Earnings Scorecard: Scripps Networks - Analyst Blog

The lifestyle content and interactive services provider Scripps Networks Interactive Inc. (SNI) posted excellent third quarter 2010 financial results, which outpaced the Zacks Consensus Estimate. The strong result was mainly driven by a double-digit growth in advertising and affiliate-fee revenues at the company's flagship Lifestyle Media business together with a surprising top-line increase at Interactive Services.

Overall, the analysts' opinion was positive on the stock. The recent earnings announcement, subsequent analyst estimate revisions and the Zacks ratings for both short and long term are covered in depth below.

Third Quarter Highlights

GAAP net income was $101.7 million or 61 cents per share compared with a net income of $65.3 million or 39 cents per share in the prior-year quarter. However, excluding one-time special items, Scripps Networks' third quarter 2010 EPS was 59 cents, far ahead of the Zacks Consensus Estimate of 51 cents.

Consolidated revenues of $508.7 million were an improvement of 40% year over year and well above the Zacks Consensus Estimate of $484 million. Interestingly, even after excluding the contribution from newly acquired Travel Channel, organic revenues increased 22% year over year.

For fiscal 2010, management expects total affiliate fee revenues to be around $550 million, of which Travel Channel represents about $100 million. Interactive Services Segment profit from the company's Shopzilla comparison shopping business is expected to be $33 million – $35 million.

Agreements of Analysts

For the fourth quarter of 2010, 7 out of 15 analysts covering the stock revised their estimates upward, while 3 analysts revised their estimates downward over the last 30 days. For the next quarter, 2 out of the 6 analysts covering the stock revised their estimates upward, while only 1 analyst moved downward over the last 30 days. 

For fiscal year 2010, 8 of 12 analysts increased their estimates, while none revised their estimates downward, during the same period. Similarly, for fiscal 2011, 11 out of the 17 analysts revised their estimates upward, while only 1 analyst decreased the estimate.

Based on the excellent third quarter results, we believe Scripps Networks' initiative to explore international markets will prove to be beneficial. An improving global economic condition resulted in significant advertising revenue growth for many cable MSOs and media companies since the beginning of 2010. Scripps Networks' advertising revenues climbed 33.7% year over year in third quarter 2010. We believe this trend will continue in the near future.

Magnitude of Estimate Revisions

In synergy with the overall trend of estimate revisions for Scripps Networks, the Zacks Consensus Estimate for fourth quarter 2010 increased by 3 cents to 69 cents per share in the last 30 days, while for the next quarter, the Zacks Consensus Estimate increased by 1 cent to 57 cents. For fiscal 2010, the Zacks Consensus Estimate for EPS increased by 13 cents to $2.33 in the last 30 days while for fiscal 2011, it increased by 11 cents to $2.63.

Our Recommendation

Scripps Networks is currently a Zacks #1 Rank (Strong Buy) stock. We believe both advertising revenues and affiliate fee revenues will remain strong in the near future due to an improving U.S. economy. Acquisition of a majority stake in the Travel Channel and re-branding of FLN channel as Cooking Channel will help the company to maintain its future growth. However, we believe these positives are already reflected in the current valuation leaving little room for above market gain. Thus, we maintain our long-term Neutral recommendation for Scripps Networks.

Scripps Networks faces stiff competition from Discovery Communications Inc. (DISCA), MTV Networks Company and NBC Universal Cable. Moreover, Shopzilla's results have been negatively affected by a challenging retail market that holds down volume and cost-per-click prices and a less favorable sponsored-link contract with Google (GOOG).

 
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