Scripps Networks Cooks Up Higher Earnings

Updated: Strong upfront tops $1 billion mark

By Jon Lafayette -- Broadcasting & Cable, 8/2/2012 8:47:03 AM

Updated 12:00 p.m. ET

Scripps Networks Interactive reported higher second-quarter profits as higher spending on programming and marketing resulted in higher affiliate and advertising revenue. The company also told analysts that upfront advertising sales for next season topped the $1 billion mark for the first time, with sales volume up by low double-digits and pricing up in the high single-digits, both among the tops in the cable industry.

Second quarter net income rose 83.9% to $142.4 million, or 93 cents a share, versus $77.429 million, or 78 cents a share. A year ago, the company had a $55 million loss from discontinued operations. Income from continuing operations was up 8%.

Revenues rose 13% to $601 million.

"The company's strong second quarter financial performance is a direct result of our successful strategy to differentiate our networks by focusing on avid consumer interest in their homes, food and travel," CEO Ken Lowe said in a statement.

"Food Network and HGTV consistently aggregate record numbers of engaged, passionate viewers, and we're creating considerable momentum at the Travel Channel, where our creative team is working to define the brand and the content genre," Lowe said. "At Cooking Channel and DIY Network we're seeing very strong double-digit growth both in viewership and in revenues as we appeal on a deeper level to cooking and home improvement enthusiasts who choose to watch our premium-tier channels."

In the quarter, affiliate fee revenue rose 16% to $171 million as the company's new affiliate agreement with Comcast kicked in.

Advertising revenues rose 12% to $417 million.

Scripps Networks CFO Joe NeCastro said during the company's earnings conference call with analysts that in the second quarter, scatter ad prices were in the mid to high single-digits above last year and up in the high teens over the broadcast upfront.

Echoing reports from other cable programmers, Scripps said the scatter market has cooled so far in the third quarter.

"The scatter advertising market, while still healthy, isn't quite as strong as it was in the second quarter," NeCastro said. He said scatter pricing growth is running in the mid to high single-digits and up in the mid to high teens over the 2011 broadcast upfront.

"Some of the softening we suspect is attributable to the Olympics of course. Overall the general tone among our advertisers continues to be very positive, however," NeCastro said.

"Our networks and brand of lifestyle programming attract a highly qualified and upscale audience that our advertising and distribution partners value," Lowe said. "We set a company record this year for advance advertising sales and reached an important distribution agreement that will make our content easily and widely accessible to millions of consumers on tablets and other mobile platforms."

NeCastro said that Scripps finished the upfront at the top of the cable business with high single-digit price gains and low double-digit gains in dollar volume commitments.

"Advertisers are willing to pay up for networks like ours that can deliver engaged upscale viewers willing to spend discretionary income to buy key goods and services," NeCastro said.

John Lansing, president of Scripps Networks, said that the entire cable marketplace was up about 5%, which means that Scripps Networks took in 18% of that growth.

Expenses were up 22% to $316 million, with the increase driven primarily by higher spending on programming and marketing.

"At Scripps Networks Interactive, we're moving forward on several fronts -- digitally, domestically and globally -- with the intention of creating long-term value for our shareholders," Lowe said.

Scripps Networks raised its full year guidance, saying that total revenue is now expected to increase by between 10% and 12%. The company said that the increase was fueled by better than expected advertising revenue during the first half of the year resulting from strong viewership at the company's lifestyle networks.

At Scripps Networks' individual channels, revenue rose 17% at Food Network to $218 million; at HGTV revenues rose 8.4% to $205 million; at Travel Channel, revenues rose 4.9% to $73.8 million; at DIY Network, revenues were up 16% to $33.7 million, and at Cooking Channel, revenues were up 41% to $22.4 million.

Scripps Networks continued to have trouble with its Great American Country network, where revenues were down 15% to just $5 million in the quarter.