Scripps Networks Earnings Drop On Special Charges

Lifestyle networks’ profit up 5.2% on 7.6% rise in revenue
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Special charges this year and gains last year left Scripps Networks Interactive’s fourth quarter earnings sharply lower despite a 5.2% profit increase at its lifestyle cable networks.

Net income dropped 65% to $109 million, or 73 cents a share, from $306 million, or $2.02 a share, a year ago. This quarter’s results include a 17 cent a share writedown related to Travel Channel International. A year ago, net income was increased $1.11 per share by a $213 million income tax benefit.

The company said its segment profit was up 2.8% to $273 million.

Revenues rose 8% to $654 million. Advertising revenue rose 8.8% to $450 million and affiliate revenue rose 9.7% to $190 million.

“Our strong fourth-quarter and full-year operating results validate our success in attracting an engaged, upscale audience with our unique lifestyle content,” said Kenneth W. Lowe, chairman, president and CEO, in a statement. “We create long-term value for our shareholders by building iconic lifestyle brands, a fact that’s borne out in the company’s long and successful track record.”

For 2014, the company said it expects total revenue to increase between 6% and 8%. Cost of services is expected to increase 11% to 13%. Selling, general and administrative expenses are expected to be between flat and up 2%.

SNI’s Lifestyle Media segment’s profit was up 5.2% to $302 million, with higher program amortization and marketing expenses offsetting a 7.6% increase in operating revenues. Ad revenue was up 7.1% to $439 million and affiliate fee revenue grew 9% to $182 million.

Operating revenue at SNI’s Food Network was up 3.9% to $222.9 million; HGTV was up 11% to $222.2 million; Travel Channel gained 9.8% to $78 million; DIY grew 13.6% to $34.5 million; Cooking Channel rose 18.1% to $29.1 million and Great American Country was up 1.5% to $7.7 million.

Analyst Vasily Karasyov of Sterne Agee says several of SNI's financial metrics came in below expectations in the fourth quarter. But he added “We think that the 2014 guidance is probably better than feared and believe the stock will react positively today.” 

Karasyov added that on SNI's call with analysts “we would like to hear management’s view on advertising revenue trajectory through the year given Food ratings and tough comps in the first half.”

Analyst Michael Nathanson of MoffettNathanson Research, said advertising growth in the quarter was a positive surprise. “The advertising growth was, despite continued weak ratings at the Food Network, offset by flat HGTV ratings,” he said.

Nathanson said the 2014 guidance seemed light compared to his previous 10% growth estimate.

On Thursday, Scripps Networks Interactive authorized an additional $1 billion in stock purchases and increased its dividend by 33% to 20 cents per share.

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