(Bloomberg) -- Meredith Corp. suffered its worst stock decline since 1986 after the publisher and broadcaster delivered a disappointing forecast and acknowledged that its $1.8 billion acquisition of Time Inc. isn't delivering the payoff it wanted.
The deal, which was completed last year, turned Meredith into the biggest magazine publisher in the U.S. But the business isn't as profitable as expected, Chief Executive Officer Tom Harty said on Thursday, and Meredith is now planning to spend more to improve operations.
“Both of these factors contribute to a reset of our financial expectations in the outlook we're providing,” he said.
Adjusted earnings before interest, taxes, depreciation and amortization will be no more than $675 million this fiscal year, which began in July. That's a big miss, said Wolf Research analyst Marci Ryvicker, who predicted $793 million.
It's clear Meredith “didn't know what they were buying with Time Inc.,” she said in a note. Most of the $400 million in earnings that the company was expecting “just...poof! disappeared.”
Shares of the Des Moines, Iowa-based company plunged more than 28% to $31.43 on Thursday. Even before the rout, the stock had fallen 16% this year.
Sales will be $3 billion to $3.2 billion in fiscal 2020, the publisher predicted. While that's in line with analysts' estimates, the outlook suggests revenue may decline from the $3.19 billion reached in 2019.
Meredith, whose titles include People, Better Homes & Gardens and InStyle, is focused on female readers and claims to reach nearly 90% of U.S. millennial women. But it's “taken longer than we initially expected to elevate the print and digital performance of the Time Inc. assets,” Harty said.
The Time Inc. titles were acquired in January 2018, but Meredith then embarked on an effort to sell the magazines that didn't fit with its strategy. That included Time, Fortune and Sports Illustrated, which it unloaded piecemeal. Sports Illustrated was the last to be sold, in a $110 million deal with Authentic Brands in May.
Advertising at the Time Inc. titles that remained was sluggish, Harty said on a conference call.
“It took longer than expected to turn around advertising performance,” he said. “Additionally, the number of low-margin magazine subscriptions we encountered inside the legacy Time Inc. brands were more than anticipated.”
--With assistance from Rob Golum.
To contact the reporter on this story: Kamaron Leach in New York at kleach6@bloomberg.net
To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net
©2019 Bloomberg L.P.
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