Weak Ad Sales Dent The New York Times Co. Earnings

Image source: The New York Times.

The New York Times Company (NYT -0.18%) reported second-quarter results on July 28. The venerable newspaper continues to add digital subscribers, but lower advertising sales remain a challenge.

The New York Times Company results: The raw numbers

Data source: The New York Times Company Q2 2016 earnings press release.

What happened with The New York Times Company this quarter?

Total revenue fell 2.7% year over year to $373 million, as an 11.7% decline in advertising revenue negated a 3% rise in circulation revenue. Circulation revenue grew as digital subscription sales and a price increase for home delivery of The New York Times more than offset a decline in the number of print copies sold.

The Times added 67,000 paid subscribers to its digital-only subscription products in the second quarter. Digital-only subscribers totaled 1,424,000 at the end of Q2 -- a 25% increase from the prior-year period. That helped to drive a 15.3% year-over-year rise in circulation revenue from digital-only subscription products to $56.4 million.

"We once again saw a robust quarter in terms of digital subscriber growth, with 51,000 net paid digital-only subscriptions to our news products added in Q2 and growth of 22 percent year-over-year," said CEO Mark Thompson in a press release. "Much of our success in building our digital pay model is the result of a renewed effort to clearly communicate the value of Times journalism and our products through mission-related, native messaging to an expanding number of highly engaged readers."

Still, declining advertising sales remain a challenge for the company. Second-quarter print advertising revenue fell 14.1% to $86 million. Digital advertising revenue also weakened, declining 6.8% to $45 million.

"Advertising was tougher in the quarter, particularly on the print side," said Thompson:

In digital, we saw very strong growth in mobile, video and virtual reality, branded content and programmatic advertising. These were not enough to offset declines in traditional web display in Q2, which led to an overall decline in digital advertising. However, we expect that situation to improve in the second half of the year; in fact, we are already seeing a marked turnaround in July.

Operating costs fell 1% to $340 million, mostly due to lower non-operating retirement costs. On an adjusted basis, operating costs were relatively flat year over year at $318 million, as lower print production and distribution costs were offset by higher costs in advertising and technology.

All told, operating profit -- adjusted to exclude depreciation, amortization, severance and retirement costs, and other special items -- fell 15% to $54.5 million. And adjusted EPS from continuing operations declined 15% to $0.11.

Looking forward

The New York Times expects third-quarter total circulation revenues to increase at a rate similar to that of the second quarter. The company also estimates that total advertising revenues will decrease "in the mid-single digits" compared with the third quarter of 2015.

Additionally, operating costs are projected to increase in the mid-single digits on a year-over-year basis as the company works to further reduce its cost structure while continuing to invest in its digital growth initiatives. 

"We expect to deliver strong revenue growth from both digital advertising and our digital consumer business in Q3," added Thompson. "And finally, in the quarter, we have undertaken a variety of steps to keep our cost base in line and will continue to maintain a mindful eye in this respect."