Meredith: Super Bowl To Hold Down 1Q Rev

During an election cycle the featured disappointing spending in the presidential race, competitive local races fueled large increases in political spending in four key Meredith Corp. television markets during the fourth quarter of 2017 (its fiscal 2Q). The picture for calendar year 2017, however, is hazy.

Political, with strong spending in Las Vegas, St. Louis, Phoenix and Kansas City, totaled $40.07 million, up from $798,000 the prior year and was 37% greater than during the previous political cycle. The total political take for both quarters now on the books was $66 million.

Crowd-out dampened core advertising results, which fell from $103.557 million to $91.958 million. Pressure was most acute in the aforementioned four markets.

Other revenue sources, including digital and retransmission consent income, enjoyed strong growth from $139.9 million to $183.3 million

Margin metrics were very strong, with a 90% gain in operating profit to $77 million and a 71% gain in EBITDA to $86 million.

CFO Joe Ceryanec said that during the company’s in-progress 1Q, total revenues for each of both local and national media groups are expected to be flat to down slightly.

Chairman-CEO Steve Lacy said it is simply too early have a good handle on how core advertising will play out as the year goes forward. He said they’ll have a better idea of pacing by the end of the quarter.

However, during its fiscal 1Q, local broadcast advertising will be a loss-leader. Local Media Group President Paul Karpowicz said it is expected to be down mid- to high-single digits, adding that much of the damage that will be inflicted by the Super Bowl moving from CBS, where Meredith is strong, to Fox, where it is not.

He said that factor alone will probably account for half of the shortfall, and that if the Super Bowl effect is excluded, the outlook for local advertising is more along the lines of a low- to mid-single digit shortfall.

On the prospects for retrans, much of the work is in the recent past. President-COO Tom Harty noted that contracts representing 40% of its audience were renewed in fiscal 2016 and 40% so far in fiscal 2017 with one additional important one to go. The company’s goal for 2018 and 2019 is to hold the line and perhaps grow slightly the positive impact retrans has on the company’s profits.

As for overall economic indicators affecting advertising growth, Lacy said it is Meredith’s opinion that the most reliable is GDP. If that is something that the Trump administration is able to improve, it would be a positive regardless of whether or not it is accompanied by accelerated inflation.

Meredith is not expecting any significant adverse effects from the growth of digital advertising. Said Lacy: “We really have not seen any meaningful shift of advertising dollars away from the traditional broadcast platform although we have very, very strong growth in digital advertising in our local market. It is important to remember that we generate the vast majority of our revenue and profit from around our news dayparts, and it’s a very very hyper-local audience and it is primarily local advertising. So if you really wanted to shift a meaningful amount of that to digital sources there are not enough platforms locally that would mathematically even allow that to happen.”

When it comes to M&A, the company’s eyes are wide open. Lacy commented: “As we’ve consistently stated, we continue to explore opportunities to add attractive print, broadcast and of course digital brands to our media portfolio. We have a consistent track record of being very disciplined acquirers.”

He added that, of course, the company would refrain from discussing rumors.

Ceryanec said the company would be willing to jack its leverage up into the 4s, on the understanding that it will be able to quickly bring it back down. “What kind of free cash flow are we going to generate, are there opportunities to monetize our assets to work that leverage down?” He said this is in line with the company’s prior statements.

As for the spectrum auction, Karpowicz noted that the FCC-imposed cone of silence is still in effect but added that all signs indicate that the auction is winding up its final act. He said he anticipates being able to discuss the company’s participation in a week to 10 days.