Business News

Scripps Reports Second-Quarter Results

Monday 09. August 2010 - The E.W. Scripps Company (NYSE:SSP) reported operating results for the second quarter of 2010 that showed a continuing trend of significantly improved year-over-year revenue performance in the television division - up 22 percent from last year - and moderating year-over-year declines in newspaper revenue.

On April 27, 2010, Scripps announced that it had signed an agreement to sell its character licensing business, United Media Licensing, to Iconix Brand Group for $175 million in cash. The sale closed on June 3, 2010. Operating results and the after-tax gain on the sale of the licensing business now are reported as discontinued operations for all periods presented.

Consolidated revenues from continuing operations were $189 million, an increase of 5.2 percent from $179 million in the year-ago quarter, marking a return to consolidated revenue growth for the first time since the beginning of the nation’s financial crisis and economic slump in the fall of 2008.

Total expenses, excluding restructuring costs, grew 2.7 percent in the quarter to $170 million. Expense decreases in the newspaper division were offset by cost increases in the television division, primarily caused by an accrual for network programming expenses and the restoration of marketing activities that were suspended in the year-ago quarter.

Income from continuing operations in the second quarter of 2010, net of tax, was $1.8 million, or 3 cents per share, compared with net income from continuing operations in the year-ago quarter of $2.3 million, or 4 cents per share.

Including the results of discontinued operations and the gain on the sale of the licensing business, Scripps reported net income of $99.5 million, or $1.56 per share, compared with $2.3 million, or 4 cents per share, in the second quarter of 2009.

“Thanks to shared sacrifice and difficult decisions across the company, we’re now in a strong financial position and devoting our creative energies to new opportunities arising from the relentless evolution of media,” said Rich Boehne, Scripps president and CEO. “We entered the second half of the year with essentially no debt and material cash in the bank, giving us the flexibility to invest in our current businesses where we can increase market share and cash flow.

“The flow of advertising dollars to broadcast television continues to recover nicely, and the organic growth of the digital and mobile audiences is encouraging,” Boehne said. “Much of that improvement is thanks to the general economic recovery, but we’re also seeing returns on the investments we’re making in high-quality local news content and the more aggressive marketing of the products and services we offer in local TV markets.

“Our newspaper advertising revenue is still trending below the prior year, but the declines continue to moderate. The restructuring of our newspaper operations to capture benefits of scale and to focus local operations on content and sales is moving ahead. Coupled with an intense focus on community-service journalism, this realigning of our newspapers is helping offset some of the revenue weakness and positioning us for success as revenues stabilize.”

Second-quarter results by segment are as follows:

Television



Revenue from the company’s television stations was $74.8 million in the second quarter, an increase of 22 percent over the second quarter of 2009 and 12 percent over the first quarter of 2010. By comparison, second quarter revenue in the 2008 election cycle was 5.9 percent higher than in the first quarter, and in the previous mid-term election cycle of 2006, sequential revenue improvement in the second quarter was only 3.1 percent.

Advertising revenue broken down by category was:

— Local, up 13 percent to $42.3 million
— National, up 32 percent to $22.2 million
— Political was $4.4 million, compared with $333,000 in the 2009 quarter



Total advertising time sales were up $14.3 million, or 26 percent, compared with the prior-year quarter.

The increase in revenue from local and national advertisers was largely attributable to improved spending by advertisers in categories that suffered in 2009. Automotive advertising rose 84 percent in the quarter, with the retail, travel/leisure, services and consumer packaged goods categories also up by double-digit percentages.

As was the case in the first three months of the year, sales improved throughout the quarter as year-over-year revenues climbed 17 percent in April, 24 percent in May and 27 percent in June.

Revenue from the national broadcast networks was less than a quarter of a million dollars, compared with $1.9 million in the second quarter of 2009. The company’s affiliation agreements with ABC, which include six Scripps stations, expired on January 31, 2010. The Scripps stations have continued to operate as ABC affiliates under short-term extensions while Scripps and ABC negotiate a new long-term affiliation agreement.

Revenue from retransmission consent agreements increased 36 percent in the quarter to $3.0 million, and online revenue increased 29 percent to $1.9 million.

Segment expenses for the TV station group increased 9 percent to $61.5 million, due in part to an accrual for a new network affiliation agreement and the resumption of customary marketing initiatives to support the May sweeps period. Year-over-year employee costs increased 5.1 percent, due, in part, to the absence of temporary compensation-reduction initiatives implemented in the year-ago quarter.

The television division reported segment profit of $13.3 million in the second quarter, compared with a segment profit of $4.8 million in the year-ago quarter. (See Note 2 in the attached financial statements for a definition of segment profit.)

Newspapers

Year-over-year revenue from Scripps newspapers fell 4.0 percent to $108 million. Advertising revenue was down 7.7 percent to $73.3 million. Both figures reflect an improvement in the rate of decline from the first quarter of 2010, when total revenues declined 7.6 percent and ad revenues were down 12 percent, year over year.

Advertising revenue broken down by category was:

— Local, down 8.1 percent to $21.7 million
— Classified, down 8.4 percent to $22.1 million
— National, down 10 percent to $4.5 million
— Preprint and other, down 6.5 percent to $18.0 million
— Online pure-play, up 14 percent; total online (including print
upsells), down 5.5 percent, to $6.9 million



Reported circulation revenue in the second quarter was $29.7 million, a 4.0 percent increase compared to the year-ago period. A change in the nature of the business relationship between the company and certain newspaper distributors in select markets caused the increase in circulation revenue. The company is continuing a transition to pay most independent distributors on a per-unit basis, recording circulation revenue after the transition at a higher retail basis and recording the per-unit delivery cost as distribution expense. Excluding the effects of that change, which does not affect segment profit, circulation revenue in the second quarter would have been down 3.0 percent.

Employee costs in the second quarter were 5.2 percent lower than in the year-ago period due to a reduction in the number of employees and lower pension expenses.

Newsprint and press supplies expense in the second quarter declined 18 percent due to a 14 percent decrease in newsprint volume, and newsprint prices that were down 3.5 percent in the quarter.

Total segment expenses for Scripps newspapers were down 3.8 percent from the prior-year period to $93.4 million.

Second quarter segment profit in the newspaper division was $14.6 million, a decline of 5.6 percent from $15.4 million in the second quarter of 2009.

Syndication and other

The “syndication and other” category of the company’s financial statements includes the performance of United Media’s remaining syndication business and a number of smaller entities. Revenue from those operations rose 3.0 percent in the second quarter to $6.0 million, and the segment loss narrowed from $419,000 last year to less than $200,000 in 2010.

Financial condition

Scripps had essentially no long-term debt at the end of the second quarter, while cash, cash equivalents and short-term investments totaled $140 million. The company’s cash position was strengthened by the sale of the licensing business, which, after transaction costs, resulted in an after-tax gain of $96 million.

In June, the company made a voluntary contribution to its defined benefit pension plans of $65 million. The unfunded liability of the plans as of December 31, 2009, prior to the voluntary contribution, was $109 million.

Scripps has filed its tax return for 2009 and expects to receive a federal tax refund of $57 million after carrying back losses generated in 2009 to income and taxes paid in prior years. The company expects to make estimated payments toward its 2010 tax liability of $45 million in the second half of the year.

Year-to-date results

Revenue from continuing operations through the first half of the year was $373 million, an increase of 1.7 percent from $367 million in the prior-year period.

Scripps reported a net loss from continuing operations of $217,000, or less than one cent per share, in the first six months of the year, compared with a net loss from continuing operations of $206 million, or $3.83 per share, in the first half of 2009.

The 2010 figures include after-tax restructuring charges totaling $4.3 million, or 8 cents per share, for the rationalization of functions and centralization of processes in its newspaper division and the consolidation of certain functions at its television stations. The 2009 figures include non-recurring items that, net of taxes, totaled $194 million, or $3.62 per share. Those items include an impairment charge to write down the carrying value of goodwill and other intangible assets at the Scripps television stations, restructuring charges, and a non-cash curtailment charge related to the company’s decision to freeze its pension plan on June 30, 2009.

Looking ahead

At this point, management believes the generally improving business trends reported in the second quarter of 2010 will continue into the second half of the year. In the third quarter, the year-over-year growth in television ad revenues is expected to exceed 30 percent, while the declines in newspaper ad revenue are expected to moderate slightly.

During the third quarter, total newspaper expenses are expected to increase at a percentage rate in the low single digits, driven mostly by increases in the cost of newsprint. Total television expenses are expected to increase about 10 percent year over year.