It’s usually not a good sign when your company reports a wider net loss, compared to the same period one year earlier, in its quarterly earnings.
But, there’s an exception: If the net loss wasn’t as big as analysts predicted, that can be a good thing.
That’s exactly what’s propelling The E.W. Scripps Co. on Wall Street, with midday trading on Monday robust following the release of Q1 2018 results that were largely positive.
Even so, there’s a big ding in Scripps’ local media revenue. Unfortunately, GEICO, Progressive or any other auto insurance company can’t be called on to help this hit-and-run scenario, perpetrated by Dodge.
As of 12:44pm Eastern on Monday (5/7), Scripps shares were up 8.7% to $12.17, a much-needed rebound to mid-March levels following a mild swoon from mid-$15 pricing seen before February 27.
The bump for the soon-to-be video-centric media company follows the release of Q1 ’18 data showing Scripps’ operating revenues climbing to $254.2 million, from $198.5 million.
This beat the FactSet consensus of $252.6 million.
However, “segment, shared services and corporate expenses” surged to $234.9 million, from $184.4 million, and this caused Scripps to experience a Q1 operating loss of $628,000 compared to operating income of $153 million a year earlier.
Net income swung to a net loss of $26.5 million (33 cents), from $1.9 million (2 cents).
That’s bad, isn’t it? Nope. MarketWatch removed Scripps’ discontinued operations and restructuring charges from the computations, and doing so puts the per-share loss at 7 cents. The FactSet loss consensus was 8 cents a share.
Translation: Scripps was down, but the $20 million write-down of its radio assets as part of “a comprehensive performance improvement plan” is a primary reason for the large dip.
And, Scripps executives believe, their plan is on track.
For the quarter, loss from continuing operations was $8.6 million (10 cents), growing from $2.7 million (3 cents) in Q1 2017.
LOCAL GEAR SHIFT
Robust mid-term election spending was discussed by Scripps executives during its Q1 call, which saw the participation of such notable financial analysts as Kyle Evans of Stephens and Marci Ryvicker of Wells Fargo Securities.
Much was said of Scripps’ National Media segment, where growth in OTT subscribers and a steady MVPD subscription base will aid the company in an area where it is already seeing stupendous results. Segment profit came in at $2.04 million, swinging from a Q1 2017 loss of $4 million. National Media operating revenue jumped to $60.7 million, from $9.7 million.
For the Local Media division, which was inclusive of Scripps’ 34 radio stations until the end of 2017, Q1 was “a challenging quarter with a lot of moving pieces,” notes President/Local Media Brian Lawlor.
Operating revenue for Local Media increased by 2.7%, to $192.1 million. But, segment profit declined by 2.3%, to $31.6 million.
On the bright side, $8 million in revenue at its five NBC affiliates — thanks to Super Bowl LII and the Winter Olympic Games — boosted Scripps. Services, retail and home improvement advertisements were up.
Automotive was down by double-digits.
Looking for an answer as to why was analyst Evans, who asked Lawlor what the reason was for the decline.
He explained that it was due to a major gear shift by Dodge right in the middle of the quarter. “There was robust spend across all of the stations,” he said. “Then, a change of strategy — $1 million was pulled off the books. If that was not the case, automotive would have looked much better. Dodge is probably the one thing that dramatically changes the outlook for auto.”
Core local media advertising was flat in Q1.
Scripps also shed some light on some other factors that it dealt with in Q1. On the subject of retransmission fees, which rose 6.9% to $70.8 million, there was a reimbursement of $2.1 million to an undisclosed MVPD for an overpayment mistakenly made “over several quarters in 2016 and 2017 on out-of-market subscribers.”
Further, virtual MVPD revenue (from “skinny bundles” such as DirecTV Now and Sling) is “starting to flow in,” with the number of subscribers to over-the-top services in Scripps
markets grew to 350,000 by the end of 2017. In Q1 it hit 355,000 OTT household, Scripps said.
Meanwhile, the thorny predicament that MVPDs face due to cord-cutting and cost did contribute to a decline in subscription counts — just over 2% — for calendar year 2017 at Scripps.
Where will Scripps be at the end of June, when Q2 ends? It expects local media revenue to be up in the mid-single-digits as political revenue starts to filter in. But, local media expenses will be up in the high single-digits.
That will be offset by — you guessed it — retransmission fee revenue, set to rise by high single-digit percentages from Q2 2017.
National Media is expected to fall in the low-to-mid $60 million range, reflecting incremental increases from Q1 to Q2 2018.
