Operating expenses also up 1%. New CEO Vincent Sadusky sees mid-single-digit growth in 3Q. Company writes off $5 million from USDTV investment. Chapman’s retirement costs at least $5.6 million.
In reporting its first-quarter earnings last May, LIN TV Corp. warned that its second-quarter revenue would be flat compared to the same quarter in 2005. This morning, it reported that it did a little bit better than that. Revenue, it said, was up 1%.
The result is pro forma—that is, as if the seven TV stations LIN acquired during the course of 2005 are counted for the full year.
The Providence-based operator of 30 TV stations in 18 markets also reported a pro forma net loss of $244.4 million ($4.87 per share) in the quarter compared to an $11 million gain in 2005, but that was due primarily to a write-off of $333.6 million in goodwill.
Corporate overhead in the quarter included a $5.6 million charge, excluding stock-based compensation, related to the retirement of former CEO Gary Chapman on July 10.
Excluding extraordinary items, operating expenses grew 1% compared with 2005.
Like other broadcasters, LIN was hurt in the second quarter by the weak demand from the domestic auto makers and retailers. A 4% decline in domestic auto spending spoiled a 6% rise in foreign spending and led to an overall decline of 1% in the category, said Vince Sadusky, the former CFO who succeeded Chapman as CEO.
As expected, political spending was strong in the quarter, up $2.4 million from the prior year, Sadusky said.
LIN was also hurt by the struggles of its Puerto Rico station, WAPA, Sadusky said. The island’s political and economic troubles have hit the station hard, turning year-over-year revenue increases at U.S. stations in such key categories as restaurants, retail and financial services into declines in those categories for the group as a whole.
Fortunately for LIN, WAPA’s drag on the quarterly reports should soon go away. The station is on the block and Sadusky said he expects to have a deal by September.
Selling WAPA will also help LIN reach its goal of reducing leverage to the 5-5.5-times range, Sadusky said. But if the company does not “get its price” for WAPA, he said, it will pull it from the market and consider selling another station or stations.
In the third quarter, LIN said it expects a percentage growth in pro forma revenue in the “mid single digits” compared to 2005.
The outlook for the third quarter would have been stronger, but for the continued declines in network compensation will report, Sadusky said. “There is a lot of political money”Ã‚Â¦out there,” he said.
LIN wrote off its $5 million investment in USDTV, Sadusky said. The startup, which offered a low-cost alternative to cable using digital broadcast channels, filed for Chapter 7 bankruptcy last month.
LIN liked the USDTV concept and was willing to provide the company with “seed capital” and “credibility,”Ã‚Â but was not interested in keeping the financially struggling company afloat. “We are not in the business of funding startups,” Sadusky said. “So, we were not going to go the second round.”Ã‚Â
Last month, LIN announced its purchase of KASA, the Fox affiliate in Albuquerque, N.M., from Raycom for $55 million—a move that will give LIN a duopoly in the 46th-largest market. LIN always owns the CBS affiliate, KRQE.
Despite the move, Sadusky said LIN is not an active station buyer. He said that KASA was a “unique”Ã‚Â deal—a duopoly station in a fast-growing market.
Sadusky said LIN will quickly cut costs by “millions of dollars” at KASA—quickly because it will take control of the station at the end of this month under a local marketing agreement. LIN expects to close on its purchase during the fourth quarter, assuming FCC approval of the deal.
One of the first moves will be to hand over news responsibilities to sister station KQRE, he said. KASA is now paying more than $1 million a year for news under a production agreement.
Sadusky said that LIN expects core (non-political) advertising revenue to grow modestly in the years ahead. He predicted year-over-year percentages in the low single digits as decreases in national advertising offset gains in local.
To grow revenue and cash flow, he said, LIN has to run its stations more efficiently, capture greater market share, increase retransmission consent revenue and exploit Web and multicasting opportunities.
“We don’t know what’s going to work and the networks don’t know what’s going to work” in multicasting, he said. “Everybody’s got a different strategy.
“We have the benefit of having two television stations in most of our markets, so we can try several things in each individual market,” he said. He said LIN will announce several initiatives over “the next six months or so.”Ã‚Â
“The important thing is to do this at a very low cost way and leverage the infrastructure that we already have”Ã‚Â¦trying some different stuff and seeing what sticks,” he said.