This was slightly ahead of expectations, due in part to strong advertising trends. However, the guidance was ever so slightly below expectations. We are also concerned that circulation revenue fell (publishers get paid both for the subscriptions and the advertising). If circulation trends are down it could lead to lower advertising rates in the future. Although the impetus for the decline was price reduction rather than lower numbers of subscribers, advertisers are usually willing to pay more to be in popular publications that can command higher subscription rates. So it could still be a concern, though it is less of one than had the actual number of subscribers declined.
Part of the reason for the price reductions was related to the acquisition of various magazine titles from Gruner+Jahr. The ongoing alignment of the businesses will also result in some one-time earnings adjustments:
Meredith Corporation said today that it will record a one-time pretax charge and realize a one-time tax benefit with the sum of these actions resulting in a net increase of $0.03 in earnings per share in its fiscal 2007 third quarter.
The one-time $13 million charge (approximately $8 million after-tax) consists of:
– Approximately $7 million (non-cash) to write off the assets of Child magazine which will transition from a print to an online brand exclusively within Meredith’s soon to debut parenthood portal. Most of this charge is related to deferred subscription acquisition costs.
– A $3 million (non-cash) impairment charge for Meredith’s Chattanooga television station [WFLI-TV], which is currently held for sale.
– $3 million for severance-related costs associated with approximately 60 position eliminations across the company being made today.
Also, Meredith will record a one-time tax benefit of approximately $9 million in the third quarter of fiscal 2007 due to the resolution of a tax contingency related to a loss on the sale of stock in Craftways, a business sold in fiscal 2003.
Other than the net benefit of $0.03, the company says the actions will not have a material impact on Meredith’s financial performance in fiscal 2007 or fiscal 2008. Meredith expects to report earnings per share of $0.86 to $0.87 in the third fiscal quarter of 2007 before the impact of the one-time charge and tax benefit. For all of fiscal 2007, Meredith continues to expect to report earnings per share 12 to 15 percent higher than the $2.86 earned in fiscal 2006.