Nexstar Update Says Auto Advertising Softening

Quizzing Nexstar Media Group executives at today’s JP Morgan 51st Annual Global Technology, Media and Communications Conference in Boston, analyst Avi Steiner asked for an update on the advertising market since the company’s last Wall Street conference call on May 9.

“The local business has been much more resilient than the national business for each of the last couple of quarters,” said President-COO Tom Carter, noting that Nexstar’s ad split is about 70% local and 30% national.

“Our national business has been down double-digits and our local business has been down low single-digits. We’re seeing a little bit of softening in some of the larger local markets — the top five markets in the country tend to behave more like the national advertising market, as opposed to our local markets. We’re seeing that in New York, Chicago, Los Angeles, etc. That’s a little bit of the weakness,” Carter said of the current situation.

“Auto has been up double digits each of the last two quarters. It’s not up double digits, because we’re seeing in particular a couple of Japanese nameplates having trouble getting inventory on the lots for their dealers,” Carter said. He noted that inventory is the biggest driver for dealers to advertise.

“We’re not seeing that with the domestic manufacturers, we’re not seeing that with the Korean manufacturers or European. It seems to be targeted at the Japanese nameplates and that’s taken a little bit off of auto growth,” he added.

JP Morgan’s Steiner wanted more detail on how important the auto category is for Nexstar.

“Auto is and has been our largest category. Back pre the ’08 to 2010 recession it was as high as the mid- to high-20-percents of our total advertising. It bottomed out probably at 15% in 2010. And right now it’s probably closer to 17% to 19% of our total advertising. So, it’s still our largest category, but as auto has kind of ebbed and flowed, other categories have taken up as well. Hospital, medical, pharma — all those are large categories for us,” Carter said.

Nexstar Chairman-CEO Perry Sook has long complained that Wall Street undervalues his company. He agreed with Steiner that Nexstar is becoming more like one of the large multi-media companies than the TV station groups, none of which approach its size. But as Nexstar expands, Sook insisted that it always has and always will remain focused on free cash flow generation.

Steiner — noting that the company produces about 20% as a free cash flow yield on its equity value — asked CFO Lee Ann Gliha what investors are missing about Nexstar’s growth prospects.

“I think what investors are missing is that we’re going to be generating cash flow five years on,” Gliha said.

“I think what investors are thinking is that we just don’t have growth prospects much beyond that — and that we just don’t agree with,” she added. Apart from the company’s core business, she pointed to some “internal, organic growth prospects that could be really significant” in future years.

“First and foremost is one that everyone likes to talk about, which is our acquisition of The CW network. We believe that that can be a significant growth engine for the company. You just look at the other networks that are out there and what they’ve been able to accomplish over time with similar footprints. We think that there’s opportunity there,” she told the conference.

“Number two, we think that we have a great business in NewsNation. If you just look at what Fox News or CNN has done, there’s significant opportunity with respect for [NewsNation] to grow into great value over time,” the CFO said.

“And third, we’ve got our ATSC 3.0 opportunity, which is the monetization of our spectrum in a B2B data transmission business environment, which could be as big as our distribution revenues are — which is half of our revenue as it stands today,” Gliha said.