Scripps operating cash flow up 27 percent
Thu, October 10, 2002 by Tim Stautberg
CINCINNATI - The E. W. Scripps Company’s third-quarter cash flow from core operations increased 27 percent year-over-year to $109 million, excluding unusual items.The improved results reflect stronger than expected operating performance at the company’s cable television networks, improved broadcast television advertising sales and a stabilizing newspaper advertising market.Excluding unusual items, income per share from core operations was 65 cents compared to an adjusted 47 cents, up 38 percent from the year-ago quarter. Previously reported third quarter 2001 income per share from core operations of 38 cents included a charge for amortization of goodwill and other intangible assets that are no longer amortized under accounting rules adopted Jan. 1, 2002.Third quarter consolidated net income, including unusual items, was $45.7 million, or 57 cents a share, compared to $22.6 million, or 28 cents a share in the year earlier period. Unusual items for this year’s third quarter included a $10 million write down to reflect the decline in value of certain investments.The company’s third quarter consolidated revenues were $372 million, up 11 percent from $336 million during the third quarter of 2001. Scripps Networks, the company’s fastest growing division, posted a 26 percent increase in revenues to $97.1 million for the quarter and a 69 percent increase in operating cash flow, which reached $29.9 million. Scripps Networks includes the company’s portfolio of national television networks -- Home & Garden Television, the Food Network, DIY - Do It Yourself Network and Fine Living. Operating cash flow from the company’s broadcast television station group was up 65 percent to $20.6 million on a 19 percent increase in revenues. The increase in third-quarter broadcast television revenues included $5.5 million in political advertising, compared to $700,000 in the same period a year ago. Local and national broadcast television advertising combined, other than political, was up 13 percent for the quarter to $63.9 million. Broadcast television advertising revenues were held back about $4 million during the third quarter of 2001 due to lost sales in the days immediately following the Sept. 11 terrorist attacks. “Scripps just completed a very successful third quarter,” said Kenneth W. Lowe, president and chief executive officer for Scripps. “HGTV and Food Network achieved superior operating results; we increased distribution of Fine Living to 13 million U.S. households just eight months after its launch; and we announced our intention to enter the $6 billion television retailing market by acquiring controlling interest in the Shop At Home network. The company’s continued growth is the direct result of our strategic decision 18 months ago to stay the course and remain focused on our top priority - the expansion of Scripps Networks.”“Led by stronger than expected financial performance at HGTV and Food, Scripps Networks is on track to contribute about one-quarter of the company’s consolidated operating cash flow for 2002,” Lowe said. “That’s a phenomenal number for a business segment that didn’t even exist for the company eight years ago. Our decision to invest in quality, original programming and expanded services at Scripps Networks has paid off in higher viewership and reinvigorated growth.”“HGTV and Food can each be seen in nearly 80 million U.S. households and our newer services - DIY and Fine Living - are showing great promise,” Lowe added. “DIY now reaches 14 million households and, thanks to a distribution deal we negotiated during the third quarter with DIRECTV, we’ve quickly added 11 million Fine Living subscribers nationwide. Time Warner Cable also made Fine Living available to 500,000 subscribers in New York City during the third quarter.”“Scripps took a significant step forward in August with our announced intention to acquire 70 percent of the Shop At Home network,” Lowe said. “TV retailing is a growing industry that targets consumer categories that are closely related to those served by our portfolio of lifestyle programming services. We believe we have the needed expertise and the right industry relationships to create significant value at Shop At Home.”“Key to the growth strategy at Scripps is the financial strength of the company’s newspapers and broadcast television stations,” Lowe said. “Collectively, our established media businesses had a solid third quarter.” “Results at our TV stations were significantly improved, with healthy increases in local and national advertising. Political advertising revenues are providing the boost we expected, but even without the campaign spending, other TV advertising categories appear to be firming up.”“At our local newspapers, advertising appears to be stabilizing in many of our markets,” Lowe said. “We’re also seeing the benefits of our joint operating agreement in Denver. Operating income in Denver approached $1 million during the third quarter compared to a $1.4 million loss in the same period a year ago.”Guidance Based on advance advertising sales, the company currently anticipates fourth quarter advertising revenue for Scripps Networks will be up about 40 to 45 percent year-over-year. Affiliate fee revenue for Scripps Networks is expected to increase about 35 percent during the fourth quarter, net of distribution fee amortization. Operating cash flow losses related to the development of DIY and Fine Living are expected to be about $9 million, or 7 cents per share.Newspaper advertising revenues are expected to be up modestly over the prior year in the fourth quarter.At the company’s broadcast television stations, total advertising revenues, including political advertising, are expected to be up 10 to 15 percent in the fourth quarter. Political advertising in the fourth quarter is expected to reach $12 million vs. $1.4 million last year.Fourth quarter income per share from core operations is expected to be between 78 and 88 cents compared to an adjusted 61 cents per share in the fourth quarter of 2001. The previously reported fourth quarter 2001 income per share of 52 cents has been adjusted to reflect the new accounting rules on amortization of goodwill and other intangible assets.Following are third quarter operating results by business segment:Newspapers Total newspaper operating cash flow increased 4.3 percent to $60.7 million.Newspaper advertising revenue during the third quarter was $127 million, up slightly from the same period a year ago. Newspaper advertising revenues broken down by category were: Local retail, down 3 percent to $41.1 million. Classified, down 1 percent to $53.4 million. National, up 2.3 percent to $8.4 million. Preprint and other, up 9 percent to $24 million. Circulation revenues were $33.6 million, down 3.7 percent from the same period a year ago.Newsprint costs decreased 21 percent over the prior year on a 24 percent decrease in newsprint prices.Excluding Denver, total newspaper revenues were $174 million, about even with the third quarter of 2001. Operating income from the Rocky Mountain News in Denver was about $800,000 vs. a loss of $1.4 million in the same quarter a year ago.Scripps NetworksBroadcast Television Broadcast television revenues increased 19 percent to $72.7 million and operating cash flow increased 65 percent to $20.6 million.Licensing and Other Media Revenues increased 7.8 percent to $21.5 million due primarily to stronger domestic and international licensing revenues from PEANUTS. Operating cash flow was $4.5 million vs. $2.5 million in the third quarter of last year. Shop At Home UpdateThe company in August announced its intention to acquire controlling interest in the Shop At Home television retailing network for $49.5 million. Shop At Home Inc. would continue to exist as a public company after the transaction is completed with its primary assets being its 30 percent interest in the network and five broadcast television stations it currently owns. Shop At Home Inc. shareholders are scheduled to meet Oct. 30 to vote on the proposed transaction. Financing update The company on Oct. 7 filed a shelf registration for up to $500 million in debt securities with the Securities and Exchange Commission. The company notified the SEC that it would use proceeds from the sale of the debt securities for general corporate purposes including capital spending, debt reduction and acquisitions.During the third quarter the company renegotiated a revolving credit agreement with its bank group. The previous credit agreement, which expired in September, permitted aggregate borrowing up to $675 million. Under the new agreement, that amount was reduced to $600 million. The company uses its revolving credit agreement to support its ongoing commercial paper program. The company is currently borrowing at an interest rate of 1.8 percent through its commercial paper program.Total debt at the end of the third quarter was $645 million.Conference callThe senior management team at Scripps will discuss the company’s third quarter results during a telephone conference call at 11 a.m. EDT today. Scripps will offer a live audio Web cast of the conference call. To access the Web cast, visit www.scripps.com, choose “investor relations,” then follow the “live Web cast” link at the top of the page. Listeners will need Real Player G2 or higher (download free at www.real.com) to access the call online. Also, a limited number of dial-in lines for the conference call will be available on a listen-only basis. To access the conference call, dial 877-209-9922 approximately 10 minutes prior to the start of the call. Callers will need the name of the call (third quarter earnings report) to be granted access. Callers also will be asked to provide their name and company affiliation. An instant replay line will be open from 2:30 p.m. EDT Thursday, Oct. 10 until 11:59 p.m. EDT Sunday, Oct. 13. The domestic number to access the replay is 800-475-6701 and the international number is 320-365-3844. The access code for both numbers is 652591. A replay of the conference call will be archived and available online for an extended period of time following the call. To access the audio replay, visit www.scripps.com approximately four hours after the call, choose “investor relations” then follow the “audio archives” link at the top of the page.Forward looking statementsThis press release contains certain forward-looking statements related to the company’s businesses that are based on management’s current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties, including changes in advertising demand and other economic conditions, that could cause actual results to differ materially from the expectations expressed in forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. The company’s written policy on forward-looking statements can be found on page F-5 of its 2001 SEC Form 10K and page F-16 of its most recent Form 10Q.About ScrippsThe E.W. Scripps Company is a diverse media concern with interests in newspaper publishing, broadcast television, national television networks, interactive media and plans to enter the television-retailing market. Scripps operates 21 daily newspapers, 10 broadcast TV stations and four cable television networks. Scripps national television network brands include Home & Garden Television, Food Network, DIY -- Do It Yourself Network and Fine Living. Scripps Networks programming can be seen in 25 countries. The company has announced its intention to acquire the Shop At Home television-retailing network. The acquisition is pending approval by Shop At Home shareholders.Scripps also operates Scripps Howard News Service, United Media, the worldwide licensing and syndication home of PEANUTS and DILBERT, and 31 Web sites, including hgtv.com, foodtv.com, diynet.com, fineliving.com and comics.com.