E.W. Scripps reports Q1 net loss of US$8.9M compared with a loss of US$880,000 year-over-year on weak newspaper advertising, rising expenses; revenue down 2.1% to US$180M
May 10, 2011
– The E.W. Scripps Company (NYSE:SSP - News) reported operating results for the first quarter of 2011 that reflect stronger revenue performance from the company's television stations, and increases in costs that were in line with guidance and reflect the company's strategy to be the leading multi-platform news organization in each of its markets.
Consolidated revenues from continuing operations were $180 million, a decrease of 2.1 percent from $184 million in the first quarter of 2010.
Costs and expenses, excluding restructuring costs, totaled $178 million, the same figure as in the fourth quarter, but a 5.0 percent increase compared with the year-ago quarter. Pre-tax restructuring costs, largely for the ongoing efforts to standardize and centralize certain functions in the newspaper division, dropped to $2.1 million, compared with $3.3 million in 2010 quarter.
The operating loss was $10.5 million, in the first quarter of 2011, compared with a $1.2 million loss in the same period a year ago.
In the first quarter of 2011, the company reported a loss from continuing operations before income taxes of $11.6 million, compared with a loss of $2.4 million in the 2010 quarter. The loss from continuing operations, net of tax, was $8.9 million, or 15 cents per share, in the 2011 quarter, compared with a loss from continuing operations, net of tax, of $2.1 million, or 4 cents per share, in the year-ago 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 of the licensing business now are reported as discontinued operations for all periods presented.
"Our first quarter results were largely as projected, with the exception being the weaker-than-anticipated newspaper advertising that affected the entire industry," said Rich Boehne, president and CEO. "Television, despite a number of headwinds, reported one of the best revenue increases in the industry, leading us to believe audiences are responding to our commitment to strengthen our news organizations in the communities we serve.
"Expenses in both divisions rose as expected, and we continue to move ahead with the latter phases of a broad reorganization of newspaper operations and an aggressive plan to increase the quantity and quality of local news content in the television division.
"We knew going in that the first quarter would provide difficult comparisons for both revenues and expenses, but we chose to deploy resources where we believe there is an opportunity for a long-term return on investment. We also took advantage of our strong cash position and invested in the businesses we know best by repurchasing $7 million of our own shares during the quarter."
First-quarter results by segment are as follows:
Revenue from the Scripps television stations was $69.0 million, an increase of 3.2 percent compared with the first quarter of 2010, which benefited from $2 million in incremental revenue tied to the broadcast of last year's Winter Olympics on the company's three NBC affiliates. Excluding the effect of the Olympic dollars in the year-ago figure, television advertising revenue increased 4.4 percent.
Advertising revenue broken down by category was:
* Local, up 3.5 percent to $41.1 million
* National, down 1.0 percent to $20.0 million
* Political was $444,000, about half the figure in the year-ago quarter
Late in 2010, 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, Scripps recorded no network compensation revenue in the first quarter of 2011, compared with nearly $800,000 of network compensation revenue a year ago.
Revenue from retransmission consent agreements increased 47 percent year over year to $4.0 million. Digital revenue was $2.1 million, an increase of 29 percent compared with the first quarter of 2010.
Due, in part, to the reinstatement of certain employee benefits, expenses for the TV station group rose by 4.0 percent year over year to $62.6 million in the first quarter. The TV stations also reported higher programming costs in the quarter as Scripps began paying the television networks for their programming as part of new affiliation agreements announced in the past year. Those network programming costs will be more than offset by a significant reduction in syndicated programming costs starting later this year when the daily production of Oprah comes to an end.
The television division's segment profit in the first quarter was $6.3 million, a decrease of 4.8 percent. (See Note 1 in the attached financial information for a definition of segment profit.)
Revenue from Scripps newspapers declined 5.7 percent year over year to $106 million in the first quarter of 2011. Print advertising revenue was down 7.8 percent to $63.1 million. Both figures were affected, in part, by timing issues. The 2010 quarter benefited from higher-than-usual advertising volume ahead of the Easter holiday on April 4. With Easter falling on April 24 in 2011, virtually no Easter spending affected the first quarter.
Print advertising revenue broken down by category was:
* Local, down 10 percent to $21.3 million
* Classified, down 3.9 percent to $20.9 million
* National, down 28 percent to $3.6 million
* Preprint and other, down 3.3 percent to $17.3 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 3.8 percent in the first quarter, and help wanted rose nearly 14 percent.
Circulation revenue in the first quarter was $31.6 million, a 1.8 percent decrease compared to the year-ago period.
Digital revenues, which include advertising on our newspaper Web sites, digital advertising provided through audience-extension programs such as our arrangement with Yahoo!, and other digital marketing services such as managing an advertiser's search engine marketing efforts, decreased 5.7 percent to $6.3 million. In 2011, we began reporting revenue from certain of our digital offerings net of the amounts paid to our digital partners. If 2010 revenues had been reported on this net basis, digital revenues in the first quarter of 2011 would have increased 1 percent and pure-play digital advertising would have increased 2.3 percent.
Consistent with management's guidance in February, newspaper segment expenses in the first quarter rose 4.9 percent, to $101 million, due to higher costs for newsprint and employee benefits. Employee costs rose 4.8 percent, driven by the reinstatement of the 401(k) matching program in mid-2010 and a rise in health care costs as the company put seed money into the Health Savings Accounts of an increasing number of employees. A 20 percent increase in the price of newsprint in the first quarter resulted in an 8.0 percent increase in the expense for newsprint and press supplies.
First-quarter segment profit in the newspaper division was $5.4 million, compared with segment profit of $16.6 million in the first quarter of 2010.
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 rose 8.4 percent in the first quarter to $5.2 million. The segment loss narrowed to $435,000, from $1.1 million in the prior-year quarter.
Scripps had no long-term debt at the end of the quarter, while cash and cash equivalents totaled $182 million.
The decrease in cash and cash equivalents at the end of the first quarter compared with Dec. 31, 2010 is attributable to the repurchase of shares, the deposit of cash collateral with the company's worker's compensation insurer in lieu of a letter of credit and net working capital needs.
During the first quarter, Scripps repurchased 713,000 shares at an average price of $9.28. The repurchase authorization, which expires at the end of 2012, stands at $68 million as of March 31, 2011.
In the second quarter of 2011, management believes year-over-year revenue performance will improve compared with the first quarter.
In the television division, revenues are expected to increase at a rate that is closer to mid-single digits than the 3.2 percent reported in the first quarter. Excluding the effects of political revenue in both years, television advertising revenue in the second quarter could grow at a mid-to high-single digit rate. The newspaper division is expected to report year-over-year declines in second-quarter revenue that will moderate slightly compared with the first quarter.
During the second quarter, total television expenses are expected to increase at a mid-single-digit rate, and total newspaper expenses are expected to increase at a low- to mid-single-digit rate. Corporate and shared services are expected to be $8 million, approximately $1 million less than in the first quarter.
For the balance of the year, management expects revenue trends to continue, with the rate of decline in newspaper revenues moderating and television revenues, excluding political, improving.
The E.W. Scripps Company is a diverse media enterprise with interests in television stations, newspapers, local news and information Web sites, and syndication of news features and comics.
Industry Intelligence Editor’s Note: In an omitted table, Scripps reported Q1 net loss of US$8.9 million. For the same period a year ago, the company reported a net loss of US$880,000.
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