Analyst notes auto slowdown in lowering Saga estimates


The automotive supply chain disruption from Japan’s earthquake and tsunami is reverberating through the US broadcasting industry. After hearing the Q1 results conference call at Saga Communications Wells Fargo Securities analyst Marci Ryvicker reduced her revenue estimates for 2011 based on the auto advertising slowdown.

“Auto is having a significant impact on local advertising. It sounded as if SGA started Q2 rather strong – but pacings decelerated in May due to significant cancellations in the auto category – primarily driven by Toyota and other Japanese auto makers. Given that the cancellations are occurring last minute, it has been difficult to fill the spots. While this is a temporary phenomenon, the uncertainty with regard to the length and magnitude of this disruption will likely weigh on the stocks. We do expect to see a big bump in auto sales and advertising once production is restored,” Ryvicker said in a note to clients.

While Saga beat earnings expectations for Q1, due to lower expenses, radio revenues were below the analyst’s expectations, while TV revenues were higher. Of course, TV is a very small part of Saga.

“Both national and local showed growth in the quarter, although it sounded like Q1 finished lower than management had originally anticipated. Q2 seems to be soft as well – mostly as a result of auto, which is experiencing the impact of the Japanese tsunami. Given the fragile environment, we reduced our revenue forecasts for 2011,” Ryvicker said.

She’s now projecting that Q2 radio revenues for Saga will be up 2%, rather than 4%, to $29.2 million. TV revenues are expected to rise more than previously forecast – up 8% rather than 5% – to $4.6 million. Total company revenues would be up 2.8%, rather than 4.1%, to $33.8 million. Earnings per share are expect to be 89 cents, rather than $1.05.

“2011 should still be a ‘decent’ year,” Ryvicker wrote. ‘Management initially predicted that radio revenue would grow mid single digits this year. While they did not formally back off from this prediction, we did get confirmation that the environment has softened. Gas prices and the auto supply constraints in Japan are the primary culprits. We lowered our 2011 radio revenue growth assumption to +2% from our prior +3% (which was already conservative). Our 2012 radio forecast stays relatively unchanged at +4%,” she concluded.

RBR-TVBR observation: Welcome to the global economy. We now know just how much a natural disaster hitting a Japanese city most Americans have never heard of can impact ad sales in Keene, New Hampshire.