A Solid Q3 For Sinclair Results In a Dividend Climb

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Tribune who?


Sinclair Broadcast Group easily beat Wall Street forecasts by registering strong net revenue gains and net income improvement in Q3, even when factoring in “ticking fee costs” tied to the dissolution of its now-aborted merger with Tribune Media.

The quality Q3 led Sinclair’s Board of Directors to increase its quarterly cash dividend on the company’s Class A and Class B common stock.

The Q3 results even surpassed the initial expectations of Sinclair, as total revenue increased to $766.26 million from $644.53 million and net income soared to $63.88 million (62 cents per diluted share) from $30.64 million (30 cents).

The FactSet consensus as reported by MarketWatch was for EPS of 55 cents and net revenue of $752.6 million.

Investor reaction was somewhat positive in the first 60 minutes of trading on Wednesday, with SBGI up 1.7% to $31.08 on light trading. That’s the highest price seen for Sinclair since mid-July, when concerns from FCC Chairman Ajit Pai regarding its merger plan with Tribune Co. set investors into an immediate panic. By August 1, a $25.40 valuation for SBGI was seen. As recently as October 26, a $26.37 closing price was logged.

“Third quarter results came in ahead of guidance in all key financial metrics, and we expect to close out this year ahead of revenue and cash flow expectations, further improving the strongest balance sheet in our company’s history,” noted Sinclair President/CEO Chris Ripley.

Sinclair is a key broadcast TV company in the efforts to bring the voluntary rollout of the Next Gen broadcast television standard known as ATSC 3.0 to stations across the U.S. This will bring better audio, improved picture and, importantly, addressable advertising solutions.

While the ad growth possibilities from that are still in the future, Sinclair can revel in strong ad dollars thanks to a bonanza of political advertising dollars it has banked.

“Looking ahead to the fourth quarter, we just finished what is the biggest mid-term political advertising year in our company’s history, with political advertising expected to be over 60% higher than the 2014 mid-term election cycle and over 20% higher than the 2016 presidential election year, based on our current portfolio,” Ripley said.

The fact that such an increase over the 2016 election campaign is expected is historic, and an achievement regardless of detractors who believe Sinclair’s newscasts contain “forced run” reports in support of GOP policy and legislation.

It also speaks volumes on the power of UHF and VHF, compared to other visual media en vogue in 2018.

“The strength of political reconfirms that television remains the dominant and premium platform for consumer messaging and building brand awareness, and this year has certainly given us good reason to expect that 2020 will be even stronger,” a confident Ripley said.

Operating income climbed to $157.8 million, from $103.45 million — even with $13 million in costs related to the terminated Tribune merger.

So, where, if anywhere, should investors focus their concerns? The debt.

Debt on the balance sheet, net of $1.024 billion in cash, cash equivalents and restricted cash, was $2.878 billion at the end of Q3, versus net debt of $2.892 billion at the end of Q2. While that’s a decrease, it still signifies that Sinclair must at some point deal with outstanding loans. This could factor in to future growth through acquisitions.

What’s Sinclair’s outlook for Q4? With media revenues advancing to $730.36 million from $629.6 million in Q3, the final quarter of 2018 is expected to see media revenues fall in the range of $835 million to $847 million — up 20.5% to 22.2% year-over-year.

All of this strength is what led Sinclair’s Board of Directors to increase its quarterly cash dividend per share on its Class A and Class B shares from 18 cents to 20 cents. The dividend is payable Dec. 7 to holders of record at the close of business on Nov. 30.