CL King analyst Jim Boyle called the double digit drop in revenue pacings for the current fiscal quarter (June-August) at Emmis Communications “stunning” and has sharply reduced his estimates for the company. “We slashed fiscal year ’09 and FY ’10 estimates for the much worse-than-expected revenue pacings in radio and magazines. We cut our revenue estimates by 8% for both years. We slashed our EBITDA estimates by double-digits,” Boyle said in his latest research report.
Despite its battered stock price, Boyle says Emmis “is not yet inexpensive even relative to its radio peers.”
“Emmis provided revenue ‘pacing’ of an 11% plunge for its domestic radio for Q2-to-date revenue versus our estimated 4.5% decrease. Most of the company’s big markets are also turning very weak, too. Emmis thought its markets were pacing maybe a ‘little bit better.’ Even Emmis’ magazines were pacing down 13% due to high exposure to real estate and home-related ad categories. Ad rates were off 9% in Q1, as too many of its top ad categories were down including its biggest, auto, which spent 8% less. Management sees improving ratings as building impetus,” Boyle told clients.
The analyst says Emmis debt load is high, with leverage at 5.6 times EBITDA, but he says there is some margin of safety to the leverage cap of 6.5 times. With his revised financial estimates, Boyle sees Emmis levered 6.1 times by the end of 2008.
Looking at the fiscal Q1 results, Boyle found it positive that Emmis’ inventory sell-out rat improved 5%, “but unfortunately the more critical ad rates dropped 9%, which suggests in our view both weak demand and poor rate card discipline by the industry in the large markets Emmis focuses on and to some extent by Emmiss, too. Sell-out is about 80% we believe, which is also below normalized levels,” Boyle said.
RBR/TVBR observation: Where, oh where is the bottom? Emmis is no longer an indicator of the relative health of the overall radio industry because of its heavy dependence on New York, Los Angeles and Chicago, but so long as those giant markets are hurting the radio industry is not going to be staging a rebound. Bob Coen’s more pessimistic forecast last week that local radio will be down 3% this year and national 1% is already starting to look optimistic.