Scripps provides financial outlook at media conferences in New York
Mon, December 05, 2005 by Tim Stautberg
NEW YORK – The E. W. Scripps Company today provided a general financial outlook for 2006 and updated the company’s earnings forecast for the fourth quarter 2005. The outlook and updated guidance were provided by members of the company’s senior management team who spoke during investor conferences that are being held this week in New York City. President and Chief Executive Officer Kenneth W. Lowe, Senior Vice President and Chief Financial Officer Joseph G. NeCastro and Executive Vice President Richard A. Boehne also discussed the company’s long-term growth strategy, including the development of its interactive media businesses. The comments were made during the Credit Suisse First Boston 2005 Global Media Week Conference and the UBS 33rd Annual Media Week Conference. “The Scripps growth strategy is one of continuous evolution, which has led to the company’s emergence as one of the nation’s leading interactive media companies,” Lowe said. “With the addition of Shopzilla, our online comparison shopping service, nearly 60 percent of the company’s total revenue in 2006 will come from our fastest growing businesses. That includes, of course, our valuable portfolio of national lifestyle networks, which continue to grow at a healthy pace.” In his remarks, NeCastro provided investors with an update on the company’s anticipated fourth quarter 2005, operating results, including an adjustment in the earnings forecast. The adjustment in projected earnings per share primarily reflects changes in the business environment for the company’s television retailing business, Shop At Home, and at its Florida newspapers and broadcast television stations. “Operating results at Scripps Networks and Shopzilla are exceeding our expectations in the fourth quarter,” NeCastro said. “At Shop At Home, however, weaker than anticipated retail sales have had an increasingly negative effect on profitability.” “At our Florida newspapers and television stations, loss of business caused by Hurricane Wilma and costs related to early retirement incentives recently offered in several non-Florida newspaper markets also will have a bearing on earnings per share,” NeCastro said. The company reported today that it expects fourth quarter earnings per share will be between 48 and 50 cents compared with its original forecast of 52 to 56 cents. In November, after taking into account softening sales at Shop At Home and the initial effects of the hurricane on newspaper and television station operations, the company had indicated that earnings per share for the period would be near the lower end of the originally forecasted range. The segment loss at Shop At Home will be $10 to $12 million during the fourth quarter. The company had originally forecast a segment loss of $2 million at Shop At Home for the period. NeCastro also provided investors with an initial financial outlook for the company’s largest business segments in 2006. The outlook, broken down by business segment, is as follows: Scripps Networks Based on the strength of advanced advertising sales through the first three quarters of 2006, the company anticipates continued advertising revenue growth at Scripps Networks. Current trends in viewership at HGTV and Food Network are favorable and reflect viewer acceptance of new programming introduced by both networks in recent months. Total revenue for Scripps Networks is expected to grow 18 to 20 percent, while total cash expenses will increase 14 to 16 percent. The increase in cash expenses reflects the company’s continued investment in programming and consumer marketing to increase viewership of all five of its national television networks. The company also will continue to invest in building its portfolio of interactive businesses that operate under the Scripps Networks umbrella. Newspapers Total newspaper revenue is expected to grow 4 to 6 percent. The company will continue its successful strategy of developing new print and online products in each of its newspaper markets to strengthen its share of local advertising revenue. The company is expecting strong growth in online revenue to continue, accounting for nearly one quarter of the year-over-year increase in total revenues. Total newspaper cash expenses are expected to increase 7 to 9 percent. Higher employee benefits costs coupled with the expensing of stock options are contributing to the increase in total expenses. The overall number of newspaper employees is expected to be flat but the company will continue to shift resources to advertising sales and Internet-based businesses. The company anticipates that it will invest in its two Florida markets, commensurate with the opportunity for segment profit growth. The company also has factored in a 10 to 12 percent increase in newsprint costs, depending on the timing and magnitude of any price adjustments. The company’s JOA newspapers in Denver, Cincinnati and Albuquerque are expected to contribute $18 million to $20 million to segment profit. Broadcast television The return of political advertising revenue in 2006 coupled with the Super Bowl on ABC and Winter Olympics telecast on NBC set the stage for a year of strong revenue growth. The company is expecting political advertising revenue of at least $25 million. Advertising revenue tied to the Super Bowl and Olympics could reach $8 million. Total Broadcast TV revenues in 2006 are projected to be up 10 to 12 percent. Total cash expenses are expected to be up 5 to 6 percent. Shop At Home The company, which is continuing to define its television retailing strategy, expects segment losses at Shop At Home to be less than $20 million in 2006. The company does not expect Shop At Home to be profitable in the fourth quarter 2006, as had been previously forecast. The company is in the process of assessing Shop At Home’s operations and retail strategies in conjunction with its hiring in November of Jim Held as the subsidiary’s president and chairman. Held is an experienced retail industry executive who led TV retailer HSN to profitability in the mid- to late-1990s and served two years as a senior executive with QVC prior to joining HSN. Held is guiding the assessment of Shop At Home. That process is expected to be completed by the time the company reports its fourth quarter operating results in late January. Shopzilla The company’s online comparison shopping service is expected to generate $50 million to $55 million in segment profit. Other items The expensing of stock options will increase employee costs for the company as follows: Scripps Networks: $6 million Newspapers: 6 million Broadcast TV: 3 million Corporate/other: 7 million Total: $22 million Corporate expenses will total $50 million to $55 million. Depreciation and amortization will likely increase to $110 million to $115 million primarily because of the Shopzilla acquisition. The tax rate will be about 36 percent. Interest expense will be about $41 million. Minority interest will rise again in 2006 because of the increasing profitability of the Food Network. Projected minority interest of $70 million to $75 million largely reflects Tribune’s 31 percent interest in Food. The company is planning to spend about $100 million to $110 million on capital projects next year, including further expansion of Scripps Networks headquarters in Knoxville, Tenn. Forward-looking statements This 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 2004 SEC Form 10K and F-27 of its most recent Form 10Q. We undertake no obligation to publicly update any forward-looking statements to reflect events for circumstances after the date the statement is made. About Scripps The E.W. Scripps Company (NYSE: SSP) is a diverse and growing media enterprise with interests in national cable networks, newspaper publishing, broadcast television stations, electronic commerce, interactive media, and licensing and syndication. The company’s portfolio of media properties includes: Scripps Networks, with such brands as HGTV, Food Network, DIY Network, Fine Living, Great American Country and HGTVPro; daily and community newspapers in 18 markets and the Washington-based Scripps Media Center, home to the Scripps Howard News Service; 10 broadcast TV stations, including six ABC-affiliated stations, three NBC affiliates and one independent; United Media, a leading worldwide licensing and syndication company that is the home of PEANUTS, DILBERT and approximately 150 other features and comics; Shop At Home, which markets a growing range of consumer goods directly to television viewers in roughly 55 million U.S. households and online through shopathometv.com; and Shopzilla, the online comparison shopping service that carries an index of more than 30 million products from approximately 65,000 merchants.