2018 Could See A Billion $hades Of Gray

Gray EVP-CFO James Ryan put it right out there. “While we can’t guarantee the future, we’re currently optimistic that when we get to the end of the year to discuss full year results, we’re going to be talking about a company that had in excess of one billion dollars in revenue in 2018.”

It’ll have to build on 2017’s $822 million to pull that off, but the NBC-heavy group has already banked both a Super Bowl and an Olympics benefit, with a great deal of political yet to come.

Retransmission consent income will be a reliable gainer. EVP-Chief Legal and Development Officer Kevin Latek said that more than 350 contracts have recently been completed, with two pending and expected to be completed in the next two weeks. He’s expecting growth in the category for 2018 to exceed 20%.

By the end of the year, retrans is expected to come home at between $340 million and $350 million. The networks will skim their 50% share, with Gray earning a net retrans take of $170 million-$175 million.

Political in 1Q is expected to hit $5 million-$5.5 million. The company is not providing full-year guidance after getting burned in 2016.

According to Latek, despite the disappointment of 2016, Gray took in $9.63 in political revenue for each TV household in its markets, nearly double that of its closest competitor. It then took advantage of special elections to beat political guidance in 2017, and is expecting big results this year.

Latek said that 81% of Gray’s markets have a governorship at stake, 65% have a Senate seat and of course, all of them have a battle for the House of Representatives.

The first quarter now in progress is a mixed bag, according to Ryan. The Super Bowl’s passage from Fox to NBC was a major benefit, with revenue up $1.7 million to $2.3 million. The Olympics figure to bring in $5.5 million-$5.8 million, with about $1.7 million in the automotive category.

The Olympics did have its downsides. The time zone difference dampened overall Olympic performance and while Gray’s NBC affiliates were racking up their gains, the other stations were in the process of losing $3 million in revenue.

Ryan then described other downside factors. The decline in automotive continued from 4Q. “There’s not any one big driver … it tends to be … broad-based and relatively small to midsize retrenchments up and down the board with more people taking a little bit of spend off of the table than people putting a little bit of spend onto the table.”

Auto was down mid-single digits during 4Q, and the trend continues into 1Q, although it wasn’t quite as bad. Ryan said he isn’t overly concerned, but added he saw no immediate relief in the form of new car buyers as a result of the cuts to personal income taxes.

Communications companies are spending less — to the tune of $1.6 million — with $1 million attributable to one company, and McDonald’s has yet to return.

Ryan provided a list of categories. Along with automotive and communications, in the down group are appliance/furniture, restaurants and supermarkets. On the upswing are entertainment, finance, health care/insurance, home improvement and medical.

Looking to 2Q, Ryan said there are signs that McDonald’s may be on the way back and more importantly, said pacing was up mid-single-digits.

Looking back to 4Q, Latek cited a litany of November sweeps statistics regarding Gray’s strength in each of its markets, concluding: “These … allow us to achieve the benefits of scale that otherwise should be out of reach of a broadcaster that reaches just 11% of US television households.”

Nonetheless, according to Ryan, 4Q results were plagued by slow auto business, the loss of about $1 million in communications advertising and McDonald’s decision to move its business to network, a $300,000 hit.

On the M&A front, Latek said that the combination of new common-sense relaxation of television ownership rules coupled with the December tax cut should be beneficial to dealmakers. As always, Gray will be on the lookout for top performing stations in select markets, and is prepared and expects to act.

Latek spelled it out: “We’re talking with a lot of people and we’re not prepared to overpay and we are only looking at stations that meet our criteria,” offering no specifics.

He also said Gray has no particular interest in commenting on possible spinoffs from the Sinclair-Tribune deal. He did say that “Gray looks at every No. 1 and strong No. 2 station that’s offered for sale regardless of market size. The Sinclair-Tribune process includes many stations that meet that criteria.”

President-CEO Hilton Howell Jr. supplied the company’s overall M&A strategy. “We do wish to stay with the quality portfolio that we have. That’s not to say that everything’s got to be absolutely the No. 1 in their market. But the vast majority of things certainly would be helpful. We think it really has proven our business model to be a very successful one. So, Gray is quite open to discussions in a number of different capacities.”

Ryan pegged leverage at a “historic low” of 4.16x. He said that absent any M&A activity the company hopes to get it into the low 3s by the end of the year.

Howell highlighted the company’s three-year-old Washington news bureau, with is used, he said, to underline the company’s commitment to localism. That’s because the stories it produces are tailored to individual stations, covering news from the station’s local perspective.