This Industry Isn't Dead Yet
Nauman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
While there may still be some profits left in the dying publishing sector, investors will have to look pretty hard, while also keeping a close eye on developments in new technology that is being adapted to take the place of the old. One way that some of the media companies are working to increase their profits is by shedding underperforming assets -- namely in the publishing arena. But the question is, will this be enough to keep these companies' businesses afloat in the long-term?
A younger and smaller workforce
One of the oldest U.S. media outlets is Gannett (NYSE: GCI). Established in 1906, Gannett has grown into what the company refers to as a "media and marketing solutions" company. While the company still operates more than 80 daily (newspaper) publications, including the popular USA Today, each of these include an affiliated online site for consumers.
This move to an online alternative has helped keep what would be a dying newspaper industry alive and up-to-date with today's consumers. In fact, digital revenue in the publishing industry has risen more than 75% during just the first quarter of 2013 -- a nice boon for Gannett, as the growth of marketing services and an all-access content subscription model was rolled out in 2012.
In addition to tangible and online publications, Gannett also operates several powerful online presences such as CareerBuilder.com -- an online employment website, as well as other popular sites like PrintRoll, ShopLocal, and Reviewed.
Like many corporate giants, the company has had to trim expenses in order to keep up in the recent tough economy. Therefore, over the past seven years, Gannett has shrunk its workforce by roughly 20,000 employees -- many of whom were in their 50s and older. Many feel that the reasoning behind these particular layoffs was to save the company multi-millions in payroll expenses.
Gannett does show strength in a number of areas, though, especially as far as being a solid investment. First, the company has seen an increase in its net income, as well as in revenue growth. And, according to analysts, there are really not many glaring weaknesses that would detract from a primarily positive outlook on the company's shares.
One key area for investors to focus on is Gannett's strong dividend yield of nearly 4%. This comes from a dividend payout of $0.80 per share, per quarter. In addition, the company's operating income for the next five years is expected to show a compound growth in the mid single digits -- not bad considering the dire straits that the publishing industry is in. But, investors should definitely wait for the stock to drop to the mid-to-high teens as shares present an attractive risk/reward there.
Adapt or die trying
Many in the U.S. would be hard pressed to say that they have not read at least one issue of the famed The New York Times (NYSE: NYT) at some point in their lives. This New York-based publisher had its beginnings back in 1896, and since then, it has grown from a small newspaper publisher to a multi-billion dollar media powerhouse.
Today, the firm operates from two key segments, including The New York Times Media Group and the New England Media Group. In keeping up with the more digital world of today, The New York Times has expanded into online content, electronic archive data bases, digital archive distribution, and mobile and e-reader applications.
In order to help itself out financially, the Times has been trying to rid itself of costly assets. In September last year, the firm sold off About Group, a publisher it acquired back in 2005. The company also sold off its remaining stake in the Fenway Sports Group in the spring of 2012.
Another subsidiary that is currently on the New York Times' chopping block is its New England Media Group -- which includes the Boston Globe newspaper -- as well as its allied properties. These divestitures should help the Times to "stop at least some of the bleeding" from underperforming business segments.
Although, while the company has made valiant efforts to stay in front of businesses and consumers with its media offerings, the share price has not performed well over the past year or so. With no dividend payout and a share price that is actually much above the peers’ average forward estimates of 12 times, investors may be wise to look to other companies for their media-related stock holdings.
Continuing the fire sale of non-performing assets
The Washington Post (NYSE: WPO), on the other hand, has brought in some favorable financial numbers of late. The company's first-quarter 2013 adjusted earnings were up substantially from just one year ago -- rising from $1.18 per share to nearly $3.50.
This company, along with its subsidiaries, operates as a media company as well as an education outlet, both in the U.S. and internationally. The wide range of education services that are provided by the Post include Kaplan Test Preparation and Kaplan Higher Education. The education arm of the company also includes 59 schools across 17 states.
The Post's key strength comes from its television broadcasting and cable TV divisions, which helped push its revenue from $955.5 million in the first quarter of 2012 to over $959 million in the first quarter of 2013. On the other hand, lackluster performance in the newspaper publishing and education divisions continues.
Here again, due largely to economic factors, growth of the company's publishing division has been impeded. In the hope of cutting its losses in this area, the Post recently completed the divestment of its daily and Sunday newspaper, The Herald, as well as its Sound Publishing subsidiary.
The shedding of the fat seems to have worked for the Post, and its investors are continuing to be well rewarded with a dividend payout of $9.80 per share -- which equals out to a 2.20% annual dividend yield -- and the share price is just below its 52-week high. Still, the company’s overall revenue continues to decline, and though recent aforementioned efforts have been somewhat fruitful, more needs to be done before Washington Post can be taken as a real value investment.
The bottom line
In order to stay competitive, all three companies will need to continue divesting unprofitable and underperforming acquisitions and subsidiaries, and well as keeping a key focus on providing the types digital content that consumers and businesses are requesting.
Looking ahead, investors need to focus on both the strength and stability of these companies' dividend payouts, as well as what is driving share price overall. In doing so, they may be able to find some real opportunity in an industry that is in the midst of great change.
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