By Adam R Jacobson
RBR + TVBR
The June 2015 creation by Gannett of a spin-off company designed to focus exclusively on its broadcast television and digital media companies just enjoyed a strong Q4 and a fiscal year that saw its net income from continuing operations rise 24.3%, to $444.2 million.
With its stock price up 16% since Jan. 1 and shares rising on Monday as investors reacted positively to the financial report, 2017 is poised to be a breakout year for McLean, Va.-based TEGNA.
What makes TEGNA’s fortunes rather remarkable is how it is attaining revenue growth: Digital revenue was up 4.5% in Q4, to $358.3 million. But, media revenue soared 14.5%, to $529.1 million.
It’s the kind of revenue growth newspapers could only dream about, while radio companies may wish to follow a similar path to financial success. However, the paradigm for TV’s revenues is slightly different — and political played a big role in the increased revenue.
“While political spending on the presidential race was lower than predicted, TEGNA Media’s strong geographic footprint and increased non-presidential spending enabled the company to capture a large share of the overall broadcast political spend,” company President/CEO Gracia Martore said in TEGNA’s official earnings release.
Higher retransmission revenues were also a major reason why TEGNA saw a healthy Q4 that beat Wall Street estimates.
In Q4, TEGNA’s net income from continuing operations attributable to the company came in at $133.1 million (61 cents per diluted share). That’s down 14.6% from the same period in 2015.
On a non-GAAP basis, net income from continuing operations attributable to TEGNA was $160.4 million (74 cents per diluted share).
On that measure, which sees earnings adjusted for one-time gains and costs, surpassed the average estimate of five analysts surveyed by Zacks Investment Research — 66 cents per share.
Where TEGNA fell short on meeting the Street was with its Q4 total operating revenue, which came in at $887.4 million — up 10.2% from Q4 2015. Five analysts surveyed by Zacks anticipated Q4 operating revenue of $889.8 million.
Investors seem pleased with the results, as TEGNA shares soared by some 6.8% in mid-morning trading, to $26.50 as of 11:35 am Eastern.
DIGITAL SPINS SET TO CYCLE
Across TEGNA Digital, total revenue at Cars.com increased nearly 5% in Q4, thanks to its purchase of DealerRater and an increase in display advertising revenues.
Meanwhile, CareerBuilder’s revenue growth in the quarter were the best results of the year as the company continued its integration of two recent acquisitions, Aurico and Workterra.
The presence of Cars.com and CareerBuilder is intriguing, as radio industry companies have attempted in various ways to emulate a business model in which an entity such as Cars.com could provide added value for TEGNA’s automotive advertising in its media division.
It hasn’t worked as well as TEGNA and Gannett had hoped for. Martore noted that TEGNA continues to make progress toward its anticipated spin-off of Cars.com and is conducting a “strategic review of CareerBuilder as we move ahead on evaluating strategic alternatives for the businesses. In every decision we make, we are driving the company forward and maximizing return for our investors.”
On a full-year basis, retransmission revenue fueled TEGNA’s media side, with dollars rising 21.3%, to $145.44 million.
How did political fare for 2016? TEGNA reported $90.76 million.
These achievements were partially offset by a decline in core advertising due to the displacement effect of political advertising in the quarter. With a change in reporting cycle to a calendar year, Q4 2016 had three fewer days than Q4 2015. Excluding the extra days in the prior year, core advertising revenues would have been approximately 11% lower reflecting, in part, political displacement.
A FLATTISH FORECAST FOR MEDIA
Based on current trends, TEGNA expects its media segment revenue in Q1 2017 to be flat to slightly above Q1 2016. “The year-over-year comparison will be unfavorably impacted by substantially lower political advertising revenue ($16 million in Q1 2016) and the move of the Super Bowl to three small FOX stations in 2017, from 11 CBS-affiliated TEGNA stations in 2016.
Excluding the unfavorable impact of the Super Bowl shift (approximately $9 million) and lower politically-related advertising, the percentage increase in Media Segment revenues is expected to be up in the mid-single digits in Q1 2017, compared to the Q1 of 2016.
Meanwhile, Tegna’s retrans revenue forecast for FY2017 is “stronger than projected,” with 24% growth anticipated.
— Adam R Jacobson