Gray Television released its Q4 2017 earnings results on Monday, and net revenue dipped 2% while net income soared.
But, it is the Q1 2018 results that investors may already be focused on, given reports of lackluster ratings for NBC’s coverage of the Winter Olympic Games. Coverage from PyeongChang, South Korea was forecast to deliver beaucoup dollars to broadcast TV—and Gray is predicting double-digit growth compared to Q1 2017.
In the final three months of 2017, total revenue less agency commissions slipped to $233.61 million, from $237.62 million.
A rise in broadcast operating expenses to $150.67 million, from $128.51 million, is partially to blame. Still, this was at the low end of Gray’s guidance.
But it is an 85% decrease in political dollars, to $7.46 million, that is the likely culprit. Nevertheless, Gray was pleased as this exceeded its guidance in the quarter.
Non-GAAP broadcast cash flow slid by 22%, to $85.86 million.
Net income soared to $165.57 million ($2.13 per diluted share), from $35.83 million (49 cents). But, there’s a big reason for this: Thank President Trump. Included in Gray’s Q4 net income was a net income tax benefit of $134.4 million, resulting primarily from the enactment of the Tax Cuts and Jobs Act of 2017.
The net income results beat the estimates of three analysts surveyed by Zacks Investment Research. Earnings, adjusted for pretax gains, came to 40 cents per share, and the analysts’ average estimate was for earnings of 25 cents per share.
The revenue slide also beat Zacks’ estimates, of $232.6 million.
Nevertheless, Gray investors are in a selling mood. As of 11:28am Eastern, GTN shares are off 5.9%, to $14.50.
POSITIVE OUTCOMES EXPECTED FROM MVPD TALKS
As Gray revealed its anticipated results for Q1 2018, it first shared that it is currently negotiating “two large MVPD agreement renewals.” While Gray cannot assure the outcome of the negotiations, it expects that the renewals will be made and will be retroactive to Jan. 1, 2018.
This may spook some investors, as Gray has had two months to get these retransmission fee agreements finalized.
What stockholders should be looking at are Gray’s income forecasts, fueled by the Winter Olympic Games. Gray believes its Q1 ’18 local advertising revenue (including internet/digital/mobile) will increase by 1% to 2%.
But, Q1 ’18 national ad revenue is uncertain and could fall in a range from down 3% to up 1%.
Key is that all-important retransmission consent revenue. Gray believes in Q1 it will see an increase of between 26% and 29% of these fees paid for by cable companies and their subscribers, who are increasingly impacted by rising bills to offset the surge in costs to MVPDs.
The dollar range for retrans consent revenue expected by Gray? Some $85 million to $87.5 million is forecast for Q1.
Ice dancing and bobsledders aren’t the only thing fueling Gray. Tom Brady and the Eagles are also playing a big role in the company’s Q1 prediction.
“We anticipate that the revenue from the broadcast of the 2018 Super Bowl on our NBC-affiliated stations will be approximately $2.3 million, compared to $0.6 million that we earned from the broadcast of the 2017 Super Bowl on our FOX-affiliated stations,” Gray said.
The company’s portfolio of NBC-affiliated stations is much larger than its FOX station roster. Plus, the NBC-affiliated stations serve larger television markets than its FOX-affiliated stations.
This will boost some $5.0 million to $5.8 million in Olympic-related revenue for Gray.
