Excellent 1Q for Scripps Networks - Analyst Blog

By Zacks | May 03, 2012 AAA

Scripps Networks Interactive Inc. (SNI) has reported strong financial results for the first quarter of 2012. Quarterly total revenue of $553.3 million increased 11.3% on a yearly basis, easily beating the Zacks Consensus Estimate of $519 million. The year-over-year revenue growth was primarily driven by higher advertising and affiliate fee revenue. Quarterly GAAP net income from continuing operation was $114.9 million or 73 cents per share compared with $100.5 million or 59 cents per share in the prior-year quarter. Reported earnings per share of 73 cents were miles ahead of the Zacks Consensus Estimate of 60 cents.

Consolidated costs and expenses were $296.1 million in the reported quarter, up 16.8% year over year. Higher expenditure in the previous quarter was mainly attributable to higher programming expenses and international and start-up costs for a number of planned growth initiatives of the company. Quarterly operating income rose 4.4% year over year to $214.7 million. Operating margin in the reported quarter was 40.1% compared with 42.8% in the prior-year quarter.   

During the first quarter of 2012, Scripps Networks generated $208.2 million of cash from operations compared with $225.9 million in the prior-year quarter. Free cash flow (cash flow from operations less capital expenditures) in the reported quarter was $200.9 million compared with $214.7 million in the year-ago period.

At the end of the first quarter of 2012, Scripps Networks had $645.5 million in cash & marketable securities and $1,384 million of outstanding debt on its balance sheet compared with $760.1 million in cash & marketable securities and $1,383.9 million of outstanding debt at the end of 2011. At the end of the reported quarter, debt-to-capitalization ratio was 0.43 compared with 0.45 at the end of 2011.

Lifestyle Media Segment

Quarterly revenue of $528.6 million, improved 11.6% year over year. Within sub-segments, Advertising revenue climbed 10.4% annually to $355.3 million; Affiliates fee revenue stood at $166.4 million, up 15.5% year over year, Other revenue dipped 7.1% year over year to $6.8 million. Total segment profit was $239.2 million, up 5.3% year over year.

Brand-wise, HGTV revenue was $185.7 million, up 8.4% year over year. Total subscriber base was 98.9 million, down 0.9% year over year. Food Network revenue was $198.8 million, up 14.2% year over year. Total subscriber base stood at 99.7 million, down 0.7% year over year. Travel Channel revenue was $66.6 million, up 7.4% year over year. Total subscriber base slid 1.3% year over year to 94.8 million.

DIY Network revenue was $27.6 million, up 18.3% year over year. Total subscriber base was 56.8 million, up 5.2% year over year. Cooking Channel revenue was $19.8 million, up 29.8% year over year. Total subscriber base was 58.4 million, up 1.6% year over year. Great American Country revenue was $5 million, down 22.7% year over year. Total subscriber base stood at 62.1 million, up 3.8% year over year. SN Digital revenue leaped 15.6% annually to $22.4 million. Other revenue was $2.7 million, up 19.1% year over year.

Corporate Segment

Quarterly total revenue of $6.8 million was down 7.1% year over year. However, segment loss was $25.4 million, up 46.4% year over year.

Future Financial Guidance

Management has provided guidance for full-year 2012. Total revenue is anticipated to grow 8% -10%. Programming expenses will likely witness a 13%-15% jump in order to increase TV audiences. Non-Programming expenses are estimated to increase 10% to 12%. Capital expenditure is anticipated to be in the range of $60 million to $70 million.

Depreciation and amortization is expected to be between $100 million to $110 million. Interest expense should lie between $45 million to $50 million. Non-controlling share of net income is expected to range between $170 million to $180 million while Effective tax rate will most likely to be 30% to 32%.

Recommendation

Increased marketing efforts, continuous growth in advertising and affiliate fee revenues coupled with channel acquisitions and future share repurchase authorizations will act as growth catalysts for the company going forward. However, management's decision to increase marketing expenditure in order to expand TV audiences may put pressure on margins in the near term.

Moreover, stiff competition from other media companies like Discovery Communications Inc. (DISCA) and Crown Media Holdings, Inc. (CRWN) may act as headwinds in the forthcoming quarters. We, thus, maintain our long-term Neutral recommendation on Scripps Networks. Currently, ithas a Zacks #3 Rank, implying a short-term Hold rating on the stock.

 
CROWN MEDIA HLD (CRWN): Free Stock Analysis Report
 
DISCOVERY COM-A (DISCA): Free Stock Analysis Report
 
SCRIPPS NETWRKS (SNI): Free Stock Analysis Report
 
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