“Nexstar delivered another quarter of record financial results with top line, profitability, and cash flow metrics exceeding consensus expectations,” says President/CEO Perry Sook, who founded the broadcast TV company.
Indeed, Nexstar Media Group has beat the Street in three of the four last quarters, and its stock is just pennies off a record high.
How did Nexstar do in Q3? Retransmission fee revenue and political ads powered the company. But, did political put too much of a dent in national and local ad profit?
Net revenue increased to $693.02 million, from $611.87 million.
This beat the Zacks Consensus Estimate by 2.77%; their forecast was for revenue of $673,823,346.
Net income attributable to Nexstar soared to $100.51 million ($2.12 per diluted share), from $46.48 million (98 cents).
This easily topped the Zacks Consensus Estimate of $1.97 per share.
In fact, Zacks says the results represent an “earnings surprise” of 7.61%.
By now, it shouldn’t be so much of a surprise to Nexstar’s shareholders, or to the broadcast media industry. A quarter ago, it was expected that this television broadcaster would post earnings of $1.72 per share when it actually produced earnings of $1.86, delivering a surprise of 8.14%, Zacks notes. Further, Nexstar beat consensus EPS estimates in three of the last four quarters.
The big Q3 results are the result of political advertising — which impacted both local and national revenue in the quarter. In Q3 political revenue came in at $70.15 million.
How much of an impact did that make on Nexstar? National revenue fell 5.8%, to $71.6 million, while local revenue was down 4.1%, to $189.42 million.
This could explain some profiteering by Nexstar shareholders. As of 12:24pm Eastern, NXST was off $1.48 to $81.73 — still a very respectable price for a company that saw its shares as low as $62.35 on May 8.
Then, there’s the contentious subject of retransmission fee revenue. For Nexstar, this climbed by 10.4% in Q3 to $284.32 million.
Also seeing growth is Nexstar’s digital revenue, which climbed 25.2% to $69.3 million. At the same time, Sook was pleased with his company’s “expense discipline” in Q3.
Yet, corporate expenses rose to $27.73 million from $23.07 million and total operating expenses bubbled up to a half-billion dollars ($500.12 million), from $485.95 million. Sook noted that this “primarily reflects the growth in broadcast ad sales related to robust political spending as well as budgeted increases in network affiliation expense and expenses for LKQD,” the mobile video platform Nexstar in December 2017 agreed to purchase for $90 million.
What’s next for Nexstar? “With Election Day behind us, we are confident that 2018 fourth quarter results will similarly benefit from healthy political revenue contributions,” Sook said. “The success of our spot inventory optimization strategies is further reflected by our relatively flat year-to-date local spot revenue and a modest low-single digit decline in national spot revenue, as our local sales teams continue to generate healthy levels of new business across our markets.”
Meanwhile, investors may wish to take note of Nexstar’s favorable leverage and relatively low debt — something that could very much make it a buyer of Tribune Media, which has been rumored for several weeks.
The consolidated debt of Nexstar, inclusive of subsidiaries Mission Broadcasting, Marshall Broadcasting Group and Shield Media, at the close of Q3 was $4,148,000, including senior secured debt of $2,580,200. Nexstar’s total net leverage ratio at Sept. 30, 2018 was 4.23x and first lien net leverage ratio at the end of the third quarter was 2.59x compared to a covenant of 4.25x.
With year-to-date progress on debt reduction also cited by Sook, he continues to expect Nexstar’s net leverage, absent additional strategic activity and discretionary capital returns, to decline to the mid/high 3x range by year-end.