EARNINGS CALL

Tough Comps Sink Sinclair 3Q Outlook

The quarter is likely to suffer from a lack of Olympics and lower tech school ad money, but a bright spot is some early political spending and upward trending automotive.

 

The demise of certain for-profit schools and the lack of odd-year Olympic advertising will likely result in some red ink when Sinclair reports its third quarter core results. But the company says the 2018 mid-term elections are already generating spending activity.

Sinclair EVP and COO Steven M. Marks told analysts this morning during its 2Q earnings call with analysts that the lack of Olympic and tech school revenue is to blame for a negative 3Q core outlook. With no income from either, Sinclair is expecting media revenues to shrink modestly, from 0.9% to 1.9%. The Olympics represent an unanswered $10.5 million revenue hurdle.

Political revenue will come in somewhere between $7.5 million and $9 million compared to $45 million in 2016.

President-CEO Christopher S. Ripley noted that 3Q core would project from flat to slightly up if Olympic income and income from now-out-of-business technical schools are excluded from consideration.

Lucy A. Rutishauser, the company’s SVP-CFP-treasurer, added color, commenting: “When you add back in the loss of the for-profit schools we would be up flat to low-single-digits, and when you take into account the absence of the Olympics we would be up low-single-digits to kind of mid-single-digits.”

She added that the company expects core to be up for the year. “As we progress through the year each sequential quarter we expect core to improve.”

BRAND CONNECTIONS

Looking back, Marks said 2Q auto was flat, noting, “flat actually may be the worst performance we’ve had in three years, and flat’s not bad.”

He said automotive is pacing up in 3Q, which he characterized as an amazing feat. “A lot of car dealers poured a lot of money into the Olympics last year but yet we’re pacing for third quarter ahead of last year.”

Marks summed it up, saying, “It’s been a terrific category for an extended period of time, and the performance now is pretty consistent.”

On the political front, Marks said that the mid-terms are already beginning to heat up, singling out Ohio, Alabama, Oklahoma and Illinois as locations with early activity. He said that the company’s continued investment in local news will have Sinclair well-positioned to reap the benefits of a hot political season.

Ripley discussed Sinclair’s 2017 headline event. “The expected acquisition of Tribune will transform our company on many levels. In particular, it gives us access to top 10 markets and establishes a nationwide platform to which to deploy advanced services.”

“For the consumer,” Ripley continued “the acquisition will represent increased content choices and better local programming. For our shareholders, this would be an accretive transaction with over 40% free cash flow per share growth.”

Ripley said there is no reason to believe the Tribune deal won’t close by the end of the year, and expressed no concern if the closing slips into January 2018. He said the FCC’s review thus far has been “constructive.”

Ripley told a questioner that he is unconvinced that required spin-offs needed to be attached to the transaction. “You can make a very, very strong case that nothing needs to be sold,” he said, “but we did agree to sell to the extent that we needed to so that’s why there’s a process that we may launch in anticipation of that.”

Wells Fargo Securities analyst Marci Ryvicker noted that the possible advent of relaxed FCC ownership rules between now and the closing of the deal may reduce the number of stations Sinclair will have to sell to remain in compliance with FCC rules.

The much smaller Bonten acquisition is expected to close later this quarter, according to Ripley.

Ripley said that Sinclair has partnered with Nexstar to get ATSC 3.0 booted up in 97 DMAs. “This is an important step to insuring a speedy rollout of the next generation of advanced services for our viewers and advertisers.” Additional broadcasters are expected to join in.

Ripley is pleased with the progress made on the company’s digital operations, noting that platform harmonization and transforming staff from a spot sales to a holistic sales approach are responsible for increasing digital income.


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