Scripps Networks Earnings Hurt By Shopzillla Sale

Cable networks profits up 21.9%
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UPDATED: 3:24 p.m. ET

Scripps Networks Interactive reported strong results from its cable networks in the second quarter, but took a hit from a money-losing Internet business.

Net income fell 27.1% to $77.4 million, or 46 cents a share, from $106.2 million, or 63 cents a share a year ago, because of costs from the company's Shopzilla online comparison shopping business, which was sold at a loss during the second quarter. Income from continuing operations was up 36% to $133 million. 

Revenues were up 12% to $534 million. Advertising revenues were up 13% to $374 million.

"The outstanding marketing power of Scripps Networks Interactive's television and Internet brands is evident in the company's solid second quarter financial results," Kenneth W. Lowe, chairman, president and CEO, said in a statement. "HGTV, Food Network and Travel Channel -- our fully distributed networks -- consistently lead their respective content categories and genres on both TV and the Web, aggregating large and targeted audiences that are highly valued by media consumers, our advertising customers and distribution partners." 

He added that Scripps Networks Interactive's "premium-tier channels in the home and food categories, DIY Network and Cooking Channel, generated strong revenue growth as an increasing number of viewers discovered the exceptional vitality and utility of the creative original programming that's defining these unique and exciting brands. Put it all together, and the company succeeded in delivering solid double-digit growth in revenue and segment profit during the second quarter and is on track for another outstanding year."

The company's Lifestyle Media segment, which includes its cable networks, reported a profit of $289 million, up 21.9% from a year ago. Revenues rose 11% to $527 million.

Scripps Networks kept its guidance for full-year earnings unchanged, noting that it expected advertising revenues to remain strong despite the economic uncertainty troubling the stock market.

"The third quarter is trending well for us," CFO Joe NeCastro said during the company's earnings conference call with analysts. He noted that the company faces tough comparisons in the third quarter, when the company posted a 19% gain a a year ago.

NeCastro said that ad prices in the scatter market were up at low teen rates versus last year's scatter and up in the mid-20% range versus last year's upfront. The market performed similarly in the second quarter, NeCastro said.

The strength of the scatter marketplace had a direct impact on the broadcast upfront we just completed. In a word, we had an excellent upfront," NeCastro said. He said Scripps Networks had "healthy double digit gains" in prices and total dollar volume commitments during the upfront were up 20%.

In response to questions, CEO Ken Lowe said the company continues to see solid demand in the food category.

"In fact, our categories remained strong; Food number one, Consumer Goods, Retail, Automotive; Home Improvement. The fast growing of the five top categories was Automotive. We are still seeing significant strength in the automotive category, particularly from Ford." Lowe said. "Our Kellogg's business was up significantly this quarter due to the promotion with Food Network Star, something that you can only get on Food Network and it really delivers something more than just impression that delivers that engaged audience that I know for a fact Kellogg's feels very, very positive about that."

Analysts said the results were in line with expectations on revenues and a bit better in terms of earnings. "Despite ongoing concerns that macroeconomic weakness could impair SNI's advertising revenues, management reiterated full-year guidance, highlighting the strength of the upfront and continued scatter market strength across key categories," said Anthony DiClemente, analyst at Barclays Capital.

Expenses were up 4.7%, mostly because of increased marketing spending to promote programming initiatives and higher personnel costs. The company said programming and marketing expenses will be higher in the third quarter at it launches a large number of shows.

Lowe said that the company's cable networks are having success beyond TV.

"On the digital side, our Food Network apps are crossing new thresholds. The Food Network Nighttime app has had more than 1.1 million downloads and we had more than 300,000 downloads of our Food Network In The Kitchen app, which for a time was the number one paid culinary app on iTunes," he said, adding that "Food Network has almost two million Facebook fans, and on Twitter we have more than 570,000 followers, both great examples of how people have integrated our brands into their daily lives."

Food Network has also been expanding in real life, with a new market and quick-serve restaurant in the Fort Lauderdale airport, he said. It is also expanding Food Network branded concessions into six more NFL stadiums. Sales of branded merchandise at Kohl's stores is outpacing last year's sales by 40%.

At HGTV, Serwin-Williams has launched a line of HGTV Home Paint in more than 2,800 stores and HGTV Home Flooring by Shaw is in 500 retail outlets, Lowe said, adding, "we are exploring additional license opportunities to leverage the HGTV brand name for other home products, so stay tuned for more announcements to come."

The company disclosed the revenue of each of its cable networks:

Food Network, up 8.2% to $187 million;
HGTV, up 8.9% to $189 million;
Travel Channel, up 15% to $79.3 million;
DIY Network, up 27% to $29 million;
Cooking Channel, up 17% to $15.9 million (excluding distribution incentives relating to rebranding Fine Living Network to Cooking Channel, revenue was up 30% to $19 million);
Great American Country, down 31% to $5.9 million.

Revenue from the company's digital businesses, including its network-branded websites, was $27.4 million, up 28%.

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