The E. W. Scripps Company reported operating results for the fourth quarter of 2011 that reflect a double-digit year-over-year increase in non-political television revenues, a moderation in the rate of decline in newspaper revenues, and lower operating expenses, excluding acquisition and restructuring costs.
Consolidated revenues were $197 million, a decrease of 10.4 percent from $220 million in the fourth quarter of 2010, which benefited from record political advertising in the television division. Excluding political advertising from both periods, consolidated revenues increased 1 percent year over year.
Operating expenses in the fourth quarter included $2.8 million of investment banking, legal and other fees associated with our acquisition of nine television stations from McGraw-Hill Broadcasting, and restructuring costs of $3.4 million. Restructuring costs primarily include costs associated with a reduction-in-force at Scripps newspapers in December, and continuing efforts to simplify and standardize advertising and circulation systems and processes in the newspaper division. The company began implementing the advertising and circulation systems in the first quarter of 2012. Total operating expenses were $180 million, unchanged from the prior year.
Income from continuing operations, net of tax, was $6.1 million, or 11 cents per share in the 2011 quarter, compared with income from continuing operations, net of tax, of $23.7 million, or 37 cents per share, in the year-ago quarter.
“We substantially repositioned Scripps in 2011, clearing the way for improved performance in 2012, enlarging our television footprint, and enabling an aggressive rollout of new digital products and services,” said Rich Boehne, Scripps president and CEO. “Late in the year, targeting holiday shoppers with new smartphones and tablets, we launched a series of paid news and weather apps that represent the next generation of market-defining digital products that we’re developing. We intend to continue the evolution of these products, building out what we believe will be a valuable digital marketplace for services built upon high-quality local news content.
“Behind all the noise in our fourth-quarter results were businesses that ended the year on a high note. Television revenues grew at a double-digit clip, the result of both solid recovery in key TV advertising categories and strong performance in our most valuable time slots – those programmed with high-quality local news. At the same time, we completed the opportunistic acquisition of nine additional TV stations concentrated in three of America’s best media markets – Indianapolis, Denver and San Diego. Together, they offer the prospect of a strong return on investment for our shareholders.
“Newspaper advertising declines continue to narrow and our operating model continues to focus on audiences and revenue categories that offer the best long-term opportunity for sustainable profits,” said Boehne.
“Despite this restaging of the company in 2011, we finished the year with a strong balance sheet and good financial flexibility.”
Fourth-quarter results by segment are as follows:
Television
Total revenue from the company’s television stations in the fourth quarter was $84.7 million – a 16 percent decrease compared with $101 million in the year-ago period, and an 11.4 percent increase when political advertising is excluded from the 2011 and 2010 totals.
The total revenue performance was a 15 percent increase from the same period in 2009, the previous fourth quarter in a non-election year.
Advertising revenue broken down by category was:
- Local, up 14 percent to $49.4 million
- National, flat at $23.2 million
- Political was $3.5 million, compared with $28.1 million in the 2010 quarter
Revenue from retransmission consent agreements increased 30 percent year over year to $3.9 million.
Digital revenue rose 21 percent year over year to $2.7 million in the fourth quarter.
Expenses for the TV station group declined 2.1 percent in the fourth quarter to $62.3 million. The discontinuation of Oprah on four of the company’s stations fueled a 23 percent reduction in programming costs. The programming savings were partially offset by annual incentive awards and the decision earlier this year to restore certain retirement plan benefits.
The television division’s segment profit in the fourth quarter was $22.3 million, compared with $7.5 million in the third quarter of 2011 and $37.3 million in the year-ago quarter. (See Note 1 in the attached financial information for a definition of segment profit.)
On December 30, 2011, Scripps completed the acquisition of McGraw-Hill Broadcasting, which included nine television stations. Operating results for those stations – which include four ABC affiliates and five affiliates of the Azteca America network – did not materially affect the reported financial performance.
Newspapers
Total revenue from Scripps newspapers fell 3.3 percent year over year to $110 million in the fourth quarter of 2011. It was the third consecutive quarter that the year-over-year decline moderated compared with the previous quarter. Revenue in the third quarter of 2011 was down 4.4 percent from the year-ago quarter.
Circulation revenue in the fourth quarter was flat at $30.7 million.
Print advertising revenue was down 5.1 percent to $67.8 million.
Advertising revenue broken down by category was:
- Local, down 2.8 percent to $23.4 million
- Classified, down 9.1 percent to $18.4 million
◦ Classified – employment – down 5.2 percent
◦ Classified – automotive – down 8.1 percent
◦ Classified – real estate – down 12 percent
- National, down 22 percent to $3.9 million
- Preprint and other, flat at $22.1 million
In all four of those categories, the percentage change in the year-over-year performance improved compared with the year-over-year change in the third quarter.
In 2011, we began reporting revenue from certain of our digital offerings net of the amounts paid to our digital partners. As a result of this change, reported digital revenues in the fourth quarter decreased 14 percent to $6.6 million and reported pure-play digital advertising was down 14 percent to $4.4 million. If 2010 revenues had been reported on this net basis, total digital revenues in the fourth quarter of 2011 would have been down 3.6 percent and pure-play digital revenues would have decreased 2.8 percent.
Cost and expenses increased slightly in the quarter, largely due to annual incentive awards and the decision earlier this year to restore certain retirement plan benefits.
The expense for newsprint and press supplies increased 9.5 percent in the quarter, due largely to costs associated with additional volumes from the company’s print-and-deliver initiative as well as slightly higher newsprint prices.
Fourth-quarter segment profit in the newspaper division was $9.6 million, compared with segment profit of $14.7 million in the fourth quarter of 2010.
Syndication and other
The “syndication and other” category of the company’s financial statements includes the performance of United Media’s remaining syndication business and a number of other small entities. Since June 1, 2011, Scripps has worked with an external resource to provide cost-effective syndicate services for United Media properties.
In the fourth quarter, revenues were $2.5 million, and segment profit was $364,000. In the fourth quarter of 2010, the segment reported a loss of $396,000.
Financial condition
Scripps had more than $125 million in cash and no debt for more than a year until the bank-financed acquisition of the McGraw-Hill television stations. For that transaction, the company borrowed $212 million, and has entered into a revolving credit agreement for additional borrowing capacity of $100 million.
At December 31, 2011, Scripps had cash and cash equivalents of $128 million, and total debt of $212 million.
The company repurchased 1.6 million shares during the quarter at a weighted average price of $7.39, bringing the year-to-date total to 6.2 million shares. The remaining repurchase authorization, which expires at the end of 2012, stands at $24 million as of December 31, 2011.
Full-year results
Revenue from continuing operations in 2011 was $729 million, compared with $777 million in 2010.
Scripps reported a loss from continuing operations, net of tax, of $15.7 million, or 27 cents per share, compared with net income from continuing operations of $28.9 million, or 45 cents per share, in 2010. Excluding a third-quarter charge for impairment of long-lived assets at four of the company’s newspapers, the net loss would have been 17 cents per share in 2011.
Looking ahead
For year-over-year performance of key metrics in the first quarter of 2012, management expects:
- Reported television revenues to be up more than 40 percent ; excluding the newly acquired television stations, revenues should be up in the low double digits
- Reported television expenses to be up approximately 30 percent; excluding the newly acquired stations, expenses should be down in the low-single digits
- Newspaper revenues to be down in the low- to mid-single digits
- Newspaper expenses to be down in the mid-single digits
The quarterly expense run rate for corporate and shared services will be about $8 million throughout 2012, but, as is typical for the first quarter, the figure will be about $1.5 million higher due to expensing of annual equity awards for retirement-eligible executives.
The Company reiterated the full-year revenue guidance it provided in January, when it said:
- Television revenues would increase by more than 50 percent in 2012. That includes more than $100 million of revenue for the stations that were acquired from McGraw-Hill Broadcasting Company on December 30, 2011. Excluding the newly acquired stations, television revenue should increase more than 15 percent, fueled by low-to-mid-single-digit growth of core revenue, and political revenue that should exceed the $42 million figure reported in the previous presidential election cycle.
- Newspaper revenue in 2012 should be down slightly to approximately $400 million.
In addition, Scripps provided a full-year outlook for depreciation and amortization of approximately $45 million, and capital expenditures of between $20 million and $25 million.
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