Newspaper & Mailroom

The New York Times Company Reports 2011 First-Quarter Results

Thursday 21. April 2011 - The New York Times Company (NYSE: NYT) announced today 2011 first-quarter diluted earnings per share of $.04 per share compared with $.08 in the same period of 2010. Excluding severance and the special items discussed below, diluted earnings per share were $.02 per share in the first quarter of 2011 compared with $.11 in the first quarter of 2010.

Operating profit was $31.1 million in the first quarter of 2011 compared with $52.7 million in the same period of 2010. Excluding depreciation, amortization and severance, operating profit was $60.5 million in the first quarter of 2011 compared with $83.3 million in the first quarter of 2010.
“Our operating performance reflects the continuing transformation of our Company, which intersected with an important milestone in the first quarter,” said Janet L. Robinson, president and chief executive officer, The New York Times Company. “While the challenges for our Company and for the larger economy are not yet behind us, the recent launch of Times digital subscription packages on NYTimes.com and across other digital platforms brings our plan for a new revenue stream to life, offering us another reason for optimism about the future of our Company.”
“In mid-March, we introduced Times digital subscription packages in Canada and globally at the beginning of the second quarter, and we are pleased with the number of subscribers we have acquired to date, as initial volume has meaningfully exceeded our expectations.
“The advertising marketplace faced increased pressure in the first quarter reflecting the uneven economic environment, recent global events and secular forces. Although digital advertising grew 4.5 percent, it could not fully offset the 7.5 percent decline in print advertising revenues in the quarter.
“Our digital initiatives have increasingly contributed to our revenue mix providing meaningful diversification of our businesses across proliferating platforms. Accordingly, advertising revenues from our digital products made up 28 percent of the Company’s total advertising revenues in the first quarter.
“We continued to manage our liquidity position and finished the first quarter with $352 million in cash and short-term investments even after making pension contributions of about $54 million.”
Comparisons
Unless otherwise noted all comparisons are for the first quarter of 2011 to the first quarter of 2010. This release includes non-GAAP financial measures, a discussion of management’s reasons for the presentation of these non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures.
The first-quarter 2011 results included the following special item:
A $5.9 million ($3.4 million after tax or $.02 per share) gain from the sale of a portion of the Company’s interest in Indeed.com, a job listing aggregator.
The first-quarter 2010 results included the following special items:
A $12.7 million pre-tax gain, included within income from joint ventures, from the sale of an asset at one of the paper mills in which the Company has an investment. The Company’s share of the pre-tax gain, after eliminating the noncontrolling interest portion, is $10.2 million ($6.4 million after tax or $.04 per share).
A $10.9 million ($.07 per share) tax charge for the reduction in future tax benefits for retiree health benefits resulting from the federal health care reform legislation enacted in March 2010.
In addition to these special items, the Company had $0.8 million in severance costs in the first quarter of 2011 compared with $0.2 million in the first quarter of 2010.
First-Quarter Results
Revenues
Total revenues decreased 3.6 percent to $566.5 million from $587.9 million. Advertising revenues declined 4.4 percent, circulation revenues declined 3.7 percent and other revenues increased 3.2 percent.
The increase in digital advertising revenues, which rose 4.5 percent, partially offset a 7.5 percent decrease in print advertising revenues. Circulation revenues were lower due to a decline in copies sold across the News Media Group.
Operating Costs
Operating costs remained flat in the first quarter of 2011 compared with the first quarter of 2010 and were $535.4 million and $535.2 million, respectively. Depreciation and amortization decreased 5.7 percent to $28.6 million from $30.4 million.
Excluding depreciation, amortization and severance, operating costs increased 0.3 percent to $506.0 million from $504.6 million. This was primarily due to higher promotion and newsprint expense, partially offset by decreases in various other costs. Higher promotion costs resulted from the timing of print circulation spending at The New York Times.
Newsprint expense increased 12.7 percent, with 15.7 percent from higher pricing offset in part by 3.0 percent from lower consumption.
First-Quarter Business Segment Results
News Media Group
Total News Media Group revenues decreased 3.2 percent to $535.4 million from $553.2 million. Advertising revenues declined 3.7 percent, circulation revenues declined 3.7 percent, and other revenues increased 3.8 percent.
The increase in digital advertising revenues, which rose 14.9 percent, partially offset a 7.5 percent decrease in print advertising revenues. Circulation revenues were lower due to a decline in copies sold across the News Media Group.
News Media Group operating costs remained flat in the first quarter of 2011 compared with the first quarter of 2010 and were $504.7 million in both periods. Excluding depreciation, amortization and severance, operating costs increased 0.2 percent to $478.0 million from $477.0 million as increases in promotion and newsprint costs were partially offset by decreases in various other costs.
Operating profit for the News Media Group decreased 36.7 percent to $30.7 million from $48.5 million. Excluding depreciation, amortization and severance, operating profit decreased 24.7 percent to $57.3 million from $76.2 million, mainly due to lower advertising and circulation revenues.
About Group
About Group revenues decreased 10.2 percent to $31.1 million from $34.7 million mainly due to lower cost-per-click advertising as a result of lower click-through rates and softness in page views.
Design changes in cost-per-click advertisements served by Google had a negative effect on click-through rates in the quarter, and the Company expects that to be the case through the second quarter of 2011. The About Group also experienced a moderately negative impact on page views from the algorithm changes Google implemented in the quarter.
About Group operating costs decreased 7.0 percent to $16.9 million from $18.1 million. Excluding depreciation, amortization and severance, operating costs decreased 7.3 percent to $14.1 million from $15.2 million primarily due to the gain from the sale of UCompareHealthCare.com in February 2011.
Operating profit decreased 13.9 percent to $14.3 million from $16.6 million. Excluding depreciation, amortization and severance, operating profit decreased 12.6 percent to $17.0 million from $19.5 million, due to lower advertising revenues.
Corporate
Corporate operating costs increased 12.0 percent to $13.9 million from $12.4 million primarily due to higher compensation costs.
Other Financial Data
Digital Revenues
Digital businesses include NYTimes.com, About.com, Boston.com, other Company Web sites and related digital products. In the first quarter, total digital revenues increased 6.1 percent to $95.9 million from $90.4 million, and digital advertising revenues increased 4.5 percent to $83.6 million from $80.0 million. Digital advertising revenues at the News Media Group increased 14.9 percent to $53.9 million from $46.9 million mainly due to strong growth in national display advertising.
In total, digital businesses accounted for 16.9 percent of the Company’s total revenues for the first quarter of 2011 versus 15.4 percent for the first quarter of 2010. Digital advertising revenues as a percentage of total Company advertising revenues were 28.0 percent for the first quarter of 2011 compared with 25.6 percent in the first quarter of 2010.
Joint Ventures
The Company had a loss from joint ventures of $5.7 million in the first quarter of 2011. Joint venture results in the quarter were negatively impacted by Fenway Sports Group’s acquisition of Liverpool Football Club, mainly due to the amortization expense associated with the purchase. Income from joint ventures was $9.1 million in the first quarter of 2010, which included a $12.7 million gain from the sale of an asset at one of the paper mills in which the Company has an investment.
Interest Expense-net
Interest expense, net increased to $24.6 million from $20.6 million as a result of higher average debt outstanding.
Income Taxes
The Company had an effective income tax rate of 21.2 percent in the first quarter of 2011. The tax rate for the quarter was impacted by an adjustment to reduce the Company’s reserve for uncertain tax positions.
The Company had an effective income tax rate of 65.6 percent in the first quarter of 2010. The tax rate for the quarter was impacted by a $10.9 million tax charge for the reduction in future tax benefits for retiree health benefits resulting from the federal health care reform legislation enacted in March 2010. Excluding the charge, the Company’s effective income tax rate was 39.3 percent in the first quarter of 2010.
Liquidity
The following table details the maturities and carrying values of the Company’s debt and capital lease obligations as of March 27, 2011. Net debt represents debt and capital lease obligations, net of cash and short-term investments.
(in thousands)
2012
4.61% medium-term notes
$ 75,000
2015
5.0% senior notes and 14.053% senior notes
500,000
2016
6.625% senior notes
225,000
2019
Option to repurchase ownership interest in headquarters building
250,000
Total $ 1,050,000
Less: Unamortized amounts (58,180 )
Carrying value of debt $ 991,820
Capital lease obligations 6,719
Total debt and capital lease obligations $ 998,539
Less: Cash and short-term investments (352,271 )
Net debt $ 646,268
The Company believes net debt provides a useful measure of the Company’s liquidity and overall debt position.
As of the end of the first quarter of 2011, excluding letters of credit, there were no outstanding borrowings under the Company’s $400.0 million revolving credit facility.
Capital Expenditures
Capital expenditures totaled approximately $10 million in the first quarter of 2011.
Pension Contributions
The Company made contributions of approximately $54 million in the first quarter of 2011 to certain qualified pension plans. The majority of these contributions were discretionary.
Outlook
In March 2011 total advertising revenues further softened partly in response to the uneven economic climate. In the first half of April, the Company saw total advertising trends improve relative to those in March, with declines at approximately the same level as in the first quarter.
Digital subscription packages on NYTimes.com and across other digital platforms have been well received, and approximately three weeks after the global launch, paid digital subscribers have surpassed 100,000. So soon after the launch, the Company does not yet have visibility into conversion and retention rates for these paying customers after the initial promotional period, although early indicators are encouraging.
The Company remains committed to aggressively managing operating expenses despite higher newsprint prices and pension expense. Given current industry forecasts in 2011, newsprint prices are expected to increase during the second half of the year. Newsprint prices will be higher in the second quarter of 2011 as a result of prices rising steadily during the same period in 2010. The Company expects operating costs to increase modestly in the second quarter.
The Company expects the results from joint ventures for the remainder of 2011 to be negatively impacted by Fenway Sports Group’s acquisition of Liverpool Football Club, mainly due to the amortization expense associated with the purchase.
In addition, the Company expects the following on a pre-tax basis in 2011:
Depreciation and amortization: $118 to $123 million,
Interest expense, net: $100 to $105 million, and
Capital expenditures: $45 to $55 million, which includes investments in digital systems across the Company.