Earnings Preview: New York Times (NYT)

The New York Times Company (NYT), a diversified media conglomerate that comprises newspapers and Internet businesses, is scheduled to report its second quarter 2010 financial results on Thursday, July 22, 2010.

First Quarter 2010, a Synopsis

The New York Times Company had posted better-than-expected first quarter 2010 results that topped the Zacks Estimate on the heels of significant cost-cutting measures, newspaper price increase and improving trends in the advertising environment.

The quarterly earnings of 11 cents per share rose substantially from a loss of 34 cents delivered in the prior-year quarter. On a reported basis, including one-time items, quarterly earnings came in at 8 cents per share compared with a loss of 52 cents posted in the year-ago quarter. The Zacks Consensus Estimate for the quarter was 4 cents.

The rate of fall in the top line decelerated during the quarter. After plunging 11.5% in fourth quarter 2009, the rate of decline in total revenue shrunk to 3.2% year over year to $587.9 million. Total advertising revenue dropped 6.1% to $312.7 million, as against a fall of 14.7% in fourth quarter 2009. The murmurs about advertisers returning to the market are gaining ground.

Second Quarter 2010 Consensus

Analysts, surveyed by Zacks, expect The New York Times Company to deliver second quarter 2010 earnings of 14 cents per share compared with a penny posted by the company in the year-ago quarter. Out of the 2 analysts covering the stock, none has revised the estimates in the last 30 days; the consensus, therefore, remained unchanged.

With respect to earnings surprises, The New York Times Company has topped the Zacks Consensus Estimate in the last four quarters by an average of 133.3%.

New York Times in Neutral Lane

With the improvement in the economic environment, murmurs about advertisers returning to the market are gaining foothold. The New York Times Company hinted that positive trends are being witnessed in both print and digital advertising with the advertisers spend gaining pace. Consequently, the rate of fall in advertising revenues is decelerating.

However, the significant potential risk is the company’s high dependence on advertising revenues, which is driven by the health of the economy. To mitigate this, the company is transmuting its business model by adding diverse revenue streams, which include a circulation pricing model, and a pay-and-read model for NYTimes.com, to make it less susceptible to the economic conditions.

Moreover, the company is also committed to streamlining its cost structure, strengthening its balance sheet, and rebalancing its portfolio.

Currently, we prefer to be Neutral on The New York Times Company. Moreover, our Zacks #3 Rank, which translates into a short-term ‘Hold’ rating, correlates with our long-term recommendation.

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