Lougee: Tegna Pumped For Political Plenty

Asked by a securities analyst at Tegna’s 4Q 2018 results conference call to “throw a dart” at year-end political results, Tegna President/CEO Dave Lougee exclaimed, “Hell no! … We have too much variability, it’s irresponsible for us to do it.”

Lougee sees unprecedented voter engagement ahead of the 2018 midterms, accompanied by unprecedented fundraising, and noted that Tegna is well-situated to participate.

The company will have 19 of 36 governor contests, with eight appearing to be highly competitive; it has 16 of 34 Senate races, with eight competitive; and Tegna’s 33% U.S. footprint suggests it will benefit from some 150 House races.

Additionally, Lougee is expecting greater-than-usual spending on state-level races as the parties compete ahead of the 2020 Census.

He did say, “2014, we had a murderer’s row of Senate races. We don’t have that same lineup this year. However, we do have what looks to be a better lineup of gubernatorial races, significantly better, and a lot more money is going to the governors races this year.”

Lougee noted two surprisingly competitive Senate races resulting from retirements, in Arizona and Minnesota, and the existence of a primary in Texas even if there is no large general election benefit there.

More immediately, the company will be happy to bank 1Q funds tied to its heavy NBC lineup. EVP-CFO Victoria Harker pegged 1Q guidance, excluding discontinued businesses, at 10%-12% in revenue growth, attributable to income from the Super Bowl and Olympics, growth in retrans income and a nominal contribution from the new stations in San Diego.

Lougee pegged Tegna’s Olympics take at an estimated $38 million, down from $42 million in 2014 but up from 2010’s $25 million.

Lougee believes one of the main reasons this year’s event did not quite live up to expectations can be laid at the doorstep of a weak United States team, as well as the time zone gap that has been getting a lot of blame. Early information about the lack of winners dampens the desire of many to tune in.

But if the news was better, he said, more Americans would have ignored the time zone gap to view a win. “If you know the American did well, it actually increases viewing,” he said. “The basically poor performance of the U.S. team writ large was the biggest factor.”

The Super Bowl was great for the NBC-centric group, and brought in $10 million in incremental income, according to Lougee. It was down a bit for Tegna compared to the last NBC Super Bowl, but Lougee explained that was because Seattle was in that one, giving the group a hometown benefit it did not have this year.

Without specifying any, Lougee said there were a number of positive core advertising categories, but automotive wasn’t one of them. He described it as “flattish” in 1Q, continuing a trend that began in 4Q 2017. He noted that automotive comprised a much lower percentage of the Super Bowl advertising mix than in years past.

He added that business is being placed so late he had no insight into 2Q guidance.

The company does not break down local and national results in its reporting, but Lougee said that local was better in both 4Q and 1Q, and said that in the latter quarter unspecified gains in local offset a slight loss in national income.

According to Lougee, non-traditional MVPDs are beginning to have a measurable impact on results. Discussing the company’s 23% 4Q gain in subscription revenue, he said: “We began to see significant stabilization of our total paid subscriber universe with a ramp-up of paid subscribers from our new OTT deals. “Specifically, we saw positive reversal of subscriber trends in the fourth quarter. Excluding the impact of AT&T/U-verse, as we’ve discussed in past calls, paid subscribers in the top 10 DMAs was actually up in the fourth quarter on a year to year basis, a very meaningful development given our portfolio.”

With only 6% of Tegna’s subscriber base subject to recently-renewed contracts, significant growth in the retrans category will be limited this year, said Harker. That will pick up, with 15% up for renewal this year and 48% in 2019.

On the reverse compensation side, Tegna renegotiates with ABC this year, with CBS at the end of 2019 and is solid with NBC until 2021. Lougee didn’t note an expiration date for Fox, with whom the group has very limited exposure.

Tegna’s recent $325 million acquisition of CBS affiliate KFMB San Diego along with two radio stations is proof positive of the company’s intention to have skin in the M&A game.

Lougee commented: “Just a few weeks back, the FCC fended off a stay of its rule changes for in-market consolidation. This will benefit Tegna in particular. For the most part we own only one station in the majority of our markets and are still the largest independent owner of Big Four stations in the top 24 markets where this consolidation has yet to take place, unlike in the very small markets.

“We’re uniquely well-positioned to optimize our portfolio and station economics by consolidating two Big Four stations through swaps as well as purchases.”

Lougee had no specifics to offer but said that there were active conversations on multiple fronts.

Premion, Tegna’s digital platform, pulled in $30 million during 2017, beating high-end guidance, said Lougee. He credited the digital service with 8,000 campaigns, for more than 1,000 clients in 200 markets, reaching 99% of the population. He expects the service to double this in 2018.

Lougee said the company is running the service at a zero margin, preferring to invest in its growth, but will be shooting for a low-single digit profit by year’s end.

Harker said that the company’s 2018 benefit from the December tax cut package will be about $35 million, which will be used to invest in the company and in “organic growth opportunities.”