UPDATED: 3:43 p.m. ET
Scripps Networks Interactive reported higher profits in the third quarter, but the company's stock took a beating because of concerns about a weak performance by Food Network.
Overall, the stocks of most programmers were lower Thursday afternoon, with Scripps Networks and AMC down more than 5%. 21st Century Fox, Time Warner and Viacom were down more than 3%.
For Scripps Networks, net income rose 8.7% to $170.5 million, or 87 cents a share, from $118.4 million, or 78 cents, a year ago.
Revenues rose 9% to $617 million. Ad revenue was up 8.7% to $410 million and affiliate fee revenue gained 9% to $191 million.
Expenses were up 13% to $355 million. The company said the increases came from efforts to drive viewership at all of its lifestyle television networks and increased investments in international and digital growth initiatives.
Analyst John Janedis of UBS said earnings per share was above his estimate, but the higher earnings were the result of timing and below the line items. Ad growth was lower than expected with a strong performance by HGTV and Travel Channel offset by Food Network growth of just 1.2%. "Ratings at Food will continue to be an important driver going forward," he said.
Jandedis lowered his fourth quarter estimates for fourth quarter ad growth, revenue, earnings before interest, taxes, depreciation and amortization, and earnings per share, but remained neutral on the stock, calling for a $74 target price.
Analysts also were disappointed that that Scripps Networks repurchased just 24,000 of it shares for $3.1M, below its estimate of $125M for the quarter.
In the third quarter profits at Scripps Networks' Lifestyle Media segment rose 6.7% to $291 million.
Revenues rose 7.8% to $595 million. On air TV advertising revenue increase 9.2%, which digital advertising decreased, leaving total ad revenue up 7.5% at $403 million. The decrease in digital advertising was due in part to a planned organizational restructuring to better align digital sales with technology platforms and lifestyle categories, the company said.
During the company's earnings call with analysts, Scripps Networks CFO Joe NeCastro said the scatter market had been strong during the third quarter, with ad prices on cost-per-thousand viewer (CPM) basis up mid-to-high single digits year over years and up mid-teens to high teens over upfront pricing.
NeCastro noted that while some other companies' ad revenues were depressed a year ago because of competition from the Olympics, "we did not have soft year-over-year comps like some of our peers. In the third quarter of last year, our advertising revenue was up a healthy 10% with minimal impact from the Olympics," he said.
"So far in the fourth quarter, the scatter advertising market continues to be healthy," NeCastro said. "Year-over-year, scatter versus scatter pricing growth is running in the mid-single digits and in the mid-teens over the 2013 broadcast upfront.
Operating revenues were up just 1.8% to $202.4 million at Food Network, but most of the company's other cable networks showed bigger gains. Revenues were up 12.1% to $219.1 million at HGTV, up 12.2% to $77.3 million at Travel Channel, up 13.8% to $34 million at DIY Networks and up 23.3% to $26.7 million at Cooking Channel. Operating revenues fell 5.5% to $6.6 million at Great American Country. The company's digital businesses were down 6.5% to $25.9 million.
Analysts were focused on the ratings and revenue issues at Food Network. "In terms of Food Network, we've seen ratings bumps before at all of our networks, and I would imagine we're in good company with other peers out there in that regard and so really it's a matter of programming through it," Burton Jablin, president of Scripps Networks, said on the call. "There's been increased competition in the food space over the last year. We are adjusting to that, and it's all about programming our way out of it, and I am confident we can do that."