Tegna (TGNA) Up 8.7% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Tegna (TGNA). Shares have added about 8.7% 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 reported second-quarter 2018 non-GAAP earnings of 36 cents per share, which beat the Zacks Consensus Estimate by a penny. The figure increased 24.1% on a year-over-year basis and 9.1% sequentially.

On a GAAP basis, revenues increased 7.1% year over year to $524.1 million, which came ahead of the Zacks Consensus Estimate of $517 million. Top-line growth was driven by continued increase in total paid subscribers, mainly OTT subscribers, and political revenues.

TEGNA reported adjusted revenues of $498.4 million, which excludes political revenues and discontinued digital business. The figure also reflects year-over-year growth of 4.8%.

Top Line in Detail

TEGNA reports revenues in four categories.

Advertising and Marketing Services (53.8% of total revenues): The company generated $281.8 million of revenues from this category, down 4.9% on a year-over-year basis. The year-over-year decline in verticals such as retail, automotive and restaurants was offset by growth in entertainment, services and medical. Moreover, premature lease termination with Gannett on Jun 1, 2017, had an unfavorable effect of $6.2 million on revenues.

Subscription (39.9%): This category generated $209.4 million revenues in the reported quarter, up 16.1% from the year-ago quarter. This was driven by contract rate hike and higher paid subscribers of both MVPD and new virtual MVPD services. Moreover, subscribers and revenues from OTT streaming services increased in second quarter.

Political (4.9%): This category generated $25.7 million of revenues, which increased 245.3% from the year-ago period. The year-over-year growth was primarily driven by solid political advertising revenues of $18 million.

Other (1.4%): TEGNA generated $7.2 million of revenues from this category, up 36.8% year over year.

Operating Details

Reported operating expenses (70.6% of total revenues) in second quarter were $369.9 million, up 9% year over year due to increased programming fees and Premion investments.

Operating margin came in 29.4%, which contracted 130 basis points (bps) from the year-ago quarter.

Further, adjusted EBITDA was $169.6 million, down 1.1% year over year.

Balance Sheet & Cash Flows

As of Jun 30, total cash was $24.5 million, which increased from $8.3 million as of Mar 31. Also, long-term debt outstanding was $3.1 billion compared with $3 billion in the last quarter.

In the second quarter, TEGNA generated $102.6 million of cash from operations compared with $103.1 million in the prior-year quarter. Free cash flow was $92.6 million compared with $71.4 million in the year-ago period.

Guidance

For third-quarter 2018, TEGNA expects revenues to increase in mid-teens on a year-over basis, primarily driven by subscription, political and Premion revenues.

Management raised Premion revenue guidance, which excludes political revenues, to $75 million from the earlier guided figure of $60 million.

For 2018, the company raised its subscription revenue guidance and expects it to be up in mid-teens.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -10.47% due to these changes.

VGM Scores

Currently, Tegna has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Tegna has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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