Nexstar Chief Unfazed By Rising Inflation

With inflation heating up, one analyst asked Nexstar Media Group Chairman-CEO Perry Sook what impact that could have on television advertising at the company’s earnngs call with analysts this morning.

“Historically, inflation has been a friend to our business because it gives us some ability, or cover, for pricing power, pricing increases. So, I don’t think inflation is a bad thing,” Sook replied.

He noted that when Nexstar’s executive team was developing financial guidance, they assumed a higher interest rate environment. With their report of record net revenue for 2021, despite being a non-political year, they told Wall Street to expect pro forma average annual free cash flow of $1.4 billion. That’s up from $1.3 billion in the past year.

While auto advertising continues to be challenged, Nexstar President-COO Tom Carter reported that other categories have picked up the slack.

“Core television advertising revenue for the quarter of $494 million increased 4.3% over the prior year’s quarter as healthy demand form advertisers resulted in solid growth in eight of Nexstar’s top 10 advertising categories. Q4 top gaining categories were entertainment, sports betting, medical/healthcare, department stores and retail stores, and telecom, offset by continued declines in auto and insurance.

“As we’ve done consistently for many quarters, Nexstar’s local sales initiatives continue to deliver healthy levels of new business with our sales team generating new-to-television revenue of $37 million — an increase of 37% over the prior year’s quarter,” Carter said in the quarterly conference call.

One analyst was concerned that auto might finally rebound just about the time that political crowd-out hits later this year.

“We do believe that auto will rebound to a degree in the back half of the year. Will it be able to compete with a political heavy environment? We believe it will,” said Carter.

”Regardless, just the return of auto in general, whether it is nominally excluded for a six- or eight-week period in September and October — or they have to push back to November and December — I think that everybody believes that there is a good degree of pent-up demand. And once inventory starts to flow, you’ll see the dealers’ competitive juices back and they’ll want to push that inventory through their lot and off of their lot to consumers,” Carter added.

Sook noted that the fourth quarter was the best quarter of their year in terms of the decline in auto advertising. “It continues on here in 2022. We still project it to be down from prior year. It’s anecdotal by nameplate. You saw a lot of Kia ads in the Super Bowl and you can extrapolate that to growth in our automotive category.”

The CEO added: “We do think, though, that as time goes on and with the age of vehicles on the road and new models being introduced, there is still a desire for a showroom experience.

“Will it ever be 30% of our ad support again? No, I don’t think so. But will it be north of 20%? Yes. Now? No, it’s just barely below that. I think you’ll see continued improvement in auto as the year goes on, but we think it will be kind of a back half of the year event before we start to see improving trends in the category,” Sook told the analysts.

Nexstar’s record revenues for 2022 came with some portfolio changes, but EVP-CFO Lee Ann Gliha pointed out that it was a strong showing when adjusted for those changes.

“On a same station basis, net revenue declined 12.6% and was up 8.9% excluding political. Same station core revenues were up 2% for the quarter, 8.7% for the year. Distribution revenue was up 15.8% for the quarter and 12.9% for the year. And digital revenue was up 4.4% for the quarter and 11.1% for the year,” Gliha said on the call.