Bear Stearns analyst Victor Miller isn’t calling for the head of Farid Suleman, but he has developed a list of thing he says must be done to rebuild Citadel Broadcasting: “a) rebuild its sales effort in the Disney markets, b) create cash flow from non-cash-flowing stations (NY, LA, Atlanta), c) improve ‘core’ Citadel stations in five markets (Birmingham, Providence, Tucson, Boise, New Orleans and Allentown), d) grow the radio network business to scale more akin to Westwood One and Premiere, e) make cost cuts, f0 sell 75-175 million in assets, g) use free cash flow and asset sales to pay down debt and h) give Citadel the possibility to repurchase shares between the end of 2008 and the middle of 2009.” Miller has lowered his 2008 estimates for Citadel after looking at the 2007 results. He notes that management, led by CEO Suleman, is looking to 2010 for delivering on its rebuilding plans. “Citadel hopes to deliver 200 million in station operating income (SOI) from the Disney stations by 2010; deliver 40 million in SOI from the radio network and 200 million in SOI from the CDL stations. This would translate to 400 in EBITDA by 2010, two years behind plan. Part of Citadel’s streamlining efforts (15-20 million in ultimate cost savings) and format changes were already announced late Friday,” Miller noted in his note to clients.
Here is more of what he had to say:
Citadel Broadcasting CDL–$1.05–Outperform
"A Very Difficult and Disappointing Year" – National "A Complete Disaster" – Time for "Streamlining"
* "A Disappointing Year" and 4Q; PF Revenues Down 5%; EBITDA Down 21%. CDL’s PF revenues decreased by 5.1% (stations down 6.2% while network was up 1.2%) to $245.3MM, down from $258.5MM in 4Q 2006. 4Q PF EBITDA decreased by 20.6% to $77.1MM from $97.2MM in 4Q 2006, which was 8.1% below our $83.9MM estimate. Operating expenses grew 2.5% (BSC projected 0%) and corporate expenses grew by 49.2% to $9MM. CDLs large markets under-performed and CDL under-performed these markets. Disney radio’s assets delivered $145MM in SOI in 2007, far short of 2007’s budgeted $180MM level. CDL’s core stations delivered $14MM less EBITDA in 2007 than in 2006. National advertising was described as "a complete disaster."
* Management Looks To 2010. CDL hopes to deliver $200MM in SOI from the Disney stations by 2010; deliver $40MM in SOI from the radio network and $200MM in SOI from the CDL stations. This would translate to $400MM in EBITDA by 2010, two years behind plan. Part of CDL’s streamlining efforts ($15MM to $20MM in ultimate cost savings) and format changes were already announced late Friday.
* Time to Rebuild. CDL must a) rebuild its sales effort in the Disney markets, b) create CF from non-CFing stations, c) improve "core" CDL stations in five markets, d) grow the radio network business to scale more akin to WON and Premiere, e) make cost cuts, f) sell $75MM-$175MM in assets, g) use FCF and asset sales to pay down debt and h) give CDL the possibility to repurchase shares between the end of 2008 and the middle of 2009.
* Lowering 2008 Estimate Views. We lowered out revenue view to -1.5% for 2007 (from +1%) and lowered 2008 EBITDA to $325MM from our current $332MM estimate. This is our fourth downward revision in EBITDA in 6 months. Our target remains at $2.50. The FCF yield for 2008 now approximates 51%.