Business News

Meredith Reports Fiscal 2014 Second Quarter And First Half Results

Friday 31. January 2014 - Local Media Group Delivers Record Financial Performance for a Non-Political Fiscal Second Quarter

Company Expands Television Portfolio Through Agreements to Add Stations in Phoenix and St. Louis
Meredith Corporation (NYSE:MDP; www.meredith.com) today reported fiscal 2014 second quarter earnings per share of $0.67, which includes $1.6 million, or $0.02 per share, of transaction expenses related to previously announced agreements to purchase broadcast assets. Prior-year second quarter earnings per share were $0.79, or $0.89 excluding special items (See Table 1). Meredith recorded $25 million, or $0.34 per share, less of political advertising revenues in the second quarter of fiscal 2014 than in the prior-year period, as expected in an off-election year. Total revenues were $354 million, compared to $361 million.
“We continued our strong performance into the second quarter of fiscal 2014,” said Meredith Chairman and Chief Executive Officer Stephen M. Lacy. “Our National Media Group delivered revenue and profit growth in the quarter, while our Local Media Group achieved record revenue and profit performance for a non-political fiscal second quarter and first half.
“Importantly, we continue to execute strategic initiatives to deliver increased cash flow and returns to our shareholders over time, most recently through the announced acquisition of great television assets in attractive markets,” Lacy continued.
On December 23, 2013, Meredith announced agreements to purchase the broadcast assets of KTVK and KASW in Phoenix, and KMOV in St. Louis. Meredith anticipates the transactions will close in the second half of fiscal 2014. In the first full year post closing, these stations are expected to generate combined revenues of $105 to $115 million, and be accretive to run-rate earnings per share by $0.16 to $0.18.
Lacy noted the following fiscal 2014 second quarter financial highlights compared to the prior-year period:
— Local Media Group non-political revenues increased over 20 percent, led
by growth in non-political advertising and retransmission revenues.
Non-political advertising revenues increased 10 percent, driven by
strong performances from Meredith television stations in Phoenix, Kansas
City and Las Vegas.
— National Media Group revenues grew slightly. Operating profit grew more
than 25 percent, and was up 1 percent excluding special items in the
prior-year period. Performance was driven by Meredith’s parenthood and
food brands, including Parents, FamilyFun and Allrecipes.
— Meredith’s brand licensing revenues increased more than 30 percent, due
primarily to continued strong sales of over 3,000 SKU’s of Better Homes
and Gardens’ licensed products at more than 4,000 Walmart stores
nationwide.
— Meredith Xcelerated Marketing grew revenues, and operating profit
increased more than 35 percent, driven by new and expanded programs,
including those with Kia Motors, Mercer, Chrysler and Maserati.
Fiscal 2014 first half earnings per share were $1.20, which included the $0.02 per share of transaction expenses. In comparison, prior-year earnings per share were $1.34, or $1.44 excluding special items. Meredith recorded $37 million, or $0.50 per share, less of political advertising revenues in the first half of fiscal 2014 than in the prior-year period, as expected in an off-election year. Total revenues were $711 million, compared to $715 million.
OPERATING GROUP DETAIL
NATIONAL MEDIA GROUP
Meredith’s National Media Group includes leading national consumer media brands delivered over multiple platforms, offering clients access to 100 million unduplicated American women every month – a reach unmatched in the industry. It also features robust brand licensing activities and innovative business-to-business marketing services.
Fiscal 2014 second quarter National Media Group operating profit grew 27 percent to $28 million, compared to the prior-year period. Excluding special items in the prior-year period, operating profit rose 1 percent. Revenues increased slightly to $250 million.
Fiscal 2014 first half National Media Group operating profit grew 9 percent to $56 million, compared to the prior-year period. Excluding special items in the prior-year period, operating profit declined 2 percent. Revenues increased slightly to $517 million.
Looking more closely at advertising performance in first half fiscal 2014 compared to the prior-year period:
— Total advertising revenue performance improved markedly, declining 2
percent year-over-year, compared to down 9 percent in the prior-year
first half (see Table 4).
— Digital advertising revenues increased 6 percent, and accounted for 18
percent of total National Media Group advertising revenues.
— The household supplies, non-prescription drug, and direct response
categories were stronger.
— Meredith’s share of the overall magazine industry advertising revenues
was even at 11 percent, according to the most recent data from
Publishers Information Bureau, and its share of its competitive set grew
one share point to 39 percent.
— The Meredith Sales Guarantee, which demonstrates quantitatively that
advertising in Meredith magazines increases retail sales for clients,
continued to expand – with more than twice the number of participating
brands than in the prior-year period.
Circulation revenues grew slightly to $143 million in the first half of fiscal 2014, due primarily to strong performance from Meredith’s parenthood brands. Meredith launched Allrecipes magazine, the media industry’s first major print extension of a digital brand, during the first half of fiscal 2014. Advertising and consumer interest has been enthusiastic and Media Industry Newsletter named it Magazine Launch of the Year.
Digital traffic averaged a record 58 million unique visitors in the first half of fiscal 2014, led by growth from Allrecipes.com, as well as the Better Homes and Gardens and Parents networks. In addition, Meredith generated 2.5 million digital orders for print magazine subscriptions during the first half of fiscal 2014, an increase of 15 percent over the prior year.
Other revenues rose 3 percent to $125 million in the first half of fiscal 2014, compared to the prior-year period, driven by growth in brand licensing revenues. Operating profit grew for both brand licensing and Meredith Xcelerated Marketing in the first half of fiscal 2014, compared to the prior-year period.
“We continue to enhance the vibrancy of our brands across platforms for consumers and advertisers alike,” said National Media Group President Tom Harty. “Our launch of Allrecipes magazine is a great example, as is the strong growth delivered by our brand licensing activities. Also, we’re pleased that Meredith Xcelerated Marketing grew revenues, and increased operating profit more than 35 percent in the second quarter.”
LOCAL MEDIA GROUP
Meredith’s Local Media Group consists of leading television stations, many in fast-growing markets, and a video content creation unit that produces national broadcast and custom programming.
Fiscal 2014 second quarter Local Media Group operating profit was $35 million, compared to $45 million in the prior-year period. Fiscal 2014 second quarter operating profit included $1.6 million of transaction expenses. EBITDA margin was 40 percent. Revenues were $104 million, compared to $111 million in the prior-year period. Meredith recorded $25 million less of political advertising revenues in the second quarter of fiscal 2014 than in the prior-year period, as expected in an off-election year.
Fiscal 2014 first half Local Media Group operating profit was $61 million, compared to $72 million in the prior-year period. Fiscal 2014 first half operating profit included the above-mentioned $1.6 million of transaction expenses. EBITDA margin was 38 percent. Revenues were $194 million, compared to $198 million in the prior-year period, as growth in retransmission revenues and non-political advertising revenues nearly offset the expected cyclical decline in political advertising revenues. Meredith recorded $37 million less of political advertising revenues in the first half of fiscal 2014 than in the prior-year period.
Looking more closely at performance in the first half of fiscal 2014, compared to the prior-year period:
— Non-political advertising revenues grew 7 percent to $143 million. The
automotive, professional services and retail categories were stronger.
— Digital advertising revenues grew 12 percent, driven by increased
traffic across the desktop and video platforms, along with the launch of
new mobile apps.
— Other revenues and operating expenses both increased, due primarily to
growth in retransmission revenues from subscription television
operators, and programming fees paid to affiliated networks.
Meredith’s connection with viewers also strengthened in the first half of fiscal 2014. Meredith’s stations in Hartford, Las Vegas and Portland led their markets in news in the November ratings period, and Hartford, Kansas City and Saginaw were also No. 1 in sign-on to sign-off.
The Better Show, the daily syndicated program produced by Meredith Video Studios, began its seventh season in syndication and is currently available in 160 markets across the United States. In addition, The Better Show began airing to 90 million homes on the Hallmark Channel during the first half of fiscal 2014.
“We were pleased to generate record non-political performance in the first half of fiscal 2014,” said Local Media Group President Paul Karpowicz. “We continue to consistently deliver great programming for our viewers and outstanding results at retail for our advertising clients.”
On December 23, 2013, Meredith announced an expansion of its television portfolio by entering into definitive agreements to purchase the broadcast assets of television stations in Phoenix and in St. Louis. Included in the transactions are:
— KTVK, an independent station in Phoenix, the nation’s 12(th) largest
television market;
— KASW, the CW affiliate in Phoenix; and
— KMOV, the CBS affiliate in St. Louis, the nation’s 21(st) largest
television market.
“These stations are terrific additions to our group,” Karpowicz said. “The markets are growing and they are located in states with significant political advertising.”
OTHER FINANCIAL INFORMATION
Consistent with Meredith’s Total Shareholder Return strategy, Meredith repurchased more than 1.2 million shares of its stock in the first half of fiscal 2014. At December 31, 2013, $22 million remained under the current repurchase authorization. Key elements of Meredith’s TSR strategy are (1) An annual dividend of $1.63 per share, which reflects a 60 percent increase in the annual dividend over the last two years; (2) A $100 million share repurchase program; and (3) Ongoing investments to scale the business and increase shareholder value.
Total debt was $340 million at December 31, 2013, and the weighted average interest rate was 2.9 percent. Meredith’s debt-to-EBITDA ratio for the 12 months ended December 31, 2013, was 1.3 to 1.
All earnings per share figures in the text of this release are diluted. Both basic and diluted earnings per share can be found in the attached Condensed Consolidated Statements of Earnings. All fiscal 2014 second quarter and first half comparisons are against the prior-year periods.
OUTLOOK
Looking to the remainder of fiscal 2014, with limited visibility into customers’ calendar 2014 advertising and marketing budgets, Meredith continues to expect fiscal 2014 full year earnings per share to range from $2.60 to $2.95, excluding operating results and transaction expenses related to the acquisitions of television stations in Phoenix and St. Louis.
Looking more closely at the third quarter of fiscal 2014 compared to the year-ago period, with significant month-to-month volatility and excluding operating results and transaction expenses related to the acquisitions of television stations in Phoenix and St. Louis:
— Total company revenues are expected to be flat to down slightly.
— Total Local Media Group revenues are expected to be up mid to high
single digits.
— Total National Media Group revenues are expected to be down low single
digits.
— Meredith expects fiscal 2014 third quarter earnings per share to range
from $0.63 to $0.68.