Lagardere reported soft third-quarter sales on Wednesday, as like-for-like revenue fell 0.4% to EUR 1,963 million. A significant portion of Lagardere’s value is tied to the company’s non-core holdings, including EADS and Active, and the market is not reflecting this value. Management said it remains committed to selling these assets in the near future, and investors are optimistic that the company will eventually do so and return capital to shareholders. Still, some investors are growing increasingly concerned that the weak macroeconomic environment in Europe will continue to delay these divestitures.
Organic publishing revenue increased 0.1% (positive 4.2% reported change), as the release of J.K. Rowling’s The Casual Vacancy offset education sale declines and the impact of the weak economic environment. Similarly, the Active division was hurt by the weak European economy, as organic Active revenue fell 11.5% (negative 17% reported change).
Specifically, advertising revenue fell 8.6% over the prior-year period, and we anticipate that the Active division will remain depressed for the next few years, since it is unlikely that the European macroeconomic environment will recover anytime soon. Like-for-like unlimited sales fell 4.5% (positive 1.4% reported change), and we suspect that this division will remain marginally profitable at best (and draining cash at worst) and will not meaningfully contribute to the company’s profitability for several years.
Organic services sales increased 2.1% over the prior-year period, as travel retail (positive 7.7%) offset ongoing weakness in the distribution business (negative 4.1%). Despite the broad economic weakness, airport retail was particularly strong, posting double-digit growth in various European and Asian markets.
Travel retail is Lagardere’s most promising division, and there is optimism that the segment will continue to grow into one of the company’s largest profit contributors. However, it’s doubtful that the strength in this one division will offset headwinds in Lagardere’s other businesses, so many analysts are forecasting soft results over the next several years.
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