Scripps Networks Stays on Track Thanks to Higher Ratings

By Markets Fool.com

Image source: Getty Images.

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Pay TV specialist Scripps Networks (NASDAQ: SNI) is navigating the shifting media landscape better than its peers. Despite a shrinking subscriber base, the owner of HGTV, Food Network, and Travel Channel this week posted a healthy uptick in sales and profits, thanks to rising ratings across most of its networks.

Here's how the headline results stacked up against the prior-year period:

Metric

Q3 2016 Actuals

Q3 2015 Actuals

Growth (YOY)

Revenue

$803 million

$776 million

3.5%

Net income

$146 million

$125 million

17.2%

Earnings per share (EPS)

$1.12

$0.96

16.8%

YOY=year over year. Data source: Scripps' financial filings.

What happened this quarter?

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The key U.S. market saw continued growth in advertising revenue, which made up for a slight decline in distribution fees. Meanwhile, Scripps' international business posted improving results, thanks to market share gains from the newly acquired Polish network TVN.

Key highlights of the quarter include the following:

  • U.S. advertising revenue grew by 7% for a slight deceleration from the prior quarter's 9% gain. This marked the second straight quarter of a slowing growth pace; advertising was expanding by double digits to start 2016. Scripps still outperformed peers this quarter, including Discovery, which endured a 3% advertising drop, and Time Warner, which posted a 2% uptick.
  • Ratings rose in five of Scripps' top six networks. That growth helped HGTV lead the way with 7% higher advertising revenue. Food Network and Travel Channel each saw improvements, but also at a slower pace than the previous quarter.
  • Distribution fees fell 3% thanks in part to a declining broadcast cable subscriber base that was only partially offset by growth in other distribution platforms.
  • Revenue rose 4% in the international segment, while adjusted segment profit improved to $15 million from $11 million.
  • Profitability declined slightly, but Scripps' results benefited from lower interest payments, which helped push net income higher by 17%.

What management had to say

CEO Kenneth Lowe credited the company's global strategy with producing broad financial gains this quarter:

Scripps Networks Interactivedelivered solid revenue growth at both our U.S. and international business segments, helping drive a double-digit improvement in net income. Our successful strategy to focus on our differentiated lifestyle brands in the home, food, and travel genres continues to pay off. Our popular networks are available on more platforms and reaching more new audiences than before, positioning the company for continued growth.

Management was pleased with TVN's performance, given the competitive landscape: "TVN Groupwas the only major network group inPolandto increase their market share during the quarter, achieving a 23% share against a strong competitive environment that included the Olympics and soccer broadcasts. Ratings atTVN Groupimproved 3% year over year with its target audience."

Looking forward

Scripps wasn't immune to the negative impacts of a slowly shrinking pool of cable TV subscribers. The stress from that shift showed up both in lower distribution fees in the U.S. business and in reduced ratings at some of its smaller networks.

Yet its biggest properties are producing solid growth. Through the first nine months of the year, HGTV's revenue is up 8%, Food Network's is up 4%, and Travel Channel's is up 5%. That positive momentum, plus help from an increasingly profitable international segment, gave management the confidence to reiterate its full-year sales and profit forecast, which includes 8% higher profits from its core domestic business.

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Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Discovery Communications. The Motley Fool recommends Scripps Networks Interactive and Time Warner. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.