Scripps Networks Profits Up On Advertising Growth

Ad revenues up 12% during first quarter

Scripps Networks Interactive reports higher income as advertising and affiliate revenue rose.

Net income was $101 million, or 59 cents a share, up 39%  from $72.5 million, or 43 cents a share.

Revenues rose 14% to $536 million. Advertising revenues were up 12% to $324 million and affiliate fee revenue was up 6.3% to $145 million.

"Our strong advertising growth in the first quarter reflects the popularity of our networks and their tremendous value as marketing platforms for advertisers and distribution partners," Kenneth W. Lowe, chairman, president and chief executive, said in a statement Thursday. "We're committed to building on the competitive leadership position we've established in the home, food and travel lifestyle content categories and are encouraged by the positive start we've had for the year. Trends continue to be positive which portends well for a very good 2011."

On the company's conference call with analysts, management discussed likely changes at its Great American Country network and took a look at advertising trends leading up to the upfront.

When analysts suggested that Scripps ought to either sell or re-format GAC, Lowe responded that "we see total upside with GAC. We see it as an opportunity." He said Scripps will be migrating more the branded-lifestyle type content that's made its other channels successful to the network, which it acquired in 2004. "It's always been one of our goals. We've just got some other priorities along the way. It's great real estate. We've got a great team there and we sit it as an area to invest."

Scripps Networks president John Lansing added that the company's affiliate sales team was trying to increase the number of GAC's paid subscribers in order to be able to afford to put more original programming on the network.

Lansing also said Scripps was expecting a strong upfront. "I do believe we will be at or near the top of the cable industry in terms of CPM  growth," he said. "There's no reason to think this year's upfront would be any worse, or perhaps even better than last year."

He said in last year's strong upfront market, Scripps sold more inventory than it had the year before. That could happen again this year because the company has already sold ads in a strong calendar upfront market in which clients reserve ad time on a January through December basis.

Lansing also said that he expected that ad growth should accelerate from the first quarter to the second quarter.

CFO Joe NeCastro said that during the second quarter scatter market pricing was up mid to high teens from last year and up in the mid- to high 20s above the broadcast upfront.

"Automotive was the biggest positive mover in the quarter, up significantly over the prior year and our third biggest category in the  perod, NeCastro said. "In fact two of our top five largest advertisers were auto companies. Retail and financial advertisers rounded out the top five."

So far in the second quarter, prices are up in the mid to high teens over a year ago and up in the mid 20s above the broadcast upfront, he said.

Scripps' Lifestyle Media unit, which includes it cable channels, reported that revenue rose 11% to $474 million, with advertising revenue up 12% to $322 million and affiliate revenue up $6% to $144 million. Profit for the segment was up 31% to $245 million.

Scripps reported $15.5 million in transition costs related to the acquisition and integration of the Travel Channel and $11 million  in marketing and legal costs in  connection with affiliate renewal negotiations for Food Network and HGTV.

At the individual networks:

- Revenue at Food Network was $174 million, up 15%

- Revenue at HGTV was $171 million, up 6%.

- Revenue at Travel Channel increased 9% to $62 million.

- Revenue at DIY Network was up 25% $23.3 million.

- Revenue at Cooking Channel was $15.3 million, up 11%from when it was the FLN or the Fine Living Network a year ago.

- Revenue at Great American Country (GAC) increased 0.9% to $6.5 million.

Scripps said that during the first quarter, Tribune Co. restored its minority interest in Food Channel to 31% by contributing cash. Tribune's stake shrunk when Scripps started the Cooking Channel and put those assets into the partnership.

The company results include revenues from Shopzillia, which it agreed to sell last week.

After the earning were released, analyst Anthony DiClemente of Barclays Capital said he was raising his earnings estimates for 2011 and 2011, partly because positive ad sales trends appeared sustainable for Scripps.

He added that the sale of Shopzilla would narrow management's focus and pointed to talk on the conference calls about taking its growing pile of cash and returning it to shareholders as a "potential positive near-term catalyst for the stock."

Scripps stock closed Thursday at $50.04 per share, down 98 cents.