EARNINGS CALL

Sook: Look For Core To Keep ‘Plugging Along’

“It’s a goldilocks world,” Nexstar CEO Perry Sook said of core, which excludes political advertising. “It’s not too hot, it’s not too cold, it’s kind of plugging along.” And, he added, he sees no reason why the company's double-digit annual retrans and net retrans growth should not continue for at least the next three years. “We see no change to the outlook or the ecosystem,”

As Nexstar Media awaits final government approvals of its $4.1 billion acquisition of Tribune Media that will make it the biggest station group in the U.S., CEO Perry Sook told securities analysts following release of second-quarter earnings this morning not to expect a resurgence in core advertising anytime soon.

Although auto advertising rebounded from a dismal 1Q (up 6% locally and 7% nationally in 2Q), Sook said, overall core will grow slowly this year, a few percentage points above last year.

“It’s a goldilocks world,” he said of core, which excludes political advertising. “It’s not too hot, it’s not too cold, it’s kind of plugging along.”

As reported, core was down 1% in 2Q — “within our forecast range,” said Sook — with a slight 0.4% increase in local core unable to offset completely the 4.6% decline in national.

“The strength in automotive is really coming from development work of our local teams with the Tier 3 advertisers, which are our local dealers,” Sooke said. “We can see that continuing into the third quarter. July revenue is in the books.”

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The drop in political advertising for the quarter — down 90% — contributed to Nexstar having to report a 10.3% shortfall in total ad revenue for the quarter. Broadcasters expect big drops in odd-numbered years because of the dearth of elections and the campaigning that goes with them.

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As always, the good revenue news for Nexstar was the continuing strong returns from retransmission consent fees. They were up 13.8% in 2Q compared with the quarter last year.

What’s more, Sook and CFO Tom Carter expressed confidence that the net retrans margin — retrans revenue minus reverse comp payments to the networks — would remain higher than 50%.

That confidence reflects terms of the new affiliation agreement that Nexstar signed last week with CBS, Carter said. “It came in as expected.”

Sook said that he sees no reason why the double-digit annual retrans and net retrans growth should not continue for at least the next three years. “We see no change to the outlook or the ecosystem,” he said.

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Sook and Carter declined to discuss the retrans dispute with AT&T, which has led AT&T to drop Nexstar stations on its various MVPD outlets:2 DirecTV, DirecTV Now and U-Verse.

However, the loss of retrans revenue and viewership due to the blackouts will not cause any material impact on the company in the third quarter. “We are confident that we will deliver on our free cash flow guide,” Sook said.

Sook said progress on needed standards for automated spot buying through Nexstar’s and Sinclair’s TIP initiative has had “more forward momentum” in 2Q than it has had in a while.

“Right now, our efforts are focused primarily on trying to streamline and automate log reconciliation, makegoods and billing practices, which obviously would save the agencies money, which makes us more attractive … to do business with,” Sook said.

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Asked about what role the NBC affiliates might have in NBCU planned ad-supported streaming service, Sook said he didn’t really know because few details have been shared with affiliates. “We were told at the affiliate meeting in terms of our involvement it would probably look a lot like CBS All Access where there is a local streaming component….We will have to stayed tuned.”

NBCU is looking to launch the service next April.

Addressing the Tribune merger, Sook said he expects a federal judge to sign off soon on the Justice Department’s approval of the deal and the FCC to also give its OK, allowing the parties to close the deal by the end of September.

Sook brushed off reports saying that, to get the FCC’s blessing, Nexstar may have to divest one of the two stations in the CBS-Fox duopoly that Tribune has in Indianapolis. The FCC needs to renew the waiver allowing the duopoly, he said. “We fully expect it in due course.”


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