NY Times (NYT) Misses On Q2 Earnings, Ad Revenues Decline

After seven straight quarters of earnings beat, The New York Times Company (NYSE:NYT) succumbed to a negative earnings surprise in the second quarter of 2016. The company posted adjusted earnings from continuing operations of 11 cents a share that missed the Zacks Consensus Estimate by a penny and also declined 15.4% from the year-ago quarter.

In the reported quarter, The New York Times Company, which carries a Zacks Rank #2 (Buy), registered an increase in the number of digital subscribers and a rise in circulation revenue. The quarter also witnessed a decline in print and digital advertising revenues. Adjusted operating costs remained almost flat at $318.2 million during the quarter under review. Management now anticipates adjusted operating costs to increase in the low to mid-single digits in the third quarter of 2016.

The New York Times Company’s total revenue of $372.6 million fell short of the Zacks Consensus Estimate of $376 million, and decreased 2.7% year over year.

Circulation revenue grew 3% to $219.5 million, primarily backed by the company’s digital subscription initiatives and a rise in the home delivery price of The New York Times in 2016. Circulation revenue from digital-only subscription jumped 15.3% to $56.4 million. Circulation revenue from digital-only subscriptions to news products rose 14% to $54.1 million. Management now projects total circulation revenue in the third quarter of 2016 to increase at a rate in line with the second quarter.

Total advertising revenue came in at $131.2 million in the reported quarter, down 11.7% year over year. We observe that the rate of decline increased from 6.8% witnessed in the preceding quarter. Print advertising revenue fell 14.1% in the second quarter of 2016, following a decline of 9% in the previous quarter.

Digital advertising revenue tumbled 6.8% to $45 million, after witnessing a decrease of 1.3% in the previous quarter. The fall in the digital advertising was due to a decline in traditional website display advertising, partly offset by sturdy growth experienced across mobile, video and virtual reality, branded content and programmatic advertising. Nevertheless, management projects solid revenue growth from both digital advertising and digital consumer business in the third quarter.

The company saw a 14.1% drop in the display advertising category and a 6.1% fall in the classified advertising category. The diversified media conglomerate hinted that total advertising revenue in the third quarter may decline in the mid-single digits compared with the prior-year period.

Total adjusted operating profit plunged 15.4% to $54.5 million on account of a fall in advertising revenue, partly offset by a rise in circulation revenue.

Other Financial Aspects

The New York Times Company ended the quarter with cash and marketable securities of about $915.4 million, and total debt and capital lease obligations of approximately $433.7 million. The company incurred capital expenditures of about $5 million during the quarter. Management foresees total capital expenditures in the band of $35 million to $40 million for 2016.

Conclusion

Advertising, which remains a significant source of revenue, is largely dependent on the global financial health. Softness in advertising demand has been weighing on The New York Times Company’s performance. Consequently, the company is trying every means to shield itself from the impact of an unstable market and contemplating on new avenues of revenue generation. The company had offloaded assets that bear no direct relation to its core operations in order to re-focus on its core newspapers and pay more attention to online activities.

The New York Times Company has been adding diverse revenue streams, such as a pay-and-read model, to stay less vulnerable to economic conditions. The company is also adapting to the changing face of the multiplatform media universe, and has already included mobile and reader application products in its portfolio. Other publishing companies such as New Media Investment Group Inc. (NYSE:NEWM) , Gannett Co., Inc. (NYSE:GCI) and The McClatchy Company (NYSE:MNI) are also trying to adapt to different revenue generating ways.

Despite hiccups in the economy, what still promises revenue generation is The New York Times Company’s pricing system for NYTimes.com, which was launched on Mar 28, 2011. The company notified that the number of paid digital subscribers reached 1,424,000 at the end of the reported quarter – rising 67,000 sequentially (51,000 came from the digital news products and 16,000 from the Crossword product) and 25% year over year.

The New York Times Company remains committed to streamline its cost structure, strengthen its balance sheet, and rebalance its portfolio.