Two announcements today (July 26) from Nielsen revealed its Chief Executive Officer and Member of the Board, Mitch Barns, will retire from 20 years with company after net income for the second quarter of 2018 was reported to have decreased 45.0 percent.
Barns will remain through the end of the year to oversee the company and James Attwood, current Chairman of the Board and Managing Director at The Carlyle Group, has been named Executive Chairman and will assume a more active role and will direct the search for new leadership.
“Mitch has left an indelible mark on Nielsen—his commitment to integrity, openness, values and engagement will continue to be the heart of this company for years to come,” commented Attwood. “I, along with the rest of the Board of Directors, thank him for his service.”
Meanwhile, the board will be conducting an in-depth strategic review of its Buy segment, led by Attwood in conjunction with Nielsen’s senior management. The Board does not have a fixed timetable for completion of the review nor has it made any decisions at this time.
“In the second quarter, we continued to move forward on our multi-year transformations across Watch, Buy, and Operations. However, our progress was not reflected in our financial results, which are disappointing and came in below our expectations, and we are lowering our outlook for 2018,” said Jamere Jackson, Chief Financial Officer of Nielsen.
Jackson continued, “We are addressing the challenges we face with the greatest sense of urgency and remain sharply focused on our key initiatives to drive value in the long term. Our cost reduction efforts are ahead of schedule and we are accelerating cost-out targets. In Buy Developed Markets, we saw increased pressure in the fast moving consumer goods end markets; however, we made great progress with the Connected System, retailer initiatives, and Total Consumer Measurement. In Emerging Markets, weakness in multinational client spending was offset by growth with local clients. In Watch, ongoing adoption of Total Audience Measurement continued to drive growth. However, the General Data Protection Regulation and changes in the consumer data privacy landscape impacted our growth rates in the near-term as clients and partners grapple with the changes and work to ensure compliance.”
Revenues were relatively flat ($1,647 million for the second quarter of 2018) up 0.2 percent compared to the second quarter of 2017. Net income per share on a diluted basis was $0.20 per share in the second quarter of 2018, compared to $0.37 per share in the second quarter of 2017.
Nielsen delivers media and marketing information, analytics and industry expertise about what consumers buy (referred to as “Buy”) and what consumers read, watch and listen to (consumer interaction across the television, radio, digital and mobile viewing and listening platforms referred to as “Watch”) on a global and local basis. Measurement and analytical services help clients maintain and strengthen their market positions and identify opportunities for profitable growth.
Nielsen’s Second Quarter Results
Revenues within the Watch segment for the second quarter of 2018 increased 4.5 percent to $858 million compared to the second quarter of 2017. Audience Measurement of Video and Text revenues increased 7.4 percent, primarily due to ongoing investments, continued client adoption of our Total Audience Measurement system, and a strong contribution from Gracenote. Audio revenues were flat for the quarter. Marketing Effectiveness revenues increased 7.2 percent, driven by consistent investment in our product portfolio and strength in our product initiatives, partly offset by pressure on our clients and partners from the impact of the General Data Protection Regulation (GDPR) and other consumer data privacy considerations. Other Watch revenues decreased by $11 million, or 22.9 percent on a reported basis and 21.3 percent on a constant currency basis, due to continued portfolio pruning. Core Watch revenues grew 6.2 percent.
Revenues within the Buy segment for the second quarter 2018 decreased 4.1 percent to $789 million, compared to the second quarter of 2017. Buy Emerging Markets revenues decreased 1.0 percent, primarily driven by weakness in multinational client spending, particularly in markets in South East Asia and China, partly offset by strength in local client spending and solid growth in Eastern Europe, Africa, and some markets in Latin America. Buy revenues in Developed Markets decreased 4.3%, due to increased pressure on spending from large multinational clients. Revenues within Corporate Buy decreased by $9 million, or 55.6% on a constant currency basis, primarily due to continued portfolio pruning.
Net income for the second quarter of 2018 decreased 45.0 percent to $72 million, or 45.9 percent on a constant currency basis, compared to $131 million in the second quarter of 2017, as a result of softer revenues, higher restructuring charges, retailer investments, and other growth initiatives. During the second quarter of 2018, the company recorded restructuring charges of $65 million, or $0.12 per share. The restructuring charges reflect our continuing efforts to rightsize the business, the current market realities, and acceleration of our cost-out initiatives.
Adjusted EBITDA for the second quarter of 2018 decreased 8.1 percent to $468 million, compared to the second quarter of 2017. Adjusted EBITDA margins contracted 254 basis points to 28.4 percent, or 232 basis points on a constant currency basis, due to softer revenue and continued investments in Buy and Watch segments, partly offset by productivity initiatives.
As of June 30, 2018, Nielsen’s cash and cash equivalents were $394 million and gross debt was $8,664 million. Net debt (gross debt less cash and cash equivalents) was $8,270 million and Nielsen’s net debt leverage ratio was 4.16x at the end of the quarter. Net capital expenditures were $118 million for the second quarter of 2018, compared to $64 million for the second quarter of 2017. Cash taxes were $79 million for the second quarter of 2018, compared to $70 million for the second quarter of 2017.
Cash flow from operations increased to $242 million for the second quarter of 2018, from $226 million in the second quarter of 2017. Free cash flow for the second quarter of 2018 decreased to $124 million, compared to $162 million in the second quarter of 2017. Cash flow performance was driven by lower net income, higher net capital expenditures, higher interest, and tax payments, partially offset by the timing of vendor and client payments.
The company repurchased $40 million of its common stock during the second quarter of 2018. The company had a total of $238 million remaining for repurchase under the existing share repurchase program as of June 30, 2018.
On July 19, 2018, Nielsen’s Board of Directors declared a quarterly cash dividend of $0.35 per share of Nielsen’s common stock. The dividend is payable on September 5, 2018 to stockholders of record at the close of business on August 22, 2018.
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