Business News

Media General Reports Third-Quarter 2010 Results, Provides Outlook

Thursday 21. October 2010 - Media General, Inc. (NYSE: MEG) today reported operating income of $11.5 million in the third quarter of 2010, compared with an operating loss of $67.7 million in the third quarter of 2009. The 2009 results included a pretax non-cash impairment charge of $84.2 million and gains of $1.9 million associated with an insurance recovery and $2 million from implementing a freeze on a retirement plan. Operating income for the third quarter of 2009, adjusted for the impairment, insurance gain and retirement plan freeze, was $12.6 million.

In the current quarter, a net loss of $10.7 million, or 48 cents per share, reflected higher interest expense related to the company’s new financing structure as well as a non-cash tax expense. In the 2009 third quarter, the company reported a net loss of $62.5 million, or $2.80 per share, including the impairment charge and the singular gains noted above, and a $910,000 gain from a favorable tax ruling related to the sale of SP Newsprint.
Total revenues in the quarter increased 3.3 percent to $163.2 million, driven by an 18 percent increase in Broadcast television revenues, which reflected strong Political advertising and an underlying firming in television advertising. Total operating expenses, excluding the items noted above, increased 4.4 percent, an improvement from the company’s guidance of 7-8 percent, due mostly to keeping open positions unfilled and lower-than-expected newsprint prices. The impact of furlough days drove a majority of the expense increase compared with last year. Additionally, gains on sales of fixed assets were $2.3 million lower this year.
“Our third-quarter operating results benefited from $9.7 million in Political revenues compared with $1.5 million last year, and reflected particularly strong campaign spending in Florida and Ohio,” said Marshall N. Morton, president and chief executive officer. “Political advertising overall was lower than expectations, even though candidate spending was on target, mostly due to lower issues spending. At the same time, transactional advertising revenues strengthened in the quarter and offset the lower-than-expected Political revenues. National television advertising, excluding Political, was up 12 percent, and Local time sales increased 4 percent. Automotive advertising, in particular, was strong, and the telecommunications and retail categories firmed as well.
“We were pleased with our progress implementing an array of new online advertising opportunities. In the third quarter, our local media websites generated a 15 percent increase in revenues. Online Classified revenues grew for the third quarter in a row and increased more than 12 percent, due in part to our Yahoo! and Zillow partnerships. Local online revenues rose 22.5 percent, as aggressive sales initiatives continued. Page views and unique visitors for our newspaper and television websites in the third quarter increased 5.6 percent and 3.5 percent, respectively. We recently extended our partnerships for Yahoo! display and Zillow real estate advertising to several TV markets and announced a new partnership for locally branded daily deals with Groupon,” Mr. Morton said.
Media General’s Publishing revenues declined 7.6 percent from last year. Retailer spending was restrained in most newspaper markets, resulting in a 7.8 percent drop in Local revenues. Classified revenues declined 11.4 percent from last year, and National revenues decreased 2 percent. Printing and distribution outside sales increased 9.4 percent in the quarter.
Market Segments
Virginia/Tennessee market profit in the third quarter was $7.4 million, compared with $10.7 million in the 2009 third quarter. Revenues declined 3.9 percent from last year and expenses increased 3.8 percent. Broadcast revenues grew 4.9 percent, mostly from the Tennessee gubernatorial race, local races and issues advertising. The Virginia gubernatorial election was held in 2009. Publishing revenues decreased 5.9 percent. Higher third-party printing and distribution revenues partially offset declines in most other categories. For the market, Local revenues decreased 3.3 percent, and Classified revenues were down 6.2 percent. National revenues declined 9.2 percent, due primarily to lower spending by telecommunications advertisers. Digital revenues rose 11.5 percent, reflecting increases in Local, National and Classified online advertising.
Florida market profit was $2.1 million, compared with $524,000 a year ago. Revenues increased 6.7 percent and expenses increased 2.5 percent. Broadcast revenues grew more than 35 percent, due to strong Political advertising on WFLA and also BP oil spill-related advertising. Political revenues were $5 million compared with essentially nothing last year, reflecting Florida’s hotly contested gubernatorial, U.S. Senate and attorney general races. Publishing revenues decreased 10.4 percent. Total market Classified and Local revenues decreased 18 percent and 2.5 percent, respectively. National revenues increased 3.4 percent, including BP advertising, as well as higher spending by automotive, financial services and travel advertisers on WFLA. Printing and distribution revenues increased 5.4 percent. Digital revenues increased 10.8 percent, due to solid growth in Local and National online advertising.
Mid-South market profit was $7 million, compared with $5.5 million in the prior year. Total revenues increased 10 percent, due to strong Political spending. The Mid-South Market includes 11 television stations and three community newspapers. Political revenues were $1.8 million, compared with $418,000 in 2009. Total Broadcast revenues in the Mid-South increased 14 percent. Total Publishing revenues declined 4 percent. Total market Local and National revenues increased 4.9 percent and 11.2 percent, respectively, offsetting a decline in Classified revenues of 7.6 percent. Digital media revenues rose 20 percent, reflecting higher Local, National and Classified spending.
The North Carolina market reported a loss of $51,000, compared with a profit of $1.4 million last year. Revenues decreased 4.1 percent, and expenses increased 4 percent from last year. Broadcast revenues increased 4.1 percent, mostly due to higher spending in the National automotive category at the market’s two television stations. Political revenues were $118,000, reflecting the absence of hotly contested races in the state. Publishing revenues in North Carolina declined 9.5 percent in the third quarter. For the market, National revenues increased 11.5 percent while Local and Classified revenues each decreased 6 percent. Digital media revenues increased 26 percent, due to higher Local and Classified revenues.
Ohio/Rhode Island market profit was $4.4 million, compared with $2.5 million last year, due to strong Political and National revenues from the market’s two NBC-affiliated television stations. Total revenues increased 19 percent. Political revenues were $2.1 million compared with $518,000 in 2009, reflecting gubernatorial and Congressional races in Ohio and a gubernatorial race in Rhode Island. National advertising increased 28 percent, due to increased automotive, furniture store and grocery store advertising. Local revenues rose 3 percent. Digital media revenues rose nearly 10 percent.
Advertising Services and Other segment profit of $483,000, declined from $1.5 million last year, due largely to a decrease in revenues from DealTaker.com, the company’s shopping and coupon website, and Blockdot, which specializes in interactive entertainment and advergaming technologies.
Other Results
Interest expense was $17 million in the third quarter, compared with $10.5 million last year, due to the company’s new financing structure. Debt at the end of third quarter of 2010 was $673 million, compared with $712 million at the beginning of the year.
Corporate expense increased due to the impact of employee furlough days and a gain from freezing a retirement plan in 2009.
Income tax expense in the third quarter was $5.3 million. The previously estimated third-quarter non-cash tax expense of $7.5 million was partially offset by an additional $1.5 million tax refund related to the company’s net operating loss carryback claim as well as a $700,000 non-cash tax benefit resulting from the intraperiod allocation of tax to other comprehensive income items. Last year’s third quarter showed an income tax benefit of $16.7 million on continuing operations related to the impairment charge.
EBITDA (loss from continuing operations before interest, taxes, depreciation and amortization) was $24.9 million in the third quarter of 2010, compared witha deficit of$51.7 millionin the 2009 period, including the non-cash impairment charge. After-Tax Cash Flow was $7.8 million, compared with $22.1 million in the prior-year’s quarter. Capital expenditures in the third quarter of 2010 were $6.8 million, compared with $3.6 million in the prior-year period. Free Cash Flow (After-Tax Cash Flow minus capital expenditures) was$1 million, compared with $18.4 million in the prior-year period, excluding the impairment charge.
Media General provides the non-GAAP financial metrics EBITDA from continuing operations, After-Tax Cash Flow, Free Cash Flow, Operating Income adjusted for impairment, insurance gain and the freeze on the retirement plan, and Operating Expenses adjusted for impairment, insurance gain and the freeze on the retirement plan. The company believes these metrics are useful in evaluating financial performance and/or are common alternative measures used by investors, financial analysts and rating agencies. These groups use EBITDA, along with other measures, to evaluate a company’s ability to service its debt requirements and to estimate the value of the company. A reconciliation of these metrics to amounts on the GAAP statements has been included in this news release.
Outlook
For the fourth quarter of 2010, Media General expects total revenues to increase 6-8 percent from the prior year. Broadcast revenues are expected to increase 24-26 percent, driven by strong Political advertising. Publishing revenues are expected to decrease 5-7 percent, due to lower revenues in most categories. Digital Media revenues are expected to increase 9-11 percent.
Total operating costs are expected to increase 8-9.5 percent, due to the impact of furlough days, higher newsprint expense and increased support of new revenue initiatives. The company continues to expect free cash flow for the full year 2010 of $58-$60 million, including a $28 million tax refund, most of which was received in April.