When it comes to core advertising growth at broadcast media companies, local over-the-air stations have seen challenges. “Macroeconomic headwinds” have been discussed in Q3 earnings calls, with sprinkles of hope amid a challenging National advertising enviroment.
For Gray Television, local advertising is healthy. Automotive is roaring back. As such, Core Advertising rose year-over-year in the third quarter and is trending upward in Q4, too.
With revenue from Assembly Studios set to come within three weeks, co-CEO Hilton Howell Jr. spoke highly on the earnings call for analysts and investors, predicting that “this particular asset has a huge inherent value and will begin to generate revenue … than any individual TV station we own in our portfolio.”
That comment came in response to a query from Aaron Watts at Deutsche Bank that kicked off the Q&A portion of Gray Television’s Q3 earnings call, during which Howell said it was “abundantly clear that Gray Television is delivering for 2023.”
Core revenue was up 1% to $363 million, from $359 million, and this made the company “very pleased.” Retransmission consent revenue, however, continues to be the top dollar generator, rising to $378 million from $368 million year-over-year in Q3.
Thus, ex-political, Gray had a very strong Q3. Factoring in the 82% dip in political revenue to $26 million in Q3 2023, total revenue came in at $803 million, down from $909 million.
The consensus estimate from 7 analysts polled by Yahoo! Finance was $798.24 million.
Meanwhile, six analysts pegged Gray’s EPS to come in at -$0.35, given the poor comps tied to political ad revenue one year ago. Gray’s EPS missed that estimate, coming in at -$0.57 (compared to $1.03 one year ago) as Gray swung to a net loss of $53 million compared to revenue of $95 million in Q3 2022.
This led investors to sell shares of Gray, which was down by 6.9% as of 11:38am Eastern, trading at $6.93.
The dip comes despite Howell’s positive sentiments as to what Assembly Atlanta will bring, revenue-wise, and CFO Jim Ryan‘s insight into Q4 core revenue trends, which are up in the low single-digit range.
Then, there’s a coming dividend that investors may be pricing in to the valuation of “GTN,” as Gray’s Board of Directors has authorized a quarterly cash reward of $0.08 per share of its common stock and Class A common stock. The dividend is payable on December 29,
2023, to shareholders of record at the close of business on December 15.
Meanwhile, Gray Television highlighted several other positives, as Howell lamented how “GTN” is “undervalued,” but that this would “matriculate out” over the next several quarters. “I think our stock is a roaring ‘buy.'”
Continued improvement in the automobile advertising category is particularly notable, with an 18% year-over-year increase. In addition, political advertising revenues in a non-political year were relatively strong at $26 million.
In fact, Q3 political revenue bested that seen in Q3 2019. This led Gray to raise its previous guidance for full-year 2023 political advertising revenue by 33% to at least $80 million.
That said, there is one blemish on the P&L report from Gray: It took a $43 million impairment charge related to the bankruptcy of Diamond Sports Group’s Atlantic Coast Conference contract with Gray’s Raycom Sports unit and its replacement with new ACC sports rights agreements with ESPN and The CW, the latter of which is poised to benefit Nexstar Media Group.
The total leverage ratio, net of all cash, for Gray Television presently stands at 5.5x. Total indebtness stands at $6.22 billion.
GRAY TELEVISION Q4 2023 GUIDANCE:
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Revenue:
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Core advertising revenue of $410 million to $414 million; up low single digit percentage increases over the fourth quarter of 2022.
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Retransmission revenue of $362 million to $365 million; up low single digit percentage increases over fourth quarter 2022.
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Political advertising revenue of $34 million to $35 million.
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Production company revenue of $30 million to $31 million.
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Total revenue of $854 million to $864 million.
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Operating Expenses:
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Broadcasting expenses of $605 million to $610 million, including retransmission expense of approximately $233 million and non-cash stock-based compensation expense of approximately $1 million.
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Production company expenses of approximately $26 million to $28 million.
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Corporate expenses of $35 million to $40 million, including non-cash stock-based compensation expense of approximately $4 million.
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