Earnings Preview: New York Times

The New York Times Company (NYT), a diversified media conglomerate, is scheduled to report its third-quarter 2010 financial results before the bell on Tuesday, October 19, 2010. The current Zacks Consensus Estimate for the quarter is 5 cents a share.

Second-Quarter 2010, a Synopsis

The New York Times Company posted better-than-expected second-quarter 2010 results that topped the Zacks’ expectations. The quarterly earnings of 18 cents a share surpassed the Zacks Consensus Estimate of 14 cents, and rose more than twofold from 8 cents in the prior-year quarter.

On a reported basis, including one-time items, quarterly earnings came in at 21 cents, down 22.2% from 27 cents posted in the year-ago quarter.

The publisher of the New York Times and the Boston Globe witnessed positive momentum in the top-line during the quarter. After plunging 3.2% in first-quarter 2010, total revenue climbed 1.2% to $589.6 million compared with the prior-year quarter and clearly outpaced the Zacks Consensus Revenue Estimate of $581 million.

Total advertising revenue slid marginally by 0.2% to $314.9 million, as against the fall of 6.1% in first-quarter 2010. Circulation revenue rose 3.2% to $234.8 million due to higher subscription and newsstand prices.

Third-Quarter 2010 Consensus

Analysts expect The New York Times Company to post third-quarter 2010 earnings of 5 cents a share. The current Zacks Consensus Estimate represents a year-over-year decline of 68.8%. In the last 7 days, only 1 out of 3 analysts covering the stock revised his estimate upwards, which led to an increase of one cent in the Estimate.

With respect to earnings surprises, The New York Times Company has met as well as topped the Zacks Consensus Estimate over the last four quarters in the range of 0.0% to 700%. The average remained at 245.3%. This suggests that The New York Times Company has outperformed the Zacks Consensus Estimate by an average of 245.3% in the last four quarters.

New York Times in Neutral Lane

The ongoing slump in the advertising market continues to weigh upon The New York Times Company. The company now expects third-quarter 2010 total revenue to decline by 2% to 3%, after registering a growth of 1.2% in the previous quarter, stemming from the uncertainty among advertisers weighed down by the sluggish economic recovery.

The company is witnessing a fall in print advertising and circulation revenues, as well as a slowing growth in digital advertising. The company now expects print advertising revenue to drop by 5% in third-quarter 2010 versus a decline of 6% in the previous quarter. Circulation revenue is expected to fall by 5% compared with a growth of 3.2% in second-quarter 2010.

The New York Times indicated a decelerating growth in digital advertising revenue to 14% in the quarter under review from a growth of 21% in second-quarter 2010.

We observe that the company faces a significant risk of high dependence on advertising revenues, which are driven by the health of the economy. To mitigate this, The New York Times 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 (in 2011).

The company is also adapting to the dynamics of the multiplatform media universe, which currently includes mobile, social media networks and reader application products.

Given the pros and cons we prefer to be Neutral on the stock with a target price of $8.25. However, The New York Times Company holds a Zacks #4 Rank, which translates into a short-term Sell recommendation, reflecting the company’s disappointing third-quarter 2010 outlook.

NY TIMES A (NYT): Free Stock Analysis Report

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