The Meredith Corp. headquarters building in Des Moines, Iowa. Media General is buying Meredith Corp. in an approximately $2.4 billion cash-and-stock deal. The combined company, called Meredith Media General, will have 88 television stations in 54 markets and media brands including Better Homes and Gardens, Parents and ShapeMedia General Meredith, Des Moines, USA

Meredith Corp.’s acquisition of Time Inc. turned out to be more trouble than expected.

The publisher’s stock dropped 23 percent on Thursday to $33.68 after it reported full-year financial results that included a lower than expected forecast for 2020 and mentioned the 2018 Time Inc. acquisition has come with some unanticipated difficulties, despite an increase in the size of its business overall. 

Meredith said its full-year total revenue came in at $3.2 billion, an increase of 40 percent over 2018. Adjusted earnings before interest, taxes, appreciation and amortization were $706 million for the year, up from $423 million. Earnings from continuing operations came in at $129 million, an increase of 14 percent. But for the fourth quarter, total revenue actually dropped 1.6 percent to $786 million, and the company reported a loss of $4 million from continuing operations. Adjusted EBITDA only grew to $169 million from $160 million, compared to the fourth quarter of 2018.  

For fiscal 2020, Meredith expects total revenue of $3 billion to $3.2 billion, so on the high end of the plan, flat from fiscal 2019. While the company said it’s expecting earnings from operations of between $197 million and $212 million, it admitted that figure does not include “special items” or unexpected costs and that actual results “are difficult to predict with reasonable certainty at this time.” Adjusted EBITDA is expected to dip to somewhere between $640 million to $675 million, so at best a 4.3 percent drop from 2019. 

Investors were expecting an increase given Meredith became the largest magazine publisher in the U.S. with the Time Inc. acquisition and that it’s had time to incorporate the brands it’s kept. They reacted by pushing the stock down during trading to its lowest level since 2009, the rout of the recession.

Tom Harty, Meredith’s chief executive officer, told analysts during a call that the 2019 fiscal year showed consumer revenue and EBITDA had actually doubled, but compared to fiscal 2017, the company’s last full year before the Time purchase.

“That said, we acknowledge the challenges we faced that resulted in a reset of EBITDA expectations for fiscal 2019 and going forward,” Harty added. “Foremost, it took longer than expected to turn around advertising performance with the legacy Time Inc. brands.”

This is something of a change in tone from early this year, when Harty boasted in an internal memo of Meredith’s much expanded portfolio driving the growth of consumer and e-commerce revenue for the company. Although Meredith quickly put up for sale former Time Inc. brands Sports Illustrated, Fortune, Time and Money, it had to keep the last one for lack of interest and it took longer than initially anticipated to cut a deal for Sports Illustrated. The only former Time Inc. brands Meredith still has are People, which Harty dubbed the “crown jewel of our brands,” along with InStyle, Travel + Leisure, Entertainment Weekly and Real Simple, none of which got a mention.

Harty did note that “the number of low-margin magazine subscriptions we encountered inside the legacy Time Inc. brands were more than anticipated.” He said the turnaround overall “required additional investment spending” and took a toll on EBITDA for the year.

“Once recognized, we tackled these issues head on,” Harty said, “and we are confident in the approach we’re taking in fiscal 2020 and beyond.”

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