Radio is no longer the only worry for Clear Channel


As Bain Capital and Thomas H. Lee Partners held on in the face of a slumping radio business to close their buyout of Clear Channel Communications, some observers believed that Clear Channel Outdoor was the insurance policy to keep the bills paid while waiting for a radio revival. But now the outdoor advertising business is also heading the wrong direction.

With very little of the stock of CC Media Holdings, the parent company of both Clear Channel Radio (100%) and Clear Channel Outdoor (90%), in public hands, very few Wall Street analysts follow the company officially. But there are analysts who cover Clear Channel Outdoor, which has its own stock trading on the NYSE. They were not pleased by the numbers the company reported for Q3.

“Clear Channel Outdoor‘s 3Q08 results reflect decelerating trends seen across the other outdoor advertising companies; and, metaphorically, represent the ‘other shoe’ for parent Clear Channel Media Holdings (Not Covered), following weak radio results,” said Goldman Sachs analyst Mark Wienkes in a note to clients.

CC Outdoor’s domestic business was down 4% from a year ago and its foreign business declined 1% (excluding foreign exchange fluctuations. But Wienkes sees trends getting much worse. He’s now projecting a 12% revenue decline for 2009, saying that weakening US trends are spreading to European markets, plus the company faces foreign exchange headwinds. He’s now looking for earnings per share to be only 60 cents for 2008, down from his previous estimate of 75 cents, then fall to zero for the next two years (previously estimated at 25 cents and 30 cents).

Wienkes remains neutral on the stock and has lowered his six-month price target to $6 from his previous $7.

At Barclays Capital, analyst Anthony DiClemente has slashed his numbers for Clear Channel Outdoor. “We are reducing our target price to $5 from $16 on macroeconomic concerns in 4Q08 and 2009,” he told clients. He also noted that, for the first time, CC Outdoor did not provide any forward pacings or guidance in its quarterly report.

DiClemente noted the declines reported recently by CBS Outdoor and Lamar, indicating that local advertising continued to be soft and that national had recently joined that trend. “The pace of deterioration in trends for CBS, LAMR, and CCO has admittedly surprised us, especially as it pertains to national billboard contracts,” he said.

RBR/TVBR observation: Radio will come back. Outdoor will come back. The question is when? With all of its financing set in place in July, CC Media Holdings is in pretty good shape to ride out the storm, but it won’t be fun for Bain/Lee and other shareholders.