Sinclair Seeing Weak Core In 1Q And 2Q

Sinclair Broadcast Group’s core spot revenue was down “less than 1%” in the first quarter compared to the same quarter of 2016 due to weakness in the food and retail categories and the loss of revenue from for-profit technical schools that have gone out of business, said Steven Marks, EVP and COO of the Sinclair Television Group, during a call with analysts following release of the company’s first quarter earnings this morning.

Had the schools continued to spend, Marks said, core would have been flat for the quarter.

The good news was auto, which grew 3%, he said. The category, he noted, accounts for 26% of Sinclair’s spot dollars.

Marks tried to mitigate the news about core by pointing out that Sinclair had gained share and that it has to compete with a weaker network mix than many of its peers. Forty percent of its ad revenue comes from affiliates of Fox, MNT and CW, he said.

Given the network mix, Marks said, Sinclair’s performance is “exceptional…. We are really at the top of our game.”

Core excludes political advertising sales because of its cyclical nature — strong in even-numbered election years and weak in odd-numbered non-election years. Marks said political sales totaled $2 million in the first quarter of 2017 compared to $24 million in the first quarter of 2016.

Marks said the first quarter core trends are continuing in the second quarter, which he said would be “flat to down slightly.”

Auto will grow in the low single digits, he said. And, he added, “we are seeing strength in services, media, religion and movies.”

He continued: “Once people are comfortable and assured of health-care expenses that come out of their wallets as well as the tax situation, re-coding the tax brackets, we think those two categories rebound,” he said. “It bodes well for core advertising in the back half of the year.”

Looking ahead to 2018, he said, “pundits” are already predicting heavy political spending on campaigns and ballot issues. “We believe we would be in a strong position to gain political share given our investment in local and recent Murrow awards.”

Sinclair won 33 Edward R. Murrow awards including ones for “Overall Excellence” to WJLA Washington and WGME Portland, Maine.

The earnings call was notable in that there was no talk about the biggest story involving Sinclair — its interest in acquiring Tribune Media. CFO Lucy Rutishauser allowed, however, that Sinclair has $3 billion-$4 billion available for acquisitions.

Asked about M&A in general, CEO Chris Ripley said that “it’s a buyer’s market” and that Sinclair is a buyer focused on “accretive deals.” Stations in larger markets may merit a premium, but stations in smaller markets are attractive too, he said. “We don’t differentiate.”

Ripley said that he also sees opportunity if the FCC relaxes the local ownership rules later this year to allow ownership of two or more Big Four affiliates in a single markets. Owning multiple stations in a market “tends to produce a large amount of cost savings,” he said. “Those could be very accretive, and I see that happening either through acquisition or swaps.”

Also worth noting:

Ripley said he was pleased with the blanket deal that ABC has negotiated with the virtual MVPDs that allows Sinclair and other affiliates to cut carriage deals with them. “The net economics of these deals is in line with what we get on a net basis from the [cable and satellite] MVPDs.”

Rutishauser said that “a lot of the cost” of gearing up Sinclair stations for implementation of ATSC 3.0 will be covered by the government in the funds the stations will receive for moving to new channels in the mandated repack of the TV band. She said that it will cost less than $50 million to equip the stations that are not moving and that that expense will be spread over several years.