Scripps reports first quarter results

(NYSE: SSP)

For immediate release

CINCINNATI – The E. W. Scripps Company today reported first quarter operating results, including strong revenue and segment profit growth at its national lifestyle television networks, local television stations and new interactive media businesses, Shopzilla and uSwitch. 

 

First quarter income from continuing operations was $81.5 million, or 49 cents per share, compared with $72.9 million, or 44 cents per share, during the same period a year earlier. Earnings were affected, in part, by the expensing of employee stock options, which commenced on Jan.1. The stock option expense reduced net income for the period by $5.3 million, or 3 cents per share.

 

During the first quarter, the company recognized a $2.1 million, or 1 cent per share, after-tax gain related to the formation of a publishing partnership in Eastern Colorado with MediaNews Group. Scripps contributed newspaper assets including the Daily Camera in Boulder, Colorado Daily and Bloomfield Enterprise for a 50 percent interest in the partnership. MediaNews Group also contributed newspapers and paid Scripps $20.4 million in cash for its 50 percent interest in the partnership.

 

The company’s Shop At Home subsidiary and former newspaper in Birmingham, Ala., are being treated as discontinued operations under generally accepted accounting principles. During the first quarter the company’s board of directors authorized management to pursue the sale of Shop At Home. Publication of the Birmingham newspaper ceased during the third quarter of 2005.

 

The company’s first quarter consolidated revenue from continuing operations grew 22 percent year-over-year to $590 million. On a pro forma basis, as if Scripps had owned Shopzilla and uSwitch since Jan. 1, 2005, first quarter operating revenue from continuing operations increased 16 percent. Total segment profit from continuing operations was up 17 percent to $179 million during the three-month period. Segment profit excludes depreciation, amortization of intangible assets, interest, income taxes, investment results and certain other items that are included in net income.

 

The company’s consolidated first quarter results benefited from strong financial performance at its Scripps Networks division, which includes HGTV, Food Network, DIY Network, Fine Living and Great American Country.

 

Scripps Networks segment profit was up 32 percent year-over-year to $107 million. Total revenue for the Scripps Networks division increased 17 percent to $238 million. Advertising revenue at Scripps Networks was up 17 percent to $187 million.

 

Strong year-over-year growth in local and national television advertising, driven in large part by the success the company had leveraging broadcasts of the Super Bowl on ABC and the Olympics on NBC, benefited the company’s network-affiliated television stations. First quarter segment profit at the Scripps television station group was up 38 percent to $22.5 million. Revenue from the company’s local television stations was up 16 percent from the prior-year period to $83.8 million.

 

At the company’s interactive media division, which includes Shopzilla and uSwitch, first quarter segment profit reached $13.9 million on revenue of $58.6 million. Interactive media results include revenue and a contribution to segment profit from uSwitch for the two-week period after it was acquired by Scripps on March 16. At Shopzilla, revenue was $55.6 million, up 107 percent on a pro forma basis.

 

Excluding the Scripps newspapers that were contributed to the new Colorado partnership, total newspaper revenue increased 4.8 percent due to strength in online and classified advertising. Advertising revenue at newspapers managed solely by Scripps was up 6.5 percent to $148 million.

 

The contribution to segment profit from newspapers managed solely by Scripps, however, was down 8.4 percent because of continuing investments in online and print initiatives, primarily in the company’s growing Southwest Florida market; higher newsprint and employee costs, including the expensing of stock options; and a strategic decision by the company to increase newspaper sales staffs in selected, key markets.

 

Newspaper segment profit was negatively affected by a decrease in equity earnings from the company’s newspapers in Denver, Cincinnati and Albuquerque, which are published under joint operating agreements, also known in the industry as JOAs.

 

The decline in equity income from the company’s JOA newspapers is attributable to lower advertising sales in all three markets and higher, non-cash depreciation expenses that are related to a capital project to consolidate production facilities in Denver. Including the JOA newspapers and new Colorado partnership, newspaper segment profit was down 21 percent.

 

“The value of our long-term strategy at Scripps of investing in promising new growth businesses was evident once again in our quarterly financial results,” said Kenneth W. Lowe, president and chief executive officer for Scripps. “Growth at our national lifestyle television networks and broadcast television stations, and an outstanding quarter at Shopzilla combined to drive up first quarter consolidated revenue, total segment profit and net income.

 

“A full 11 years after we created and launched HGTV, our Scripps Networks division continues to deliver double-digit revenue and segment profit growth,” Lowe said. “The strong financial performance at both HGTV and Food Network is directly attributable to their appeal to an ever-growing number of media consumers. Solid schedules of informative and entertaining lifestyle programming resulted in ratings and viewership growth at both networks during the first quarter.

 

“The growth story at our new interactive media division continued to unfold during the first three months of the year,” Lowe said. “Shopzilla’s financial performance exceeded our expectations and we added a second promising online business with our acquisition of uSwitch. Shopzilla and uSwitch are both benefiting from growing consumer awareness and acceptance of the power, utility and ease of online search and comparison shopping.

 

“On a unique visitor basis, Shopzilla has emerged as America’s leading online comparison shopping service for millions of products from thousands of online merchants,” Lowe said. “In the United Kingdom, uSwitch is the destination of choice for a majority of consumers looking to switch to the best rates for essential home services such as electricity and gas, home telephone, digital television and more. We’re very encouraged by the potential for growth that we anticipate for both of these businesses.

 

“Our consolidated first quarter results also got a healthy boost from our broadcast television stations, which did an excellent job fully capitalizing on ABC’s broadcast of the Super Bowl and NBC’s coverage of the Winter Olypmics,” Lowe said. “The Super Bowl broadcast was especially beneficial because of our concentration of ABC affiliated stations in such top-40 markets as Detroit, Cleveland, Baltimore, Cincinnati, Phoenix and Tampa. Overall growth in local and national television advertising also contributed to an excellent quarter for our station group.

 

“Our newspapers are competing in a period of dramatic change for the industry,” Lowe said. “We’re aggressively reordering our operations, determined to deliver value for a long time to come. Newspaper revenue is now growing nicely and we believe the short-term growth in expenses will deliver a return on the investments we’re making.”

 

Here are first quarter results by segment:

Scripps Networks advertising revenue increased 17 percent to $187 million. Affiliate fee revenue was $48.3 million, up 15 percent.

 

Programming, marketing and other expenses increased 8.1 percent to $104 million. Employee costs were up 8.9 percent to $30.1 million.

 

Scripps Networks segment profit was $107 million, up 32 percent from $80.9 million in the prior year period.

 

HGTV contributed $78.2 million to segment profit, up 22 percent from the year-ago period. HGTV revenue grew 14 percent to $119 million. HGTV now reaches about 90 million domestic subscribers compared with 88 million at the end of the first quarter 2005.

 

Food Network contributed $55.8 million to segment profit, up 29 percent from the first quarter last year. Food Network revenue grew 19 percent to $93.9 million. Food Network reaches about 89 million domestic subscribers, up from 87 million at the end of the first quarter 2005.

 

DIY contributed $900,000 to segment profit compared with $1.3 million in the first quarter 2005. Revenue at DIY was $10.7 million compared with $9.4 million in 2005. DIY can be seen in about 36 million households, up from about 32 million a year ago. The decline in segment profit contribution from DIY can be attributed to the company’s decision to increase spending on consumer marketing in anticipation of the network becoming rated by Nielsen beginning in the fourth quarter 2006.

 

Fine Living contributed $1.1 million to segment profit compared with a segment loss of $684,000 in 2005. Fine Living revenue increased to $8.3 million from $6.0 million the previous year. Fine Living reaches about 37 million households vs. 26 million at this time a year ago.

 

Great American Country contributed $224,000 to segment profit during the quarter compared with a segment loss of about $1 million in the same period a year ago. Revenue at Great American Country was $4.7 million compared with $3.4 million in 2005. Great American Country can be seen in about 41 million homes compared with 37 million a year ago.

 

 

Contribution to segment profit from newspapers managed solely by Scripps declined 8.4 percent to $51.0 million. The decline is attributable to increased strategic spending on business development initiatives and higher newsprint and employee costs.

 

Excluding the company’s newspapers contributed to the new partnership in Colorado, revenue from newspapers managed solely by Scripps was $184 million. Advertising revenue from newspapers managed solely by Scripps increased 6.5 percent to $148 million.

 

Advertising revenue broken down by category was:

 

 Circulation revenue was $32.3 million, down 2.4 percent.

 

Newsprint expense increased 13 percent on a 14 percent increase in newsprint prices.

 

The company reported a segment loss of $1.0 million vs. a contribution to segment profit of $7.0 million a year earlier from its newspapers that are now published under joint operating agreements, or JOAs, and other partnerships.

 

The loss is attributable to a decline in equity income from its JOA newspapers in Denver, Cincinnati and Albuquerque. The decline in equity income is attributable to lower advertising sales in all three markets and higher depreciation expenses related to the capital project in Denver.

 

Total newspaper segment profit was $49.9 million, compared with $63.1 million in the prior-year period.

Interactive media revenue from the company’s online comparison shopping services, Shopzilla and uSwitch, was $58.6 million for the first quarter. Segment profit was $13.9 million.

 

Interactive media results include revenue and a contribution to segment profit from uSwitch for the two-week period after it was acquired by Scripps on March 16. The company acquired Shopzilla on June 27, 2005. At Shopzilla, revenue was $55.6 million, up 107 percent on a pro forma basis.

 

Broadcast television revenue increased 16 percent to $83.8 million.

 

Revenue broken down by category was:

 

Advertising revenue related to the Super Bowl and Olympics broadcasts was about

$9 million.

  

Broadcast television cash expenses were $61.3 million, up 9.5 percent from the prior-year period. The increase included the effects of expensing stock options.

 

Broadcast television segment profit increased 38 percent to $22.5 million from

$16.3 million in the prior-year period.

 

 

Revenue was $23.6 million compared with $25.8 million in the prior-year period.

Segment profit was $2.9 million compared with $4.9 million in the first quarter 2005.

Employee costs for the balance of 2006 will include approximately $11 million, or 4 cents per share, related to the commencement of expensing stock options granted to employees.

 

The additional cost is reflected in the guidance provided below. All revenue, expense, segment profit and earnings per share guidance that follow, except as noted, are for the second quarter 2006.

 

Based on advance advertising sales, the company currently anticipates revenue for Scripps Networks will be up 15 to 18 percent year over year. Total Scripps Networks expenses are expected to increase about 15 percent as the company continues to build consumer awareness and expand distribution of its television and online lifestyle brands.

 

Total revenue will be up 3 to 5 percent at both the company’s newspaper and broadcast television divisions. Newspaper and broadcast television expenses are expected to be up 5 to 7 percent at each division. The increase in broadcast television revenue could be higher depending on the timing of some political advertising. The guidance for newspapers excludes properties contributed to the Colorado partnership.

 

Interactive media is expected to generate segment profit of about $12 million.

 

Corporate expenses are expected to be about $14 million.

 

Depreciation and amortization are expected to be $34 million and interest expense is expected to be $15 million. For the full year, depreciation and amortization are expected to be $120 million and interest expense is expected to be about $57 million.

 

Earnings per share from continuing operations are expected to be between 58 cents and 62 cents, including dilution related to the acquisitions of Shopzilla and uSwitch of approximately 6 cents per share. Earnings per share from continuing operations during the second quarter of 2005 were 62 cents.

 

 

The senior management team at Scripps will discuss the company’s first quarter results during a telephone conference call at 10 a.m. EDT today. Scripps will offer a live audio webcast of the conference call. To access the Web cast, visit www.scripps.com, choose “Shareholders,” then follow the link in the “Upcoming Events” section. Listeners need Windows Media Player to access the call online.

 

To access the conference call by telephone, dial 1-800-762-4717 (U.S.) or 1-480-629-9025 (International), approximately 10 minutes before the start of the call. Callers will need the name of the call (first quarter earnings report) to be granted access. Callers also will be asked to provide their name and company affiliation. The media and general public are provided access to the conference call on a listen-only basis.

 

A replay line will be open from 1:30 p.m. EDT April 25 until 11:59 p.m. EDT May 2. The domestic number to access the replay is 1-800-475-6701 and the international number is 1-320-365-3844. The access code for both numbers is 825054.

 

A replay of the conference call will be archived and available online for an extended period of time following the call. To access the audio replay, visit www.scripps.com approximately four hours after the call, choose “Shareholders” then follow the “audio archives” link on the left navigation bar.

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-5 of its 2005 SEC Form 10K.

 

We undertake no obligation to publicly update any forward-looking statements to reflect events for circumstances after the date the statement is made.

 

The E.W. Scripps Company (NYSE: SSP) is a diverse and growing media enterprise with interests in national cable networks, newspaper publishing, broadcast television stations, electronic commerce, interactive media, and licensing and syndication.

 

The company’s portfolio of media properties includes: Scripps Networks, with such brands as HGTV, Food Network, DIY Network, Fine Living, Great American Country and HGTVPro; daily and community newspapers in 18 markets and the Washington-based Scripps Media Center, home to the Scripps Howard News Service; 10 broadcast TV stations, including six ABC-affiliated stations, three NBC affiliates and one independent; leading online search and comparison shopping services, Shopzilla and uSwitch; United Media, a leading worldwide licensing and syndication company that is the home of PEANUTS, DILBERT and approximately 150 other features and comics; and Shop At Home, which markets a growing range of consumer goods directly to television viewers in roughly 57 million U.S. households and online through shopathometv.com.