With the end of the first quarter approaching, it is time to adjust the names in our Watch Lists. We will price all the new lists as of the close on Friday, March 30. Today we present our planned updates to the Small Cap Watch List (Track at Marketocracy).

Frankly, we were surprised at the amount of turnover in our screens. Only 9 of the original 29 names made the cut for the new list (which comes in at only 24 names.) Still, given the level of outperformance we saw in the first quarter (actually just two months) and the fact that much of those gains were achieved early, perhaps the turnover is warranted.

So without further ado, the names on the chopping block from the previous list are:

Silgan Holdings (SLGN - Annual Report); Steel Dynamics (STLD - Annual Report); NVR (NVR - Annual report); Middleby (MIDD); Vector Group (VCG); Sanderson Farms (SAFM); Downey Financial (DSL); Waddell & Reed (WDR); Wilshire Bancorp (WIBC); Harrington West (HWFG); Gamco Investors (GBL); Apria Healthcare (AHG); Papa John’s (PZZA); Cato Corporation (CTR); Meredith Corporation (MDP); CSG Systems (CSGS); Energy East (EAS); Dynamics Research (DRCO); Ingram Micro (IM); and Dade Behring (DADE).

The new watch list will be:

When Meredith Corporation (MDP) reported earnings, we noted:

This was slightly ahead of expectations, due in part to strong advertising trends. However, the guidance was ever so slightly below expectations. We are also concerned that circulation revenue fell (publishers get paid both for the subscriptions and the advertising.) If circulation trends are down it could lead to lower advertising rates in the future. Although the impetus for the decline was price reduction rather than lower numbers of subscribers, advertisers are usually willing to pay more to be in popular publications that can command higher subscription rates. So it could still be a concern, though it is less of one than had the actual number of subscribers declined.

Part of the reason for the price reductions was related to the acquisition of various magazine titles from Gruner+Jahr. The ongoing alignment of the businesses will also result in some one-time earnings adjustments:

Meredith Corporation said today that it will record a one-time pretax charge and realize a one-time tax benefit with the sum of these actions resulting in a net increase of $0.03 in earnings per share in its fiscal 2007 third quarter.

The one-time $13 million charge (approximately $8 million after-tax) consists of:

– Approximately $7 million (non-cash) to write off the assets of Child
magazine which will transition from a print to an online brand
exclusively within Meredith’s soon to debut parenthood portal. Most
of this charge is related to deferred subscription acquisition costs.

– A $3 million (non-cash) impairment charge for Meredith’s Chattanooga
television station (WFLI-TV), which is currently held for sale.

– $3 million for severance-related costs associated with approximately
60 position eliminations across the company being made today.

Also, Meredith will record a one-time tax benefit of approximately $9 million in the third quarter of fiscal 2007 due to the resolution of a tax contingency related to a loss on the sale of stock in Craftways, a business sold in fiscal 2003.

Other than the net benefit of $0.03, the company says the actions will not have a material impact on Meredith’s financial performance in fiscal 2007 or fiscal 2008. Meredith expects to report earnings per share of $0.86 to $0.87 in the third fiscal quarter of 2007 before the impact of the one-time charge and tax benefit. For all of fiscal 2007, Meredith continues to expect to report earnings per share 12 to 15 percent higher than the $2.86 earned in fiscal 2006.

We asked, but no one answered. So we are taking our own counsel and breaking our Watch List into three portfolios: Small Cap, Mid Cap and Large Cap. Each will be tracked against the relevant S&P index going forward from their collective inception date of January 31 (priced at the close of market trading that day.)

For your viewing pleasure, the Small Cap Watch List (Track at Marketocracy) (to be measured against the S&P 600) follows.

In addition, we will provide a “quick and dirty” analysis of each name, with a goal of one such analysis per day. As the name implies, the quick and dirty analysis will be incomplete. We are hoping you will join in the debate and fill the gaps in our analysis.

With our decision to move to several different Watch Lists by market cap (more on this later) we’re going to have our work cut out for us keeping track of them. While the official launches aren’t until January 31, it is earnings season and we might as well comment on the occasional one to get the ball rolling. Meredith Corp. will be a member of our Small Cap Watch List (Track at Marketocracy) and reported earnings this morning.
Meredith Corporation - Investor Relations - Financial Release

Meredith Corporation (NYSE: MDP), one of the nation’s leading media and marketing companies, today announced strong second quarter fiscal 2007 results. Earnings per share grew 24 percent to $0.72, compared to earnings per share of $0.58 in the prior year quarter. Net earnings increased 20 percent to $35 million. Revenues increased to $406 million, up 5 percent, including advertising revenue growth of 8 percent fueled by strong performance at Meredith’s television stations.The Company’s results for the quarter reflect a pretax charge of $3 million, or $0.04 per share, to reserve for a doubtful account relating to the December 29, 2006 bankruptcy filing by book distributor Advanced Marketing Services.

This was slightly ahead of expectations, due in part to strong advertising trends. However, the guidance was ever so slightly below expectations. We are also concerned that circulation revenue fell (publishers get paid both for the subscriptions and the advertising.) If circulation trends are down it could lead to lower advertising rates in the future. Although the impetus for the decline was price reduction rather than lower numbers of subscribers, advertisers are usually willing to pay more to be in popular publications that can command higher subscription rates. So it could still be a concern, though it is less of one than had the actual number of subscribers declined.

On the positive side, cash from operating activities rose by a far greater amount than either revenues or net income.

We are new to Meredith and this should not be taken as a full-fledged research report by any means. If you can add to our understanding, please do so in the comment area.