News Column

Scripps Networks Interactive reports first quarter financial results

May 8, 2014

  • Revenues of $644 million, up 8.3 percent
  • Segment profit of $271 million, up 9.4 percent
  • Net income attributable to Scripps Networks Interactive of $0.87 per share

    KNOXVILLE, Tenn.--(BUSINESS WIRE)-- Scripps Networks Interactive Inc. (NYSE:SNI) today reported operating results for the first quarter 2014.

    Consolidated revenues for the quarter increased 8.3 percent to $644 million from the prior-year period. Results for the three-month period ended March 31 reflect strong advertising revenue of $434 million, up 10 percent, and affiliate fee revenue of $201 million, up 7.2 percent year-over-year.

    Costs of services and selling, general and administrative expenses for the quarter increased 7.5 percent from the prior-year period to $373 million. The increase was driven primarily by higher programming amortization at the company’s lifestyle television networks.

    Total segment profit increased 9.4 percent to $271 million. (See reconciliation of non-GAAP financial measures for a definition of segment profit.)

    First quarter net income attributable to Scripps Networks Interactive was $128 million, or $0.87 per diluted share. First quarter 2013 net income was $108 million, or $0.72, which included unfavorable tax adjustments totaling $0.05 per diluted share.

    “Scripps Networks Interactive once again delivered strong results demonstrating the strength of our lifestyle brands as valuable advertising platforms,” said Kenneth W. Lowe, chairman, president and chief executive officer of Scripps Networks Interactive. “We continue to balance investment in our brands by developing compelling content that engages millions of media consumers across a range of platforms and geographies. This has established Scripps Networks Interactive as the leader in influencing consumer purchasing decisions in the home, food and travel categories.”

    Segment results

    Lifestyle media revenues in the first quarter of 2014 increased 7.6 percent to $623 million driven by advertising and affiliate fee revenue growth. Total advertising revenue for the lifestyle media segment grew 8.9 percent to $426 million. Affiliate fee revenue grew 6.3 percent to $190 million due to higher rates and the benefit of our online video distribution agreements.

    Lifestyle media segment profit increased 11 percent to $311 million reflecting the strong revenue growth and lower than expected program amortization.

    Corporate and other revenues, which are primarily international operations, increased 41 percent to $21.0 million, due primarily to the April 2013 acquisition of Asian Food Channel and the launch of our uLive business.

    Corporate and other segment loss increased 22 percent to $40.2 million, driven primarily by continued investments in international operations and uLive.com.

     
    Three months ended
    March 31,  
    (in thousands)     2014     2013   Change
     
    Segment operating revenues:
    Lifestyle Media $ 623,481 $ 579,482 7.6 %
    Corporate and other 20,995 14,903 40.9 %
    Intersegment eliminations     (727)          
     
    Total operating revenues   $ 643,749   $ 594,385   8.3 %
     
    Segment profit (loss):
    Lifestyle Media $ 310,977 $ 280,572 10.8 %
    Corporate and other     (40,243)     (33,098)   21.6 %
     
    Total segment profit   $ 270,734   $ 247,474   9.4 %
     


    Share repurchase program

    For the quarter ended March 31, the company repurchased 3.1 million shares under its stock repurchase program, for an aggregate purchase price of $250 million. As of March 31, $1.4 billion remains available for repurchase under the company’s share repurchase program.

    Conference call

    The senior management team of Scripps Networks Interactive will discuss the company’s first quarter results during a telephone conference call at 10 a.m. ET today. Scripps Networks Interactive will offer a live webcast of the conference call. To access the webcast, visit www.scrippsnetworksinteractive.com and follow the Investors link at the top of the page. The webcast link can be found next to the microphone icon on the investor relations landing page.

    To access the conference call by telephone, dial 800-230-1092 (U.S.) or 612-234-9959 (international) approximately ten minutes before the start of the call. Callers will need the name of the call, “SNI First Quarter Earnings Call,” to be granted access. Callers also will be asked to provide their name and company affiliation. The media and general public are granted access to the conference call on a listen-only basis.

    A replay line will be open from 12:30 p.m. ET, May 8 until 11:59 p.m. ET, May 22. The domestic number to access the replay is 800-475-6701 and the international number is 320-365-3844. The access code for both numbers is 324139. A replay of the conference call also will be available online. To access the audio replay, visit www.scrippsnetworksinteractive.com approximately four hours after the call, choose Investors then follow the Audio Archives link on the top right side of the investor relations landing page.

    Forward-looking statements

    This press release contains certain forward-looking statements related to the company’s businesses that are based on management’s current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties, including changes in advertising demand and other economic conditions that could cause actual results to differ materially from the expectations expressed in forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. The company’s written policy on forward-looking statements can be found on page F-3 of its 2013 Form 10-K filed with the Securities and Exchange Commission.

    The company undertakes no obligation to publicly update any forward-looking statements to reflect events or circumstances after the date the statement is made.

    About Scripps Networks Interactive

    Scripps Networks Interactive is one of the leading developers of engaging lifestyle content in the home, food and travel categories for television, the Internet and emerging platforms. The company's lifestyle media portfolio comprises popular television and Internet brands HGTV, DIY Network, Food Network, Cooking Channel, Travel Channel and Great American Country, which collectively reach more than 170 million consumers each month. Companion websites complement on-air programming with video and social media that inform and inspire. The company’s global networks reach millions of consumers across North and South America, Asia, Europe, the Middle East and Africa. Scripps Networks Interactive is headquartered in Knoxville, Tenn. For more information, please visit http://www.scrippsnetworksinteractive.com.



     
    SCRIPPS NETWORKS INTERACTIVE, INC.
    CONSOLIDATED STATEMENTS OF OPERATIONS
    (unaudited)   Three months ended  
    March 31,
    (in thousands, except per share data)     2014     2013   Change
     
    Operating revenues $ 643,749 $ 594,385 8.3 %

    Cost of services, excluding depreciation and amortization of intangible assets

    (181,138) (163,751) 10.6 %
    Selling, general and administrative (191,877) (183,160) 4.8 %

    Depreciation and amortization of intangible assets

    (31,294) (26,700) 17.2 %
    Gains (losses) on disposal of property and equipment     152     (976)    
     
    Operating income 239,592 219,798 9.0 %
    Interest expense (12,431) (12,145) 2.4 %
    Equity in earnings of affiliates 22,261 20,582 8.2 %
    Miscellaneous, net     273     (3,361)    
     
    Income from operations before income taxes 249,695 224,874 11.0 %
    Income tax provision     (76,906)     (73,687)   4.4 %
     
    Net income 172,789 151,187 14.3 %
    Net income attributable to noncontrolling interests     (44,493)     (43,368)   2.6 %
    Net income attributable to SNI   $ 128,296   $ 107,819   19.0 %
     

    Net income attributable to SNI common shareholders per basic share of common stock

      $ 0.88   $ 0.72    

     

    Net income attributable to SNI common shareholders per diluted share of common stock

      $ 0.87   $ 0.72    
     
    Weighted average basic shares outstanding     146,322     148,813    
     
    Weighted average diluted shares outstanding     147,440     149,901    
       
    SCRIPPS NETWORKS INTERACTIVE, INC.
    CONSOLIDATED BALANCE SHEETS    
    (unaudited) As of
    March 31, December 31,
    (in thousands, except share and par value amounts)     2014     2013
     
    ASSETS
    Current assets:
    Cash and cash equivalents $ 509,137 $ 686,371
    Accounts receivable (less allowances: 2014- $8,108; 2013- $6,853) 592,205 619,619
    Programs and program licenses 453,286 423,949
    Deferred income taxes 53,260 41,140
    Other current assets     37,010     90,231
    Total current assets 1,644,898 1,861,310
    Investments 501,542 488,198
    Property and equipment, net 242,812 246,350
    Goodwill 574,849 574,582
    Other intangible assets, net 641,819 655,009
    Programs and program licenses (less current portion) 436,948 413,057
    Deferred income taxes 52,701 39,075
    Other non-current assets     161,261     160,866
    Total Assets   $ 4,256,830   $ 4,438,447
     
    LIABILITIES AND EQUITY
    Current liabilities:
    Accounts payable $ 24,594 $ 18,278
    Current portion of debt 884,881
    Program rights payable 38,986 30,412
    Customer deposits and unearned revenue 51,558 70,427
    Employee compensation and benefits 47,530 67,188
    Accrued marketing and advertising costs 6,833 11,053
    Other accrued liabilities     113,304     81,341
    Total current liabilities 1,167,686 278,699
    Debt (less current portion) 499,675 1,384,488
    Other liabilities (less current portion)     229,211     223,368
    Total liabilities     1,896,572     1,886,555
    Redeemable noncontrolling interest     131,670     133,000
    Equity:
    SNI shareholders' equity:
    Preferred stock, $.01 par - authorized: 25,000,000 shares; none outstanding
    Common stock, $.01 par:

    Class A - authorized: 240,000,000 shares; issued and outstanding: 2014 - 109,568,940 shares; 2013 - 111,891,667 shares

    1,096 1,119

    Voting - authorized: 60,000,000 shares; issued and outstanding: 2014 - 34,317,171 shares; 2013 - 34,317,171 shares

        343     343
    Total 1,439 1,462
    Additional paid-in capital 1,452,184 1,447,496
    Retained earnings 543,724 662,574
    Accumulated other comprehensive income (loss)     (8,828)     (12,529)
    Total SNI shareholders' equity 1,988,519 2,099,003
    Noncontrolling interest     240,069     319,889
    Total equity     2,228,588     2,418,892
    Total Liabilities and Equity   $ 4,256,830   $ 4,438,447
    SCRIPPS NETWORKS INTERACTIVE, INC.
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (unaudited)     Three months ended
    March 31,
    (in thousands)       2014     2013
     
    Cash Flows from Operating Activities:
    Net income $ 172,789 $ 151,187
    Depreciation and amortization of intangible assets 31,294 26,700
    Program amortization 140,998 127,791
    Equity in earnings of affiliates (22,261) (20,582)
    Program payments (185,438) (144,722)
    Dividends received from equity investments 15,802 17,640
    Deferred income taxes (25,557) 58,196
    Stock and deferred compensation plans 17,677 20,395
    Changes in certain working capital accounts:
    Accounts receivable 27,514 (5,861)
    Other assets (4,044) (6,457)
    Accounts payable 6,281 13,487
    Accrued employee compensation and benefits (22,993) (23,141)
    Accrued / refundable income taxes 90,739 27,055
    Other liabilities (29,374) 5,403
    Other, net       4,859     20,978
    Cash provided by (used in) operating activities       218,286     268,069
     
    Cash Flows from Investing Activities:
    Additions to property and equipment (9,195) (17,505)
    Collections (funds advanced) on note receivable 1,250 3,872
    Purchase of long-term investments (3,167) (171)
    Other, net       522     (20,948)
    Cash provided by (used in) investing activities       (10,590)     (34,752)
     
    Cash Flows from Financing Activities:
    Dividends paid (29,323) (22,330)
    Dividends paid to noncontrolling interests (125,520) (89,865)
    Repurchase of Class A common stock (250,062) (145,050)
    Proceeds from stock options 22,342 13,074
    Other, net       (2,534)     (4,329)
    Cash provided by (used in) financing activities       (385,097)     (248,500)
    Effect of exchange rate changes on cash and cash equivalents       167     (1,118)
    Increase (decrease) in cash and cash equivalents (177,234) (16,301)
     
    Cash and cash equivalents:
    Beginning of year       686,371     437,525
     
    End of period     $ 509,137   $ 421,224
     
    Supplemental Cash Flow Disclosures:
    Interest paid, excluding amounts capitalized $ 15,359 $ 15,754
    Income taxes refunded       (313)     (32,507)
     



    NON-GAAP FINANCIAL MEASURES

    Our chief operating decision maker evaluates the operating performance of our business segments and makes decisions about the allocation of resources to our business segments using a measure we call segment profit. Segment profit excludes interest, income taxes, depreciation and amortization, divested operating units, restructuring activities, investment results and certain other items that are included in net income determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

    Items excluded from segment profit generally result from decisions made in prior periods or from decisions made by corporate executives rather than the managers of the business segments. Depreciation and amortization charges are the result of decisions made in prior periods regarding the allocation of resources and are therefore excluded from the measure. Financing, tax structure and divestiture decisions are generally made by corporate executives. Excluding these items from our business segment performance measure enables us to evaluate business segment operating performance for the current period based upon current economic conditions and decisions made by the managers of those business segments in the current period.

    A reconciliation of segment profit to operating income determined in accordance with GAAP for each business segment is as follows:

      Three months ended
    March 31,
    (in thousands)     2014     2013
     
    Operating income $ 239,592 $ 219,798
    Depreciation and amortization of intangible assets:
    Lifestyle Media 25,345 23,316
    Corporate and other 5,949 3,384
     
    Losses (gains) on disposal of property and equipment:
    Lifestyle Media     (152)     976
     
    Total segment profit   $ 270,734   $ 247,474


    We define free cash flow as cash provided by operating activities less dividends paid to noncontrolling interests and acquisitions of property and equipment. We measure free cash flow as we believe it is an important indicator for management and investors as to our liquidity, including our ability to reduce debt, make strategic investments and return capital to shareholders. A reconciliation of free cash flow is as follows:

      Three months ended
    March 31,
    (in thousands)     2014     2013
     
     
    Segment profit $ 270,734 $ 247,474
    Income taxes refunded 313 32,507
    Interest paid (15,359) (15,754)
    Working capital and other     (37,402)     3,842
     
    Cash provided by operating activities 218,286 268,069
    Dividends paid to noncontrolling interests (125,520) (89,865)
    Additions to property and equipment     (9,195)     (17,505)
     
    Free cash flow   $ 83,571   $ 160,699


    Since segment profit and free cash flow are non-GAAP measures, they should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance reported in accordance with GAAP.

    SUPPLEMENTAL FINANCIAL INFORMATION

    Our lifestyle media division earns revenue primarily from the sale of advertising time on our national television networks, affiliate fees paid by cable and satellite television operators that carry our network programming, the licensing of our content to third parties, the licensing of our brands for consumer products such as books and kitchenware, and from the sale of advertising on our lifestyle media affiliated websites.

    Supplemental information for lifestyle media is as follows:

      Three months ended  
    March 31,
    (in thousands)     2014     2013   Change
     
    Operating revenues by brand:
     
    Food Network $ 218,973 $ 207,583 5.5 %
    HGTV 227,215 205,367 10.6 %
    Travel Channel 79,741 76,639 4.0 %
    DIY Network 35,142 31,788 10.6 %
    Cooking Channel 28,298 26,186 8.1 %
    Great American Country 7,104 6,403 10.9 %
    Digital Businesses 23,935 22,595 5.9 %
    Other 3,260 3,896 (16.3)%
    Intrasegment eliminations     (187)     (975)    
     
    Total segment operating revenues   $ 623,481   $ 579,482   7.6%
     
    Operating revenues by type:
     
    Advertising $ 425,998 $ 391,211 8.9 %
    Network affiliate fees, net 190,171 178,963 6.3 %
    Other     7,312     9,308   (21.4)%





    Scripps Networks Interactive, Inc.

    Investors:

    Mike Gallentine, 865-560-4473

    mgallentine@scrippsnetworks.com

    or

    Media:

    Lee Hall, 865-560-3853

    LHall@scrippsnetworks.com


    Source: Scripps Networks Interactive Inc.


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