EARNINGS CALL

Sinclair Upbeat About Its 2011 Prospects

An improving economy has resulted in robust cash flow growth and margins and has led to the group owner considering buying stations again in addition to reinstating quarterly dividends.

One way to tell the broadcast sector recovery is in full swing: Station group owners start talking about possible acquisitions.

David Smith, Sinclair Broadcast Group president-CEO, did just that during Wednesday morning’s earnings conference call in response to a question from Gabelli analyst Barry Lucas, who noted that there are a number of stations and station groups that could be in play.

M&A “is something that we certainly are keeping our eye on,” Smith said. “It’s not solely as a tax-driven strategy but the tax benefits they provide are significant. There are a lot of question marks that remain in terms of what makes sense out there. We’ve said before, we’ll be prudent in what kind of acquisitions we’ll make and when we’ll be making them. We’re continuing to look for opportunities.”

Another sign of recovery: Sinclair’s share price more than doubled in 2010 and the company restarted dividend payments mothballed during the recession.

Sinclair paid a 43-cent per-share dividend in the fourth quarter. If shareholders were happy with that, they should be even happier with Sinclair’s plan to pay a quarterly 12-cent per-share dividend this year.

The dividend payment and significant deleveraging over the past year underscore Sinclair’s strong growth in cash flow.

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As David Amy, Sinclair’s executive VP-CFO, noted with some enthusiasm during this morning’s call, broadcast cash flow growth and margins were robust for the quarter — up 43.4%, pushing the margin to 51.6%.

Performance for the year was also strong: broadcast cash flow hit $294.7 million for the year, representing a 35.8% increase and yield a margin of 45%.

Lucy Rutishauser, Sinclair’s treasurer, noted that Sinclair’s debt leverage now stands at 4.03 times, down from 6.33 at the end of 2009. “It’s the lowest leverage calculation in almost 15 years,” Rutishauser said.

Having recently completed key retrans negotiations with Time Warner Cable, Mediacom and Brighthouse, Sinclair anticipates wrapping up agreements with Comcast and Cox in the first half of this year.

Sinclair’s 55-station group includes 20 Fox and nine ABC affiliates. The company has completed negotiations with Fox and ABC that yielded contracts through 2012. With both networks taking a hard line on programming fees/reverse compensation, Sinclair has some breathing room, Smith said: “It’s nothing more than a contractual issue. We’re out of it. We’re done.”


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