“Radio posted decent Q2 results for the most part, but the outlook is weakening,” said Wells Fargo Securities analysts Bishop Cheen and Davis Hebert in their latest update to high-yield bond investors in the media space. They’re now expecting Q3 to be flat or maybe slightly up.
In Q2 2011, radio enjoyed its fourth consecutive growth quarter, up 1% year-over-year (YoY), but the magnitude compared to Q1’s +3% gain appears to be contracting. Spot advertising (local and national) was down 1% YoY (versus +1% in Q1 YoY), as a prior strong auto category declined amid supply dislocations post Japan’s April earthquake,” they wrote, citing Q2 industry data from the RAB.
“Q2 results were generally muted, with most station groups reporting flat year-over-year performance. Auto is expected to regain some momentum in late Q3, as supply dislocations are restored. Although CBS and Clear Channel said their Q3 was pacing up low single digits, Entercom said it was pacing down low single digits, with Radio One and Cumulus guiding to a flat YoY performance for Q3. As a result, for Q3, we expect revenue will be flat to slightly up, although we caution that lack of visibility impedes our conviction either way,” Cheen and Hebert said.
What about the longer term outlook for radio?
“We still view the industry as being suspect in terms of growth (advertising is still well below the 2006 peak of $20.1 billion), but we think radio’s free cash flow characteristics partially offset credit risk at appropriate capitalizations,” the analysts told investors.