Scripps Networks Beats - Analyst Blog

Scripps Networks Interactive Inc. (SNI) today reported strong second quarter 2010 financial results. Quarterly GAAP net income was $106.2 million or 63 cents per share compared to a net income of $79.5 million or 48 cents per share in the prior-year quarter. However, excluding one-time special items, Scripps Networks’ second quarter 2010 EPS was 59 cents, above the Zacks Consensus Estimate of 58 cents.

Quarterly consolidated revenue of $516 million was an improvement of 31.9% year-over-year and also better than the Zacks Consensus Estimate of $507 million. Interestingly, even excluding the contribution from newly acquired Travel Channel, organic revenue increased 16% year over year.

The strong performance were mainly attributable to double-digit growth in advertising and affiliate-fee revenue at the company’s flagship Lifestyle Media business and higher total segment profit.

Quarterly operating income was $193.6 million, up 32% year-over-year. In the reported quarter, total segment profit (excluding special items) was $227.9 million, up a whopping 37.2% year over year.

During the first half of 2010, Scripps Networks generated $217.3 million of cash from operations compared to $245.4 million in the prior-year period. Free cash flow (cash flow from operations less capital expenditures) in the same period was $183.4 million compared to $205 million in the year-ago period.

At the end of the second quarter 2010, Scripps Networks had $331 million of cash and cash equivalents and $884.32 million of debt outstanding on its balance sheet compared to $254.4 million of cash and cash equivalents and $884.2 million of outstanding debt at the end of fiscal 2009. At the end of the second quarter 2010, debt-to-capitalization ratio was 0.35 compared to 0.37 at the end of fiscal 2009.

Lifestyle Media

Quarterly revenue surged 35.6% year-over-year to $475.2 million. Out of this, Advertising revenue was $331.5 million, up 27% year-over-year, Affiliates fee revenue was $138.6 million, up 73.1% year-over-year, and Other revenue was $5.2 million, down 45.4% year-over-year. Excluding the contribution from the Travel Channel, Lifestyle Media segment generated $414 million, up 18.3% year over year.

Quarterly total expense was $238 million, up 34% year over year. Out of this, Programming expense was $103 million, up 32% year-over-year and Non-Programming expense was $135 million, up 35% year-over-year. Total segment profit was $237 million, up 38% year over year.

Brand wise, HGTV revenue was $173.7 million, up 6.2% year over year. Total subscriber base is now 99 million (up 1% year-over-year). Food Network revenue was $173 million, up 35% year over year. Total subscriber base is now 100 million (up 2% year-over-year). Travel Channel revenue was $61 million, up 13% year-over-year. Total subscriber base was 96 million (2.1% year-over-year).

DIY Network revenue was $22.8 million, up 26% year over year. Total subscriber base is now 54 million (up 5.9% year-over-year). Cooking Channel revenue was $13.6 million, up 24% year over year. Total subscriber base is now 57 million (up 3.6% year-over-year). Great American Country revenue was $8.5 million, up 26% year over year. Total subscriber base is now 59 million (up 3.5% year-over-year). SN Digital revenue was $21.4 million, up 2.8% year over year.

Interactive Services

Quarterly revenue of $37.3 million was down 8.5% year-over-year. Operating expenses were $31.3 million down 6.3% year over year. However, segment profit was $6 million, down 17.8% year over year.

Guidance

Management has provided guidance for full fiscal 2010. Total affiliate fee revenue is expected to be $540 million – $550 million. Travel Channel represents about $100 million of the total affiliate fee revenue. Interactive Services Segment profit from the company’s Shopzilla comparison shopping business is expected to be $33 million – $35 million.

Programming expenses are expected to be $380 million – $400 million. Travel Channel programming expense will be $50 million. Non-programming expenses are expected to be $545 million - $560 million, including one-time transition costs related to the Travel Channel.

We maintain our Neutral recommendation for Scripps Networks. Currently it is a Zacks #3 Rank (Hold) stock.
 
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