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Expectations were high for Scripps Networks' (NASDAQ: SNI) quarterly results this week. The TV giant, which owns HGTV, Food Network, and the Travel Channel, had recently set a new 12-month high following accelerating growth in the first quarter.
For the second quarter, SNI again delivered record ratings and stronger demand for advertising time across its properties, which helped adjusted earnings grow by double digits.
Here's how the headline results stacked up against the prior-year period:
Source: Scripps' financial filings.
What happened this quarter?
Scripps' growth was powered by healthy gains in the U.S. advertising market and improving profitability in the international segment.
Key highlights of the quarter include:
- U.S. advertising revenue grew by 9%, representing a slowdown from the prior quarter's 14% spike. Still, it marked the first time that Scripps has generated $500 million in ad sales in a quarter. The result also beat rivals like Discovery (NASDAQ: DISCK) and Time Warner (NYSE: TWX), which posted 7% and 6% ad gains, respectively.
- Ratings rose across SNI's six biggest networks, with HGTV leading the way. Food Network and Travel Channel each grew at a 5% pace, while the DIY Network posted a slight decline despite attracting record ratings.
- Distribution fees declined slightly as part of a one-time pricing shift.
- The international business soared by nearly 600% thanks to the contribution from recently acquired Polish media assets. That segment swung to an adjusted profit of $37 million from $10 million in the prior-year period.
- Adjusted profit, which strips out restructuring costs and merger fees, rose 14%, to $419 million.
What management had to say
"Scripps Networks Interactivegenerated another quarter of strong operating performance," CEO Kenneth Lowe said in a press release. "I am particularly proud that we achieved our first ever$500 millionquarter in U.S. ad sales, and that the importance advertisers place on our networks has continued with a record breaking upfront," Lowe said, referring to demand for airtime during the coming TV season.
The international business can thank the acquisition of Poland's TVN network for its turnaround. "TVN has proven to be a transformative acquisition for the company, converting our International Networks segment into a growing and profitable endeavor," Lowe explained.
Finally, executives believe the company is adapting well even as subscribers continue to trickle away from pay-TV packages. "Digital engagement is at its highest level ever," Lowe said. "Our company remains well positioned to excel in the evolving media landscape."
Scripps isn't immune to risks from a long-term shift away from pay-TV packages. This quarter, for example, a shrinking subscriber base pinched results by pushing ad volume down.
Peer Time Warner recently responded to this same pressure by moving to place all of its networks on the Hulu streaming service beginning next year. For SNI, improved ratings and higher ad prices offset most of the subscriber sting, and so did a trickle of new revenue from digital-distribution deals.
Overall, the results bolster management's case that the U.S. business will remain highly profitable for some time even as cable TV subscribers move away from pricey packages. To that end, SNI affirmed its full-year profit outlook, which it raised in May.In the meantime, executives are busy testing new digital platforms and distribution deals to find the best approach for exploiting SNI's deep catalog of valuable television brands in a post-linear-TV media landscape.
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Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Discovery Communications and Time Warner. The Motley Fool recommends Scripps Networks Interactive. 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.