Tegna (TGNA) Up 1.4% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Tegna (TGNA). Shares have added about 1.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Tegna due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

TEGNA’s Q3 Results Benefit From Political & Subscription Revenues

TEGNA reported third-quarter fiscal 2018 non-GAAP earnings of 40 cents per share, which beat the Zacks Consensus Estimate by 3 cents. The figure surged 73.9% on a year-over-year basis and 11.1% sequentially.

On a GAAP basis, revenues increased 16.1% year over year to $538.9 million, which came ahead of the Zacks Consensus Estimate of $537 million. Top-line growth was primarily driven by increase in subscription and political revenues.

TEGNA’s adjusted revenues, which exclude political advertising, were up 4% year over year to $478.6 million.

Top Line in Detail

Advertising and Marketing Services (49.1% of total revenues): The category generated $264.9 million, down 4.7% on a year-over-year basis. The year-over-year decline was primarily due to significant demand for political advertising.

Subscription (38.5%): This category generated $207.5 million in the reported quarter, up 16.8% from the year-ago quarter. This was driven by growth in contract rate hike and higher paid subscribers of both multichannel video programming distributor (MVPD) and new virtual MVPD services. Moreover, subscribers and revenues from OTT streaming services increased in the third quarter.

Political (11.2%): This category generated $6.4 million, which surged 1496.9% from the year-ago period. The year-over-year growth was primarily driven by solid political advertising revenues of $57 million. Notably, in the reported quarter, Premion contributed to less than $10 million to political advertising.

Year to date, political revenues totaled $238 million, touching an all-time high, including presidential election years. The figure is up 50% from the previous mid-term election in 2014.

Other (1.2%): TEGNA generated $6.3 million of revenues from this category, up 25.7% year over year.

Operating Details

Non-GAAP adjusted EBITDA was $180.9 million, up 24.7% year over year. Adjusted EBITDA margin was 33.6%, up 230 bps year over year.

Reported GAAP operating expenses (71.4% of total revenues) in third quarter were $384.7 million, up 10.7% year over year primarily due to increased programming fees, acquisition of KFMB, expenses associated with revenue growth and Premion investments.

Operating margin expanded 350 basis points (bps) from the year-ago quarter to 28.6% primarily due to strong political revenues that aided top-line.

Balance Sheet & Cash Flow

As of Sep 30, total cash was $23.8 million compared with $24.5 million as of Jun 30. Also, long-term debt outstanding was $3 billion compared with $3.1 billion in the last reported quarter. Notably, during the quarter, TEGNA repaid debt of $144 million, which reduced the interest cost of about $8 million per year.

In the third quarter, TEGNA generated $178.6 million of cash from operations compared with $108.7 million in the prior-year quarter.

Non-GAAP free cash flow was $164.2 million compared with $94.6 million in the year-ago period. Increase in free cash flow was primarily driven by record political revenues.

Recent Updates

During third quarter, Daily Blast LIVE (DBL) was launched in 15 additional markets, which makes DBL available in a total of 50 markets. Notably, DBL is a “30-minute live entertainment and trending news program”, which airs on TV and digital platforms across the country.

This October, TEGNA announced that by the end of 2020, the company will roll out the next generation over-the-air television transmission standard (ATSC 3.0) nationwide, along with other leading broadcasters.

Additionally, TEGNA announced agreements to acquire two leading local stations, WTOL, a CBS affiliate in Ohio and KWES, a Comcast owned NBC affiliate in Texas. The all-cash deal worth $105 million is expected to be accretive to free cash flow immediately after close and to earnings in less than a year after close. Management noted that this transaction will have no material impact on leverage due to strong balance sheet.

Following the deal, TEGNA is expected to have a market share of 87% in Ohio and Texas.
   
Premion, which is helping TEGNA reach customers beyond its traditional business, has expanded the company’s reach to 200 markets from the earlier 39 markets. Additionally, Premion users have access to content from 125 branded partners nationwide, per management.

Notably, Premion won two Audience Based Buying Innovation (ABBI) 2018 Awards, which “celebrate the very best in audience-based buying.” Premion won the third place in OTT Platform of The Year category after Hulu and Roku and second place in Audience Based Buying Platform of The Year category.

Management noted that it has integrated Hatch, its in-house creative agency, G/O Digital, a digital marketing services provider and Premion into a single brand called TEGNA Marketing Solutions.

Guidance

For fourth-quarter 2018, TEGNA expects revenues to increase in the range of 30 on a year-over-year basis, primarily driven by subscription and political revenue growth. Political revenues are expected to be $144 million. Non-GAAP operating expenses are anticipated to increase in mid-teens due to increase in programming fees and Premion reinvestments.

For 2018, TEGNA expects revenues to increase in mid-teens on a year-over basis. Political revenues are expected to be $238 million. Adjusted revenues, excluding political advertising, are anticipated to increase in mid-single digits. Subscription revenues are expected to be at the high end of the previously announced guidance of mid-teens.

Management guided Premion revenues, excluding political revenues, to be $75 million compared with the earlier guided figure of $60 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 13.79% due to these changes.

VGM Scores

Currently, Tegna has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Tegna has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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