5% year over year to $289.4 million, consumer-related revenues improved 3.1% to $271.5 million. Other revenues plummeted 28.7% to $26.6 million. The segment’s adjusted EBITDA totaled $114.8 million compared with $113.9 million in the prior-year quarter.

Comparable advertising revenue improved in the quarter under review that comprised double-digit increase in digital business and low-single digit growth in print advertising revenues at the legacy Time Inc. titles.

Looking ahead in fiscal 2020, management expects to return print advertising revenue to its historical levels, which indicates mid-single digit declines. The company envisions mid-single digit increase in digital advertising revenue but higher production and distribution expenses, including postal rates. Meredith expects lower contribution from consumer related revenues due to low-margin magazine subscriptions inside the legacy Time Inc. brands. Nonetheless, management stated that it will remain focused on making strategic investments to enhance digital advertising and consumer related activities.

Digital advertising is currently pacing up 10% range, while print advertising is pacing down in mid-single digit during the first quarter of fiscal 2020. Consequently, total comparable advertising is expected to be flat to up marginally in the first quarter.

Revenues at the company’s Local Media Group segment came in $198.6 million, almost flat with the prior-year quarterly figure of $198.9 million. We note that non-political spot advertising revenues grew 1.8% to $80.9. However, political spot advertising revenues fell to $300,000 from $10.3 million in the year-ago period. In fiscal 2020, Meredith will be cycling up against record political advertising revenues of $103 million generated in fiscal 2019.

While advertising revenues declined 9.5% year over year to $111.9 million, consumer-related revenues improved 14.5% to $84.4 million during the quarter under review. Other revenues soared 53.3% to $2.3 million. The segment’s adjusted EBITDA was $72.4 million, up from $68.5 million in the year-ago period.

Financial Update

The company ended the quarter with cash and cash equivalents of $45 million, long-term debt of $2,333.3 million, and total shareholders’ equity of $974.6 million. Management repaid debt of $825 million during fiscal 2019. The company in fiscal 2020 expects to generate about $75 million in proceeds from its remaining Assets Held for Sale. It plans to utilize this amount in lowering the debt level further.

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. The company still has $50 million remaining under its share repurchase plan as of as of Jun 30, 2019.

Outlook

Management anticipates total revenues of $3-$3.2 billion in fiscal 2020 compared with $3.19 billion generated in fiscal 2019. The company anticipates earnings from continuing operations, excluding special items, to be in the band of $2.58-$2.88 per share compared with $3.19 reported in the prior year. Adjusted EBITDA is expected to be between $640 million and $675 million, while adjusted earnings are projected to be in the range $5.75 to $6.20. The company reported adjusted earnings per share of $7.24 in fiscal 2019.

Meredith now expects fiscal 2020 Local Media Group EBITDA to be approximately $60-$75 million lower than the $318.2 million delivered in fiscal 2019, while National Media Group EBITDA is projected to $10-$30 million higher than $456 million delivered in the prior fiscal year.

For the first quarter of fiscal 2020, revenues for the National Media Group are expected to be in the range of $535-$565 million, while revenues for the Local Media Group are estimated to be $195-$200 million. Meredith had generated revenues of $542.9 million and $214.4 million from National Media Group and Local Media Group, respectively, during the first quarter of fiscal 2019.

The company expects earnings from continuing operations, excluding special items, to be in the range of 1-5 cents a share. Adjusted EBITDA is projected to be between $122 million and $127 million, while adjusted earnings are expected to be in the band of 88-93 cents a share.

Other Developments

Meredith is on track to realize an additional $135 million in cost synergies, which would result in total cost synergies of $565 million by the end of fiscal 2020. Through the end of fiscal 2019, the company had realized $430 million of cost synergies. The company’s television station group registered an all-time high of $103 million of political advertising revenues and recorded double-digit growth in retransmission revenue.

Additionally, the company is working to grow high-margin consumer-related revenues by expanding brands. It is the leading participant in Apple (NASDAQ:AAPL) News+’s subscription service. Notably, consumer-related revenues accounted for more than 45% of total National Media Group revenues in fiscal 2019.

Meredith realized about $430 million proceeds from the sale of non-core assets in fiscal 2019. The company offloaded Sports Illustrated, TIME and FORTUNE media brands. The company is looking to sell its interest in Viant and Xumo.

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