Sinclair conserving cash as revenues pace down 20%-plus


Sinclair Broadcast Group reported that Q4 revenues were down only 0.8%, but that Q1 is expected to be down in the low to mid 20s on a percentage basis. So, the company has suspended dividend payments on its common stock to conserve cash.

Sinclair has been making cost cuts, including elimination of 200 employees, about 7% of its workforce. In all, the company sees savings of $19 million in 2009 from recent actions, but that will not be enough to offset the decline in ad revenues. “Nevertheless, even with this negative sentiment, we feel confident that our expected free cash flow generation in ’09 would meet our principal obligations and support our regular quarterly dividend of 20 cents a share. Despite that, the board did not want out employees being the only ones to make a financial sacrifice in these difficult economic times. It therefore has suspended the dividend until further notice,” CFO David Amy told analysts in the company’s quarterly conference call.

While shareholders will no longer receive cash, Sinclair is still generating lots of broadcast cash flow and even free cash flow. At the recent stock price, Amy noted at one point that the free cash flow yield is over 130%.

For Q4, Sinclair reported that net broadcast revenues were down 0.8% to $164.4 million. Including political, local spot revenues were down 7.6% and national up 9.8%. Excluding the boost from political, local was down 14.2% and national was off 24.7%. Television Group COO Steve Marks noted that the auto category was down 31.6% for the quarter.

Auto is pacing down 45-50% in Q1 (although three percentage points of that is attributable to Sinclair having the Super Bowl on 20 Fox stations in 2008 and on its lone NBC affiliate this year). Marks told analysts there is very little visibility to forecast revenues, but the company understands the desire to have some guidance. “After much internal debate, we have decided to provide a range of first quarter broadcast revenues, which we are forecasting to be down from the low to mid 20-percents from our first quarter 2008 base of $160.9 million,” he said. That includes only $100,000 of political advertising, vs. $3.2 million in Q1 2008, along with $5 million less in Super Bowl Revenues.   

In Q&A, one analyst asked Sinclair CEO David Smith about the possibility of broadcast networks bypassing stations and going direct to consumers through cable/satellite distribution. “They’ve been talking about doing that for years as a possibility. I’m not sure that business model works, frankly, but they’ll have to make that decision at some point in time in the future. My sense is that hypothetically if one of the networks were to move to cable tomorrow as a full-time business that the local television stations might look upon that as a great opportunity, as it seems they would have one less competitor to deal with in the local marketplace,” Smith said.

RBR/TVBR observation:
“Conserve cash” may be the phrase of the year for 2009. We’re hearing it a lot – and for good reason. No one knows just how bad it’s going to get, or just how long this recession will last. Those who will survive are those who have enough money in the bank to keep the bills paid until the upturn finally arrives. Sinclair says it expects to have sufficient cash flow to cover its expenses, but it is going to take a cautious approach and not pay any dividends until further notice.