Sinclair: 2Q Business Good, 3Q Looks Better

Sinclair Broadcast Group’s pending “transformative” merger with Tribune may collapse under the weight of regulatory scrutiny and it along with other groups is being investigated by the Justice Department for collusion on ad rates.

But business is good.

That was the message from Sinclair execs on a call with securities analysts following release of the group’s second quarter financial results today.

And it was the only message. At the beginning of the call, the Sinclair execs said they would not address the merger and they declined to respond to two questions that touched on it.

In the press release on the earnings, Sinclair acknowledged that the merger was in trouble at the FCC, but also indicated that it may still be trying to salvage it. “The company is working with Tribune to analyze approaches to the regulatory process that are in the best interest our companies, employees and shareholders.”

But business is good, although Sinclair experienced the same weakness in core advertising as its peers.

CEO Chris Ripley reported that the 2Q results “came in well ahead of guidance in all key financial metrics, and we expect the second half of the year to continue to be robust, underlined by increasing distribution revenues and strong political advertising spend.”

The health is due mostly to top-line growth.

Media revenue rose 9.2% year-over-year in the quarter to $695.9 million, bolstered by $28 million in political advertising, up from just $5 million in the same quarter last year, and by distribution revenue (retransmission consent and other programming fees), which rose 14.3% to $319 million.

Overall revenue was up 11.9% to $730 million, which yielded operating income of $131.6 million, a gain of 10.7% versus the quarter last year.

The revenue outlook for the third quarter is also good. Sinclair said it expected media revenue of between $710 million and $722 million, which would be a gain of anywhere from 12.8% and 14.7% compared to the quarter last year.

Political and distribution revenue would drive the 3Q growth, the company said. Political would contribute $45-$50 million, up from $7 million in 3Q 2017, and distribution would chip in $333 million, up 16.8% from in 3Q 2017.

Ripley reassure analysts that there has been no erosion of political advertising because of the digital. “What we are seeing in this cycle is exactly what the standard pattern is. There is going to be a record amount of spending this year….

Some money is going to the internet, he said, but “it’s smaller dollars. The spot TV market is maintaining its historical share.”

Chief Revenue Officer Rob Weisbord said that 3Q core advertising would be down “low to mid single digits” in the quarter.

“This is to be expected as we head into the height of the political season with heavy political demand crowding out normal advertisers.”

The good news in core is that auto spending is rebounding in 3Q after a decline in the high single digits in Q2. Dealers and dealers and dealer groups are returning to broadcasting after seeing car sales fall as they dabbled in digital, Weisbord said. Ford and Chevrolet are leading the resurgence, he added.

However, he said, he still sees auto down low single digits in Q3 due to political displacement.

Sinclair CFO Lucy Rutishauser said that auto also might be getting help for the tax cut and the strong economy.