Political Powering LIN’s Strong 4Q Pacing

LIN Media’s third quarter results broke records, but 4Q is pacing up even more. The company told Wall Street today to expect revenues to be up 70% to 74% to a range of $174 million to $177 million.

That 4Q number includes the recent acquisition of the New Vision stations in eight markets for $334.9 million. The deal closed on Oct. 12.

On a same-station basis, SVP-CFO Rich Schmaeling said 4Q is pacing up 37% to 39%.

With election advertising now in the rearview mirror, the remainder of 4Q is currently pacing up 4%.

“National is pacing up pretty strongly in December,” Schmaeling said, putting the gain in the low double-digits. Local is up in the upper single-digits, so core ad sales are up about 10% in December.

“Right now for December auto is plus 19. In fact all of our categories — financial, restaurants, services, medical and media — are all up for December, which is encouraging since they had such displacement in October,” EVP-Television Scott Blumenthal told the analysts. “They have re-spent their dollars toward the end of the year, which gives us encouragement for the future.”

LIN President-CEO Vince Sadusky noted uncertainty about the strength of the economic recovery and the fiscal cliff facing Washington lawmakers, but was generally optimistic about 2013.

“The reality is our automobile folks continue to drive a lot of our revenue. They feel pretty good. They’re selling a lot of cars. There’s a lot of pent-up demand. Interest rates are low. Folks are looking for more fuel-efficient cars. All that, combined with dealer consolidation over the last couple of years, has resulted in a pretty healthy automobile industry, which continues to be a big part of our business,” Sadusky said.

One disappointment for investors in the LIN quarterly report was an accrual of $4.2 million for an estimated shortfall at its two-station joint venture with NBC in Dallas (KXAS) and San Diego (KNSD), including a shortfall loan to the JV of $600,000 in 3Q. The additional shortfall accrual, bringing LIN’s total to $6 million, came after the JV management presented its 2013 budget — including lower retrans revenues and higher capital expenses than LIN had expected.

Gabelli & Co. analyst Barry Lucas wanted to know about a timeline for the JV to turn free cash flow positive so LIN and Comcast-NBCU no longer have to cover a debt payment shortfall.

“First, Barry, you have to look at how these stations performed in the third quarter. The revenue was up 50%. They did fantastic with the Olympics, as we all know. They did great with political also,” said Schmaeling. “It makes a lot of sense from our perspective that the new [Comcast] ownership is investing in its owned and operated stations. The studio facility for the Dallas station wasn’t the best from a lot of different perspectives and they’re investing in a new facility which we think will enhance station operations going forward. So we’re pretty optimistic about the investments we see being made and we do think that it’s going to pay off in the future. It makes sense from our perspective,” he said.

“Our confidence comes from the fact that [NBCUniversal CEO] Steve Burke has said publicly a number of times that they’re way out of market with where they sit today in regards to retransmission consent fees for their owned and operated stations,” said the CFO, who expressed confidence that once NBC gets its O&Os to higher retrans rates that “shortfalls are going to be a thing of the past.

“We wish it came faster, but it kind of is what it is,” said Schmaeling, predicting that the JV will get to cash flow positive “in the next couple of years.”

Wells Fargo Securities analyst Marci Ryvicker said in an email to clients that LIN beat her 3Q revenue target of $128.4 million with a 36% rise from a year ago to $133.1 million. That was mainly due to higher-than-forecast political revenues of $20.4 million, although that squeezed out some local, which came in at $73 million (below her $76.6 million expectation). But national came in at $26.1 million, beating her $24.9 million forecast. “Taken together, local and national time sales (excluding political) delivered 10.2% growth,” she noted.

EBITDA also beat her projected $49.2 million, coming in at $53.1 million.

“4Q pro-forma revenue guidance is slightly below our estimate, but EBITDA is well ahead,” Ryvicker said of the company’s guidance.

Combining the 4Q revenue guidance spelled out above in this story with LIN’s expense guidance, the analyst said 4Q EBITDA looks to be in a range of $86.7 million to $87.7 million — well above her previous expectation of $71.2 million.