Emmis meets radio expectations – and that ain’t good


“I think this is probably the bottom,” Emmis Communications CEO Jeff Smulyan told analysts after calling this the worst point in the history of the radio industry. Emmis reported that fiscal Q3 (September-November) domestic radio revenues fell 7% to 55.6 million, which was what had been expected. Station operating income (SOI) fell 23.7% to 18.3 million. With better performance overseas, total radio revenues decreased only 3.2% to 64.6 million and SOI was down 18.5% to 20.9 million. Smulyan noted some long hoped for improvement in the company’s biggest markets and Emmis told Wall Street to expect flat results for the current quarter.

Despite the dismal quarter, Smulyan insisted “I’m surprisingly upbeat today.” He declared that 2008 will be better, for radio in general and specifically for Emmis. With the exception of KMVN-FM Los Angeles, which is still lagging, Smulyan said Emmis stations are now outperforming their markets. “We especially see really a remarkable turnaround in our sales in New York,” he noted.

That outperformance is really a turnaround for Emmis. While the big three markets have been tough for everyone, Emmis has been trailing its peers. CFO Pat Walsh detailed that for fiscal Q3, ad sales for Emmis stations were down 11% in New York, while the market was down 5%; down 9% in LA, while the market was off 7%; and down 13% in Chicago, while the market was down 6%. Even in Indianapolis Emmis was down 17%, while the market was down 12%, and down 1% in Austin, while the market was up 4%. The only market where Emmis outperformed in the quarter was St. Louis, where its stations were down 10%, while the market was off 12%. For all of its US markets, Emmis was down 7%, while its markets overall were down 5.8%. Walsh reported that sell-out for the quarter was up 4% and the average unit rate declined 14%.
Publishing revenues and operating income were up for the quarter, bringing Emmis in slightly ahead of Wall Street expectations with 91.7 million of revenues, up 0.6%. EBITDA was down 2% to 22.4 million, but ahead of expectations.

RBR observation: Emmis is no longer typical of the entire radio industry, due to its heavy dependence on the big three markets, which have been suffering greatly. Nevertheless, don’t expect to see other radio companies report rosy results when the quarterly report cycle begins in earnest in a few weeks, since Emmis is out of sync with calendar year reporting. As bad as fiscal Q3 was, at least Emmis didn’t miss the admittedly low expectations of analysts, while some other radio companies are believed to be in danger of missing their Q4 targets. CFO Walsh also assured analysts that Emmis that the company is confident that it will remain in compliance with its loan covenants, even after those leverage covenants tighten at the end of fiscal Q1. But if conditions deteriorate further, he said the company is aware of ways to remedy any potential covenant violations.