Gray beats expectations with shrinking numbers


Gray TelevisionThe entry into a political off year had a visible effect on the financial results of Gray Television, but despite the need for red ink, the group still did better than expected.

Revenue declined 3% to $78.2M, and EBITDA was down 19.4% to $21.4M, but in both cases, Wells Fargo analyst Marci Ryvicker said the losses were much less than expected. In fact, Ryvicker said it wouldn’t have been surprised if the revenue loss was in the 5%-6% range, and EBITDA could have been down about 30%.

Gray said in a statement, “We are pleased with our operating results for the first quarter of 2013. We experienced period over period increases in national advertising, local advertising, retransmission consent and other revenue that resulted in total revenue exceeding the high end of our guidance. Our period over period decrease in total revenue was primarily due to the expected decrease in political advertising revenue.”
Gray also explained some increases on the expense side. It stated, “Our period over period increase in broadcast and corporate and administrative expenses (excluding depreciation, amortization and gain or loss on disposal of assets) was due primarily to increases in health care costs, programing costs, pensions, salaries, market research and other expenses.”

The diversified network affiliations present in the station’s television portfolio guarantee it will always have a place at the Super Bowl table, and this year it had 20 forks thanks to the presence of the event on CBS. It brought in $1.1M all by itself, a $300K improvement over the 2012 Super Bowl on NBC, Gray’s second-largest affiliate group.

The group experienced flat to modest growth in a number of income catetories, but not enough to overcome the massive loss on of political income and the increase in expenses. Local was up 1% to $46.4M, national was up 3% to $400K, retrans was up 14% to $9.7M, and internet was flat at $5.7M.

However, political was down from $5.7M to $1.4M, a hit of -87%.

Also missing was income from a consulting agreement with Young Broadcasting that ceased to exist as of 12/31/12. It brought in $800K in Q1 2012, and was of course a goose egg in 2013.

Among key advertising categories, automotive increased 12%; medical decreased 8%; restaurant decreased 2%; communications decreased 8%; and furniture and appliances increased 5%.

According to Ryvicker, Gray is expecting continued growth in retransmission income with big contracts up in October and December; it is interested in M&A but not at the expense of dramatically increasing leverage; and it believes the threat of networks to go direct-to-cable in the Aereo dispute will be exceedingly difficult to pull off – with the contracts between broadcasters and the NFL putting constraints on such a move.