Broadcasting and digital media company TEGNA (NYSE:TGNA) missed analysts' expectations in Q1 CY2024, with revenue down 3.5% year on year to $714.3 million. It made a non-GAAP profit of $0.45 per share, down from its profit of $0.46 per share in the same quarter last year.
TEGNA (TGNA) Q1 CY2024 Highlights:
- Revenue: $714.3 million vs analyst estimates of $718.9 million (small miss)
- EPS (non-GAAP): $0.45 vs analyst estimates of $0.44 (3.2% beat)
- Gross Margin (GAAP): 39.7%, down from 42.3% in the same quarter last year
- Market Capitalization: $2.58 billion
Spun out of Gannett in 2015, TEGNA (NYSE:TGNA) is a media company operating a network of television stations and digital platforms, focusing on local news and community content.
TEGNA's separation from Gannett allowed the company to intensify its focus on developing television and digital services tailored to local markets, addressing the growing demand for community-oriented media content.
The company offers local news broadcasting, digital media services, and marketing solutions. Its diverse content across various platforms caters to niche communities often overlooked by national media networks.
Revenue for TEGNA is primarily generated from advertising, digital marketing services, and content licensing. Its network of local TV stations and digital platforms provides targeted advertising and marketing opportunities for all kinds of advertisers.
Broadcasting
Broadcasting companies have been facing secular headwinds in the form of consumers abandoning traditional television and radio in favor of streaming services. As a result, many broadcasting companies have evolved by forming distribution agreements with major streaming platforms so they can get in on part of the action, but will these subscription revenues be as high quality and high margin as their legacy revenues? Only time will tell which of these broadcasters will survive the sea changes of technological advancement and fragmenting consumer attention.
Competitors in the local television broadcasting and digital media sector include Nexstar Media (NASDAQ:NXST), Sinclair (NASDAQ:SBGI), and Gray Television (NYSE:GTN).Sales Growth
A company’s long-term performance can give signals about its business quality. Any business can put up a good quarter or two, but many enduring ones muster years of growth. TEGNA's annualized revenue growth rate of 5.4% over the last five years was weak for a consumer discretionary business. 
Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. TEGNA's recent history shows a reversal from its already weak five-year trend as its revenue has shown annualized declines of 2.6% over the last two years.
We can better understand the company's revenue dynamics by analyzing its most important segments, Subscription and Advertising, which are 52.5% and 41.8% of revenue. Over the last two years, TEGNA's Subscription revenue (access to content) was flat while its Advertising revenue (marketing services) averaged 6.2% year-on-year declines.
This quarter, TEGNA missed Wall Street's estimates and reported a rather uninspiring 3.5% year-on-year revenue decline, generating $714.3 million of revenue. Looking ahead, Wall Street expects sales to grow 12.4% over the next 12 months, an acceleration from this quarter.
Operating Margin
Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
TEGNA has been a well-oiled machine over the last two years. It's demonstrated elite profitability for a consumer discretionary business, boasting an average operating margin of 27%.
This quarter, TEGNA generated an operating profit margin of 19.3%, down 4.2 percentage points year on year.
Over the next 12 months, Wall Street expects TEGNA to become more profitable. Analysts are expecting the company’s LTM operating margin of 24.2% to rise to 27.8%.EPS
We track long-term historical earnings per share (EPS) growth for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable. 
Over the last five years, TEGNA's EPS grew 14.9%, translating into a weak 2.8% compounded annual growth rate. Furthermore, this performance is worse than its 5.4% annualized revenue growth over the same period. There are a few reasons for this, and understanding why can shed light on its fundamentals.
TEGNA's operating margin has declined 6.4 percentage points over the last five years, leading to lower profitability and earnings. Taxes and interest expenses can also affect EPS, but they don't tell us as much about a company's fundamentals.In Q1, TEGNA reported EPS at $0.45, down from $0.46 in the same quarter last year. Despite falling year on year, this print beat analysts' estimates by 3.2%. Over the next 12 months, Wall Street expects TEGNA to grow its earnings. Analysts are projecting its LTM EPS of $2.25 to climb by 50.5% to $3.39.
Return on Invested Capital (ROIC)
EPS and free cash flow tell us whether a company was profitable while growing revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit a company makes compared to how much money the business raised (debt and equity).
TEGNA's five-year average return on invested capital was 12%, somewhat low compared to the best consumer discretionary companies that pump out 25%+. Its returns suggest it historically did a subpar job investing in profitable business initiatives.
The trend in its ROIC, however, is often what surprises the market and drives the stock price. Over the last few years, TEGNA's ROIC averaged 1.5 percentage point increases. This is a good sign, and if the company's returns keep rising, there's a chance it could evolve into an investable business.
Balance Sheet Risk
As long-term investors, the risk we care most about is the permanent loss of capital. This can happen when a company goes bankrupt or raises money from a disadvantaged position and is separate from short-term stock price volatility, which we are much less bothered by.
TEGNA reported $0 of cash and $0 of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company's debt level isn't too high and 2) that its interest payments are not excessively burdening the business.
With $711.6 million of EBITDA over the last 12 months, we view TEGNA's 0.0x net-debt-to-EBITDA ratio as safe. We also see its $63.91 million of annual interest expenses as appropriate. The company's profits give it plenty of breathing room, allowing it to continue investing in new initiatives.
Key Takeaways from TEGNA's Q1 Results
It was encouraging to see TEGNA slightly top analysts' EPS expectations this quarter. On the other hand, its Advertising revenue unfortunately missed and its operating margin fell short of Wall Street's estimates. Overall, this was a mixed quarter for TEGNA. The stock is flat after reporting and currently trades at $14.65 per share.
Is Now The Time?
TEGNA may have had a mixed quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.
TEGNA isn't a bad business, but it probably wouldn't be one of our picks. Its revenue growth has been uninspiring over the last five years, but at least growth is expected to increase in the short term. And while its impressive operating margins show it has a highly efficient business model, the downside is its EPS growth over the last five years has been subpar. On top of that, its mediocre ROIC suggests it has grown profits at a slow pace historically.
TEGNA's price-to-earnings ratio based on the next 12 months is 4.3x. In the end, beauty is in the eye of the beholder. While TEGNA wouldn't be our first pick, if you like the business, the shares are trading at a pretty interesting price right now.
Wall Street analysts covering the company had a one-year price target of $18.20 per share right before these results (compared to the current share price of $14.65).
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