The Zacks Analyst Blog Highlights: New York Times, News Corp., Gannett, Textron and Tyco International

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Nov 01, 2012, 09:30 ET

CHICAGO, Nov. 1, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include The New York Times Company (NYSE:NYT), News Corporation (Nasdaq:NWSA), Gannett Co., Inc. (NYSE:GCI), Textron Inc. (NYSE:TXT) and Tyco International Ltd. (NYSE:TYC).

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Here are highlights from Wednesday's Analyst Blog:

Solid Circulation for NY Times

The current economic scenario does not look promising for publishing companies, who are bearing the brunt of waning print advertising demand, and The New York Times Company (NYSE:NYT) is no exception. However, the company witnessed sturdy circulation growth during the six-month period ending September 30, riding on the back of digital subscription initiatives.

According to the data released by Audit Bureau of Circulations (ABC), total average circulation, including print and digital, registered an increase of 40% to 1,613,865 for Monday to Friday publications and 28% to 2,100,893 for Sunday editions during the period.

Notably, digital circulation outpaced the print circulation. For weekdays, average digital circulation rose more than twofold to 896,352, whereas average print circulation dropped 6.9% to 717,513. Average digital circulation for Sunday surged 129% to 850,816, while average print circulation fell 1.8% to 1,250,077.

The data suggests that print circulation is continuing to lose its grip, whereas digital circulation is gaining traction, as more and more people are visiting the company's website through smartphone and iPad applications. However, the only respite for print editions is the Sunday home delivery circulation, which saw a marginal increase of 0.6% to 998,080.

Apart from The New York Times, The Wall Street Journal, the flagship newspaper of News Corporation (Nasdaq:NWSA) also experienced rise in circulation and holds on to its leading position as per the data available from ABC. Circulation for daily newspapers rose 9.4% to 2,293,798. However, USA Today, the iconic brand of Gannett Co., Inc. (NYSE:GCI) saw its circulation declining 3.9% to 1,713,833 but remained at the second position. The New York Times occupied the third position.

Although, The New York Times Company is blessed with sturdy total circulation, yet its advertising volume continues to remain under pressure as advertisers are shying away from making any upfront commitments, in an economy which is showing an uneven recovery. Total advertising revenue slid 8.9% to $182.6 million in the third quarter of 2012. Print advertising declined 10.9% during the quarter.

The sluggish advertising compelled The New York Times Company to post a loss per share of 1 cent that significantly missed the Zacks Consensus Estimate of earnings of 8 cents but remained flat compared with the prior-year quarter.

To mitigate this, the company is diversifying its business and adding new revenue streams. The company is also streamlining its cost structure, strengthening its balance sheet and restructuring its portfolio. The company is offloading assets that bear no direct relation with the core operations in order to refocus on its core newspapers and pay more attention to its online activities.

Currently, we have a long-term Neutral recommendation on the stock. However, the stock holds a Zacks #4 Rank that translates into a short-term Sell rating, indicating lower-than-expected third-quarter 2012 results.

Earnings Scorecard: Textron

Diversified U.S. conglomerate, Textron Inc. (NYSE:TXT) recently delivered third-quarter 2012 earnings. The Wall Street analysts had more than a week to ponder over the earnings results and eventually made their estimates revision. In subsequent paragraphs, we will cover the results of the recent earnings announcement, estimate revisions by analysts as well as the Zacks Rank and long-term recommendation on the stock.

Highlights from the Quarter

Textron's third-quarter 2012 earnings per share of 48 cents were up 6.7% from 45 cents per share in the year-ago quarter. The quarterly result however came below the Zacks Consensus Estimate of 52 cents. Higher numbers year over year for the company were due to strong performance at Bell, continued improvement at Cessna, complemented by good performance in the Industrial business and favorable liquidation activity in the finance portfolio. Including discontinued operations, earnings came in at 51 cents compared with 47 cents a share earned in the year-ago quarter.

Textron clocked quarterly revenue of $3.0 billion, up 6.6% from $2.8 billion in the year-ago period. However this came below the Zacks Consensus Estimate of $3.05 billion. The year-over-year spike in revenue is attributable to higher performance from all of its manufacturing business segments, barring Textron Systems. The performance of the Finance division was also better than the year-ago quarter.

Textron raised its 2012 earnings per share from continuing operations guidance to a band of $1.95 to $2.05 per share versus an earlier band of $1.80 to $2.00 per share. The company however reaffirmed its manufacturing free cash flow before pension contribution forecast for 2012 in the range of $700 million to $750 million. The company anticipates planned pension contributions of about $200 million.

We have discussed the quarterly results at length here: Textron Misses, Ups View

Agreement – Estimate Revisions

Estimates for Textron saw heavy movement over both sides for the fourth quarter. Over the past month, out of 12 available estimates, 5 estimates were revised downward while 4 moved north. However, over the past week, no estimates were revised.

For full-year 2012, estimates manifest a clear negative bias with 7 (out of 13) downward movements versus 2 positive revisions over the past month. The negative sentiment is owing to the skeptism about the intermediate prospects of Textron's commercial aerospace businesses. The economic downturn, along with reduced access to the credit markets, has led to lower spending by commercial air carriers. A prolonged period of weakness in the business jet market could lead to cancellations/deferrals of orders in its backlog. Also, in the near term, the focus on used jets rather than new ones have taken a toll on Cessna's order backlog, which fell to $1.3 billion at the end of the first nine months of 2012, down $196 million from the end of the second quarter of 2012.

Magnitude – Consensus Estimate Trend

Estimate for full year 2012 have witnessed a fall over the past month from $2.09 to $2.06. However, given the balanced revisions, estimate for the fourth quarter has remained flat at 59 cents over the past month.

Neutral on Textron

Based in Providence, Rhode Island, Textron Inc. is a global multi-industry company that manufactures aircraft, automotive engine components and industrial tools.

We believe Textron should do well in its commercial aerospace businesses with the gradual recovery in the economy. The improving fundamentals in the commercial aerospace industry should bode well for Textron's Cessna jets and Bell Helicopter businesses going forward. Cessna's fortunes will improve mainly through high demand for light cabin business jets. Also, in the near term, Bell's growth will be guided by a judicious mix of military and commercial business from the V-22 Osprey and H-1 helicopters. Textron Systems will also see growth coming from government's focus on UAVs (unmanned aerial vehicles) and ASVs (armored security vehicles).

Also, Textron's geographically diverse network of aircraft, defense & intelligence, industrial and finance businesses negates any specific business risk. The company is known around the world for its most recognizable and valuable brand names, such as Bell Helicopter, Cessna Aircraft Company, Jacobsen, Kautex, Lycoming, E-Z-GO and Greenlee. The company has a strong presence in diverse areas of business jets and other general aviation aircraft, helicopter, aircraft engines, golf carts, turf maintenance equipment, electronic test equipment and blow-molded fuel tanks.

Textron's balance sheet remains stable with a long-term debt-to-capitalization of 55.9% at the end of the first nine months of 2012 versus the Zacks Industry Average of 65.7%. The company also ended the first nine months of 2012 with cash holdings of $1.2 billion, which, along with its receivables liquidation expected to come through, would be enough to keep the liquidity profile of the company in good shape. Textron's balance sheet also improved, shedding $496 million of long-term debt in the first nine months, leaving approximately $1.8 billion of long-term debt.

Textron currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining our Neutral recommendation on the stock. This is in line with its peers like Tyco International Ltd. (NYSE:TYC).

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