E.W. Scripps reports Q4 net income grew 109.2% year-over-year to US$25.5M, citing rebound in most TV ad categories, notably strong political advertising; newspaper segment revenues down 2.7% to US$114M
February 24, 2011
– The E.W. Scripps Company (NYSE: SSP) reported operating results for the fourth quarter of 2010 that included significantly higher operating income, led by the strong performance of the television division.
Consolidated revenues from continuing operations were $220 million, an increase of 12.1 percent from $196 million in the fourth quarter of 2009.
Costs and expenses totaled $178 million, an increase of 6.5 percent compared with the same period in 2009. Pre-tax restructuring costs, largely for the ongoing efforts to standardize and centralize certain functions in the newspaper division, totaled $2.4 million, compared with $5.8 million in the year-ago quarter.
Operating income more than doubled in the period to $28.9 million.
In the fourth quarter of 2010, the company reported income from continuing operations before income taxes of $28.5 million, compared with $12.9 million in the 2009 quarter. Income from continuing operations, net of tax, was $23.7 million, or 37 cents per share, in the 2010 quarter, compared with income from continuing operations, net of tax, of $12.3 million, or 19 cents per share, in the 2009 quarter.
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.
"A rebound in most TV advertising categories, accentuated by an exceptionally strong political advertising season, resulted in a strong end of the year for the company," said Rich Boehne, Scripps president and CEO. "Newspaper ad revenues were still below the prior year, but the year-over-year decline continued to shrink compared with prior quarters."
"Our primary focus, however, is on using this difficult economic period to retool the company for sustainable cash flow growth in the future. We are well down the path of reorganizing our newspaper division to lower overall expenses and deliver outstanding content and improved revenue performance across multiple platforms. In the TV division, we have retrained nearly the entire news division to deliver more and better news content to larger and more valuable audiences on all screens. Across the board, we have maintained headcount that produces the high-quality local journalism which should set our operations apart in the brutally competitive future," Boehne said.
"Scripps also is well positioned, with a strong balance sheet, to opportunistically deploy its capital during these times of rapid transition for media. Those investments may include buying more of what we already own through our share repurchase program. Moving into 2011, we will continue to evaluate a mix of internal and external opportunities to enhance revenue and create value for our owners."
Fourth-quarter results by segment are as follows:
Benefiting from the company's approach to garnering political ad dollars and the favorable footprint of the company's stations in the 2010 election cycle, revenue from the Scripps television stations was $101 million, an increase of 37 percent over the fourth quarter of 2009. The 2010 figure was 8.1 percent higher than the $93.4 million in revenue reported in the fourth quarter of the presidential election year of 2008.
Advertising revenue broken down by category was:
* Local, up 1.2 percent to $43.3 million
* National, up 5.1 percent to $23.4 million
* Political was $28.1 million, compared with $2.9 million in the 2009 quarter
The significant increase in political advertising reduced the inventory that was available for local and national advertisers through Nov. 2. Despite that displacement, the total revenue from non-political advertisers grew on the strength of the automotive category, which was up 31 percent compared with the fourth quarter of 2009. After a historically weak year for automotive advertising in 2009, the category's rebound began in December of that year.
During the fourth quarter, Scripps announced a new five-year affiliation agreement involving six of its stations and the ABC television network. Additionally, the company recently agreed to extend for five years the relationship between its three NBC stations and the NBC television network. The new ABC and NBC agreements discontinue the payment of affiliation fees from the networks to the television stations. Instead, Scripps will pay a licensing fee for the networks' programming. As a result, network compensation in fourth quarter was less than $100,000, compared with $1.5 million in the fourth quarter of 2009.
Revenue from retransmission consent agreements was $3.0 million, a year-over-year increase of 18 percent, and digital revenue increased 39 percent to $2.3 million.
Expenses for the TV station group increased year over year by 7.5 percent to $63.7 million in the fourth quarter. Contributing to the expense increase were programming costs associated with the new ABC affiliation agreement and an increase in employee costs, which rose 7.4 percent due to the restoration of performance bonuses.
The television division's segment profit, which was $14.7 million in the year-ago quarter, more than doubled in the 2010 quarter to $37.3 million, the division's highest segment profit figure since the fourth quarter of 2006. (See Note 2 in the attached financial information for a definition of segment profit.)
Revenue from Scripps newspapers declined 2.7 percent year over year to $114 million in the fourth quarter. Advertising revenue was down 5.3 percent to $79.0 million. Both figures reflect continued moderation in the rates of decline on a sequential basis. In the third quarter of 2010, for example, total revenues declined 3.8 percent and ad revenues were down 6.8 percent, year over year.
Advertising revenue broken down by category was:
* Local, down 6.5 percent to $24.1 million
* Classified, down 4.0 percent to $20.3 million
* National, down 9.9 percent to $5.0 million
* Preprint and other, down 5.8 percent to $22.1 million
* Digital was flat at $7.5 million
Within the classified advertising category, real estate remained weak due to the company's heavy exposure in California and Florida, but automotive was up more than 5 percent in the fourth quarter, and help wanted rose more than 11 percent.
Reported circulation revenue in the fourth quarter was $30.7 million, a 4.4 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 has completed 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 fourth quarter would have been down 1.0 percent.
Employee costs in the fourth quarter were 3.8 percent lower than in the year-ago period due to lower pension expense and a reduction in the number of employees. The number of full-time equivalent employees at Scripps newspapers was 4.4 percent lower than a year ago.
Despite a 5.2 percent decrease in newsprint usage, the expense for newsprint and press supplies in the fourth quarter rose 10 percent due to a 30 percent increase in the price of newsprint.
Total segment expenses for Scripps newspapers increased 2.2 percent to $99.3 million, compared with $97.1 million in the prior-year period.
Fourth-quarter segment profit in the newspaper division was $14.7 million, compared with segment profit of $20.0 million in the fourth quarter of 2009.
Syndication and other
The "syndication and other" category includes United Media's remaining syndication business and a number of smaller operations. Revenue from those operations was down 2.4 percent in the fourth quarter to $5.3 million, and the segment loss was $400,000, compared with a breakeven fourth quarter in 2009.
Scripps had essentially no long-term debt at the end of the quarter, while cash and cash equivalents totaled $205 million.
At the end of 2010, the fair value of the company's pension plan assets was approximately $48 million less than the company's projected benefit obligations, a $79 million decrease in the unfunded liability compared with the end of 2009. The shortfall in plan assets relative to projected benefit obligations is reflected in the "other liabilities" section of the attached condensed consolidated balance sheets.
Scripps did not repurchase any of its Class A Common shares during the fourth quarter, so the company's remaining share repurchase authorization stands at $75 million as of Dec. 31, 2010. The authorization expires at the end of 2012.
Revenue from continuing operations in 2010 was $777 million, an increase of 6.1 percent from $732 million in the prior-year period.
Scripps reported income from continuing operations, net of tax, of $28.9 million, or 45 cents per share, in 2010, compared with a loss from continuing operations, net of tax, of $199 million, or $3.69 per share, in 2009.
The 2010 figures include after-tax restructuring charges totaling $7.8 million, or 12 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 $198 million, or $3.68 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.
Including the results of discontinued operations and the gain on the sale of the licensing business, Scripps reported net income of $131 million, or $2.04 per share, in 2010, compared with a net loss of $210 million, or $3.89 per share, in 2009.
In the first quarter of 2011, management expects the year-over-year growth in television revenues to be in the low single digits, in part due to the absence of Olympics advertising compared with the first quarter of 2010. The newspaper division is expected to report year-over-year revenue performance in the first quarter that is similar to its performance in the fourth quarter of 2010.
During the first quarter, total television expenses are expected to increase at a percentage rate in the mid-single digits as a result of higher employee costs related to expected merit increases and the affect of the July 2010 restoration of the company match of employees' 401(k) contributions. Total newspaper expenses also are expected to rise in the mid-single-digit range, driven by increases in the cost of newsprint and increased expenses for employee benefits.
For the full year, management expects:
* Expenses for corporate and shared services to be approximately $32 million,
* Depreciation and amortization to be approximately $40 million,
* Capital expenditures to be less than $20 million, and
* Restructuring charges to be approximately $10 million.
Industry Intelligence Editor's Note: In an omitted table the company listed Q4 net income of US$25.5 million and 2009 Q4 net income of US$12.2 million.