Washington Post Earnings Surge

The Washington Post Company (WPO) recently posted second-quarter 2010 results. The quarterly earnings of $11.69 per share showed a substantial increase from $6.67 delivered in the prior-year quarter on the heels of strong performance in the Education and Television Broadcasting divisions, despite registering operating losses from Newspaper division.

On a reported basis, including one-time items, quarterly earnings came in at $10.00 per share, reflecting a sharp rise from $1.30 posted in the year-ago quarter.

Revenues for the quarter rose by 11% year-on-year to $1,201.8 million, driven by revenue growth at the Education, Television Broadcasting, Cable Television and Newspaper divisions.

Education division delivered strong performance — revenue was up 15% to $747.3 million, which we think will continue in fiscal 2010. Total Kaplan Higher Education enrollments surged 18% to 112,221 in the first half of 2010. Operating income for the division rocketed 88% to $109 million.

Television Broadcasting revenue soared 24% to $82.6 million during the quarter, whereas operating income rose more than two-fold to $29.8 million, reflecting improvement in advertising demand in all of the markets and majority product categories, primarily automotive. Political advertising revenue grew $3.3 million during the quarter.

Cable division revenue was up 2% to $190.6 million, driven by sustained growth in cable modem and telephone revenue and rate increase in June 2009. The division’s operating income jumped 10% to $43.8 million.

Newspaper Publishing revenue rose by 2% to $172.7 million. Print advertising revenue at The Washington Post dropped 6% to $75.2 million due to the fall in retail and classified advertising. Revenue from newspaper online publishing activities, principally washingtonpost.com and Slate, increased 14% to $26.9 million, whereas display online advertising revenue soared 20%. However, online classified advertising revenue on washingtonpost.com climbed 5%.

Due to the increase in revenue, the Newspaper division was able to narrow its operating losses, which stood at $14.3 million, reflecting a sharp improvement from a loss of $89.3 million witnessed in the prior-year quarter.

The Washington Post recently sold its struggling Newsweek magazine to Dr. Sidney Harman, who pioneered audio equipment maker company Harman International Industries Inc., and announced the discontinuation of its magazine publishing operations.

Founded in 1933 and acquired by The Washington Post Company in 1961, Newsweek magazine, like other print publications, has long been grappling with shrinking advertising revenues. The recent global economic meltdown had brought the situation to a head. This comes in the wake of a longer-term secular decline as more readers choose to get news free online, thereby making the print-advertising model increasingly redundant.

Despite a moderate recovery in the print advertising environment, Newsweek continues to struggle. Advertising revenues at the magazine dropped 38% in first-quarter 2010 due to fewer ad pages in the domestic and international editions. In fiscal 2009, Newsweek advertising revenues fell 37%, following a 14% decline in 2008.

Last December, McGraw-Hill Companies (MHP) sold its struggling BusinessWeek magazine to Bloomberg, the leading financial data, news and analytics provider, for similar reasons.

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