Business News

Scripps reports third-quarter results

Friday 09. November 2012 - Same-station political advertising nearly doubled 2010 totals; new share repurchase program authorized

Fueled by the contribution of television stations acquired in 2011 and a surge in political advertising revenues, The E.W. Scripps Company (NYSE: SSP) reported operating results for the third quarter of 2012 that were substantially stronger than the year-ago quarter.
Consolidated revenues rose 31 percent to $220 million from $168 million in the third quarter of 2011. The 2012 quarter included revenue from television stations in Indianapolis, Denver, San Diego and Bakersfield that were acquired on Dec. 30, 2011. Excluding the new stations from the 2012 performance, consolidated revenues increased 15.0 percent to $193 million, led by the strongest third-quarter revenue performance ever reported by the company’s television stations.
Consolidated expenses for segment, shared services and corporate rose 13.7 percent to $185 million. Excluding costs associated with the new stations, expenses increased 1.1 percent to $164 million.
Operating income in the 2012 quarter was $18.3 million, compared with an operating loss of $17.9 million in the third quarter of 2011. The year-ago quarter included a non-cash, pre-tax charge of $9 million for the impairment of long-lived assets at four of the company’s newspapers.
At $3.3 million, interest expense in the 2012 quarter was higher than in the prior-year quarter due to the acquisition of the television stations.
The provision for income taxes was $2.1 million in the third quarter of 2012, compared with a tax benefit of $7.5 million in the year-ago quarter. The tax provision for the 2012 quarter includes a $3.7 million reduction in the company’s reserve for uncertain tax positions.
Net income in the third quarter of 2012 was $12.0 million, or 21 cents per share, compared with a net loss of $10.7 million, or 19 cents per share, in the third quarter of 2011.
“An aggressive realignment of our company over the past two years has positioned us to take advantage of improvements in our core television business, growth in digital audiences, and a huge surge in political advertising,” said Rich Boehne, Scripps president and CEO.
“In the television division, our investments in local news content, original programming to replace underperforming syndicated shows, and in sales infrastructure to maximize political dollars are all showing strong returns on investments. Also ahead of expectations are the four additional markets – Denver, Indianapolis, San Diego and Bakersfield – which we acquired at the end of last year.”
“In the newspaper division, we saw a positive upturn in real estate advertising driven by improvement in Florida, which is particularly critical to Scripps. Overall expense control was good, and we’re approaching the beginning of a move to bundled subscriptions for print and digital products, which we believe is both critical to the future health of the business and in line with growing consumer demand.”
“Across our entire portfolio of attractive local markets we are rapidly rolling out new, market-leading digital products and services. A new round of improved apps for smartphones and tablets recently were released, and market by market we are expanding our advertising sales force to increase our share of the growing digital advertising pie.”
“Enabling Scripps to seize these opportunities and build the value of the enterprise is one of the industry’s strongest balance sheets. With no net debt and a growing pool of cash, we have the financial flexibility to consider a wide range of options that will produce the best returns to our shareholders.”
Third-quarter results by segment are as follows:
Television
Reported revenue from the company’s television stations in the third quarter was $125 million, compared with $70.0 million in the third quarter of 2011. On a same-station basis, television revenue increased 41 percent in the quarter to $98.8 million.
Reported advertising revenue broken down by category was:
— Local, up 25 percent to $52.0 million (down 1 percent on a same-station
basis)
— National, up 39 percent to $26.0 million (up 6 percent on a same-station
basis)
— Political was $33.9 million, compared to $2 million in the 2011 quarter
Excluding the newly acquired stations, political advertising totaled $28.0 million in the third quarter. That compares with $14.8 million on a same-station basis in the third quarter of 2010 (the previous election cycle) and $10.3 million in 2008 (the previous presidential cycle).
As is common during presidential election cycles, the influx of political advertising displaced certain traditional advertisers. The company expects advertisers in the core market, especially in the automotive and retail categories, to return to the air in the back half of the fourth quarter.
Revenue from retransmission consent agreements rose 86 percent year over year to $7.4 million. As a result of new agreements with cable operators that were negotiated in 2011, same-station retransmission revenue increased 26 percent to $5.0 million.
Digital revenues in the third quarter increased 85 percent to $4.0 million, and grew 50 percent on a same-station basis.
Largely as a result of the addition of new stations, expenses for the TV station group grew 35 percent to $83.5 million. Excluding the new stations, expenses were up 1.9 percent.
The television division’s segment profit in the third quarter was $41.8 million, compared with $8.1 million in the year-ago period. (See Note 2 in the attached financial information for a definition of segment profit.)
During the third quarter, Scripps launched two homegrown 30-minute programs, a game show called “Let’s Ask America,” and our infotainment program called “The List.” The shows, which typically air in the hour before network primetime programming, are on the air in Scripps markets from coast to coast. In less than two months since their debut, the shows are performing at or above the company’s expectations.
Newspapers
Total revenue from Scripps newspapers in the third quarter was $92.4 million, down 3.7 percent from the third quarter of 2011 and generally consistent with the year-over-year performance in the second quarter.
Circulation revenue in the third quarter decreased 2.8 percent to $27.8 million.
Print advertising revenue, at $53.4 million, was down 5.3 percent compared with the third quarter of 2011, but the figure was an improvement over the year-over-year decline of 7.2 percent in the second quarter.
Advertising revenue broken down by category was:
— Classified, down 3.0 percent to $18.1 million
— Classified – Real Estate – up 1.3 percent
— Classified – Employment – down 7.6 percent
— Classified – Automotive – down 8.5 percent
— Local, down 6.1 percent to $17.5 million
— Preprint and other, down 1.0 percent to $16.0 million
— National, down 38 percent to $1.9 million
The increase in classified real estate is attributable to strengthening market conditions in Naples, Fla.
Digital revenue was up 0.9 percent compared with last year at $6.5 million. Pure play digital revenue increased 4.9 percent over the year-ago quarter.
Total segment expenses decreased 5.2 percent to $88.1 million. The expense for newsprint and press supplies decreased 3.1 percent in the quarter, due largely to newsprint expenses that decreased 5.2 percent due to lower volume.
Third-quarter segment profit in the newspaper division was $4.2 million, an increase from $3.0 million in the third quarter of 2011.
Syndication and other
The “syndication and other” category of the company’s financial statements includes syndication of news features and comics and other features for the newspaper industry, and certain digital operations outside our newspaper and television markets.
In the third quarter, revenues were $1.9 million, and the segment loss was $1.8 million. In the third quarter of 2011, the segment reported profit of less than $200,000.
Financial condition
At September 30, 2012, Scripps had cash and cash equivalents of $210 million, up from $167 million at the end of the second quarter. Total debt was $200 million at the end of the third quarter.
The company repurchased approximately 700,000 shares during the quarter at a weighted average price of $10.13. Scripps had been repurchasing shares since the first quarter of 2011 under a buyback authorization of $75 million, which was exhausted during the third quarter. Approximately 8.7 million shares were repurchased at an average price of $8.60 over the past two years.
Also, the board of directors has authorized the additional repurchase of up to $100 million of its Class A Common Shares. The shares may be repurchased from time to time at management’s discretion, either in the open market, through pre-arranged trading plans or in privately negotiated block transactions. The authorization expires Dec. 31, 2014.
The company currently intends to fund approximately half of the buybacks from its cash balance and half using cash proceeds from the potential exercise of employee stock options. Approximately 8.6 million options are currently exercisable at prices between $8.78 and $10.38. They expire at various times through 2016.
Year-to-date results
Revenue through the first three quarters of the year was $644 million, compared with $531 million in the prior-year period. Excluding the recently acquired television stations, revenue increased 6.7 percent.
Scripps reported net income in the first nine months of 2012 of $13.0 million, or 23 cents per share, compared with a net loss of $21.8 million, or 38 cents per share, in the same period in 2011.
Looking ahead
For year-over-year performance of key metrics in the fourth quarter of 2012, management expects:
— Reported television revenues to be up about 80 percent; excluding the
newly acquired television stations, revenues should increase between 35
and 40 percent
— Reported television expenses to be up 40 to 45 percent; excluding the
newly acquired stations, expenses should increase —–at a
percentage rate in the mid-single digits
— Newspaper revenues and expenses to decline at a mid-single-digit rate,
with the decline in expenses being slightly greater than the decline in
revenue
— Expenses for shared services and corporate to be approximately $9
million
The guidance listed above for total fourth-quarter television revenue includes political advertising of approximately $57 million, a figure that was largely fueled by higher-than-expected presidential advertising in the battleground states of Ohio, Florida and Colorado. The division’s total political advertising for 2012 was $107 million, of which roughly $84 million came from stations owned more than a year. Before this year, the highest figure for political advertising from those nine stations was $48 million in 2010.