• by Erik Sass  @eriksass1, April 26, 2006

Meredith Corporation posted steady year-over-year gains for the first three months of 2006, according to an earnings teleconference Tuesday morning with Chairman and CEO Bill Kerr. Meredith's non-magazine publishing revenues--including custom publications and books--led growth with a 10 percent year-over-year rise, followed by its broadcast holdings, which grew 9 percent. Meredith's magazines posted a modest year-over-year gain of 2 percent, excluding its recently acquired Gruner + Jahr titles, which have yet to turn around.

Overall, Meredith's combined revenues rose from $305.5 million in the first three months of 2005 to $394.9 million in the same period in 2006--a 29.3 percent gain, although total costs also rose 33.9 percent, to $302.8 million. Operating income rose 18.2 percent from $62.3 million to $73.6 million, while earnings per share rose 15.7 percent.

Meredith's solid earnings report came on the heels of a projected 10 percent decline in ad pages for the month of May, which sparked a slide in Meredith's stock last week. Kerr addressed this up front: "First, I cannot help but note the market activity around recent advertising performance at some of our magazines." Reassuring investors, Kerr said: "Our strong results to date in fiscal 2006 are attributable to our ability to generate advertising revenue from multiple sources, and our diversified business portfolio that generates revenues from non-advertising sources."

Here, Kerr pointed to the stability provided by Meredith's other revenue streams, including "books, Internet, integrated, and interactive marketing, which have grown faster than traditional advertising, and with comparable or better margins."

The Internet in particular was a favorite theme of Kerr, who concluded: "The Internet has provided a rapidly growing source of advertising revenue at both our business groups. In the first nine months of fiscal '06, Internet advertising revenue grew nearly 80 percent in publishing... and more than doubled in broadcasting." Earlier in the address, Kerr noted: "We were particularly pleased with our local advertising performance and the growth in online advertising on our stations' Web sites."

A report by Merrill-Lynch analysts Karl Choi, Lauren Rich Fine, and Hester Chang was cautiously optimistic, noting "[w]e see some appreciation potential at the current valuation," but still maintaining a "neutral" rating overall, because of mediocre magazine ad revenues and the unclear future of the Gruner + Jahr titles. The Merrill-Lynch analysts also forecasted "non-traditional revenue streams to be the publishing division's growth driver near term in the face of muted advertising trends," as Kerr seemed to imply.