Sinclair Broadcast Group has released its third quarter 2022 earnings report. And, there’s some good news: net income grew and easily beat Wall Street forecasts.
But, that improvement came at the same time media revenue fell. As such, total revenues missed the estimate of some 7 financial analysts.
There’s a big reason for this: Diamond Sports Group is no longer factored in to the results, thus requiring a deeper dive into just how Sinclair performed.
For the quarter ending September 30, total revenue dipped from $1.54 billion to $843 million, and this was heavily influenced by media revenue. Non-media revenue comprised just $7 million of the Q3 totals, dipping from $9 million one year ago.
The consensus estimate on revenue was for $892.43 million.
Yet, Sinclair achieved net income of $21 million ($0.32 per share), rising from $19 million ($0.25). This beat the Yahoo! Finance EPS consensus estimate of $0.15, based on 3 analysts polled.
In pre-market trading, investors weren’t moved by the net income gain, as SBGI was down 2% to $18.10.
Looking at Sinclair’s earnings on an adjusted basis are necessary, as Diamond Sports Group has been completely separated from Sinclair. This deconsolidation of the regional sports networks (RSNs) was effective March 1, 2022. As such, excluding DSG, total revenues increased 5%, from $804 million, in Q3 2021 as media revenues also grew by 5%, from $795 million.
Adjusted EBITDA — the indicator of the financial performance of its assets — fell to $198 million from $451 million year-over-year. Again, the comps are hard. Distribution revenue in Q3 2022 was up when looking at Broadcast, rising to $381 million from $372 million. But, the elimination of $633 million in Local Sports Distribution revenue impacted that consolidated adjusted EBITDA, which finished within Sinclair’s internal range, President/CEO Chris Ripley noted on the company’s earnings call on Wednesday morning, ahead of the Opening Bell on Wall Street.
ELECTION DOLLAR WINDFALL
Advertising revenue for the Broadcast segment came in at $339 million, rising from $283 million, as political advertising totaled $88 million in Q3 for Sinclair.
“We believe this year we will easily set a mid-term election year record for political advertising revenue,” Ripley said. “While we saw political displacement this quarter and expect it as well next quarter, we see positive signs for core advertising in certain categories including the legal category and the auto category, which began to grow again this quarter, but overall we are seeing some general ad market weakness from macro conditions.”
Tell that to investors. Sinclair’s stock, traded on the Nasdaq GlobalSelect market, has been trending at a year-to-date low since the start of the fourth quarter. It is a retreat to summer 2020, when COVID-19 fears highly impacted Wall Street. Subtract that, and it was February 2013 when SBGI was priced at its current levels.
“We believe we are grossly undervalued,” Ripley said on the earnings call. As such, stock buybacks have been undertaken by Sinclair, as a statement of confidence in its path to growth.
Meanwhile, at its recent Investor Day, Sinclair executives laid out the company’s future growth plans. The big takeaway: Sinclair’s C-Suite wants the media company to be less reliant on its two current main sources of revenue — retransmission fees and linear advertising revenues.
The former should please the American Television Alliance (ATVA) and MVPD lobbying groups such as ACA Connects, which have been relentless in their fight against retransmission consent fees they feel are too high.
Sinclair’s future forward initiatives, Ripley shared, range from creating original multi-platform content and building an omni-channel marketing services enterprise to driving totally new revenue sources from community and interactivity initiatives and data distribution capabilities. “For example, in the content area, we recently announced a creative partnership with Anthony Zuiker, creator of the CSI franchise, to create content across a range of formats and subjects,” Ripley said. “We have been assembling the pieces of these future drivers of our business over the last several years and look forward to our work in these areas beginning to generate meaningful revenues and profits as we move into the future. Given our growth strategies, investment portfolio, and sizeable cash flow, Sinclair is well-capitalized and well-positioned to continue to develop into a more diversified company with numerous revenue streams and assets.”
What Sinclair will need to rein in are expenses, which grew to $514 for the Broadcast segment in Q3 ’22, from $472 million.
