New York, NY, Oct. 31--Martha Stewart Living Omnimedia, whose namesake founder is involved in an insider trading scandal, saw its net income fall 42% in the third quarter and warned fourth quarter earnings would fall short of Wall Street estimates.
The company anticipates earnings per share of three cents, below the current Wall Street consensus of ten cents, during a period when retailers and merchandisers typically post their strongest performance due to Christmas sales.
However, the company said its free cash flow, or the amount of money it generates from operations after ordinary expenses, was growing year over year, and it finished the quarter with cash of $171 million and no debt.
The company also confirmed it was launching a new magazine in January, Everyday Food, which will not bear the name of its founder as other magazines like Martha Stewart Living do, a move to tap a larger mass audience.
Martha Stewart Living Omnimedia's publishing and merchandising operations helped offset weakness in the television and Internet segments in the third quarter.
The company's third quarter profits were $2.8 million, or six cents per share, compared with $4.8 million, or ten cents, in the year earlier period.
Analysts on average expected earnings of six cents per share, with a range of six cents to seven cents, according to research firm Thomson First Call.
Revenues rose 4% to $70.9 million from $68 million.
Publishing revenue rose 6% to $46.5 million as advertising pages for its flagship Martha Stewart Living magazine rose 9% in the quarter. Additionally, the company published two special issues in the third quarter compared to only one the previous year.
Higher royalty rates for selling Martha Stewart branded products at Kmart Corp. stores helped to push the company's merchandising revenue 21% to $10.1 million in the third quarter.
However, the company's television revenue slipped 4% to $6.36 million, hurt by lower syndicated advertising revenue. Internet and direct commerce revenue dropped 12% to $8 million as the company decreased its catalog circulation.
The company's stock has lost half of its value in 2002, with most of the fall recorded after founder Martha Stewart got entangled in an insider trading scandal. Its shares closed at $8.46 on Wednesday.
