The New York Times Company's (NYT +0.51%) fourth-quarter 2017 earnings report, released on Feb. 8, reflected prominent yearlong trends as well as several one-time charges related to subsidiary investment, tax, and post-retirement matters. We'll cover the essential items investors need to know after a review of summary earnings numbers below.
The New York Times earnings: The raw numbers
| Metric | Q4 2017 | Q4 2016 | Year-Over-Year Growth |
|---|---|---|---|
| Revenue | $484.1 million | $439.7 million | 10.1% |
| Net income | ($56.8 million) | $37.1 million | N/A* |
| Diluted earnings per share | ($0.35) | $0.23 | N/A |
Data source: The New York Times Company. *Difference too great for meaningful year-over-year comparison.
What happened with The New York Times this quarter?
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Due to the company's fiscal year structure, the fourth quarter contained 13 weeks versus 12 in the comparable prior-year quarter. All items comparing results to the prior year reflect an adjusted 12-week period, as provided by the Times.
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Total subscription revenue increased 11% to $250.9 million, while advertising revenue declined nearly 7% to $172.8 million, as the trajectories of the company's two primary top-line drivers remained unchanged.
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The slide in advertising was primarily due to a 12.3% drop in print advertising revenue, offset very slightly by an increase of 1.3% in digital advertising.
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"Other" revenue rose 10% to $28.7 million, which management attributed to continuing momentum in the newspaper's product review site, Wirecutter.
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Digital-only subscription revenue improved 40.1% to $89.2 million. During the quarter, the Times brought on board 157,000 new digital-only subscriptions. This number is comprised of 99,000 digital news product "subs," with the balance to the company's digital crossword service and its recently introduced digital cooking content service.
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While they're still a fragment of the company's total top line at roughly 4% of overall revenue, crosswords, cooking, and related services make up the Times' fastest-growing revenue stream. Sales expanded by nearly 54% year over year, and subscriptions for these products jumped 67%, compared to a 12-month subscription growth rate of 38% for digital news products.
- The New York Times incurred several one-time charges during the quarter, including a $14.8 million loss on newspaper-related subsidiary investments, a $68.7 million charge due to the remeasurement of deferred tax assets resulting from the recent changes in U.S. tax law, and $65 million in net post-retirement and pension obligation expenses.
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These charges were responsible for the organization's reported loss, but the post-retirement expenses in particular will benefit the company moving forward. Since the end of 2016, it has trimmed its long-term unfunded pension obligations from $153 million to $69 million.
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According to management, the U.S. tax legislation enacted at the end of 2017 should reduce the company's annual income tax expense from approximately 40% to the high 20% range, ultimately benefiting cash flow.
- The New York Times expressed its intent to exercise an option to purchase back 21 floors of its headquarters building in 2019, which were sold in a previous sale-leaseback transaction. The total transaction of roughly $250 million will place a valuable asset back on its balance sheet.
The company's digital cooking subscription service has enjoyed a successful launch. Image source: Getty Images.
What management had to say
During the earnings conference call, CEO Mark Thompson discussed the company's long-term effort to shift its revenue composition:
Since 2015, we've defined ourselves as a subscription-first company. In 2017, subscriptions for the first time in the history of The New York Times Company, delivered more than $1 billion of revenue. We still regard advertising as an important revenue stream, but believe that our focus on establishing close and enduring relationships with paying deeply engaged users, and the long-range revenues which flow from those relationships is the best way of building a successful and sustainable news business.
Thompson also noted that at the end of 2015, the organization had set a goal to double its purely digital revenue from $400 million to $800 million by the end of 2020. Two years into the five-year period, The New York Times is already halfway there, having recorded $607 million in digital revenue in 2017.
Looking forward
Management expects healthy growth in the first quarter of the year, projecting that total subscription revenue will rise in the mid-to-high single digits versus the first quarter of 2017. Digital revenue is slated for 25% growth. Advertising revenue will remain relatively soft, and is projected to slip in the mid-to-high single digits against the comparable prior-year quarter.
While the company doesn't provide bottom-line guidance on a quarterly basis, management did note that operating costs will exhibit a modest jump in the low single digits during the first three months of the year. Overall, The New York Times appears to be modeling the basis for a successful first quarter, not unlike the string of positive results it produced in 2017.
