Analysts from both the equity and debt side at Wells Fargo Securities have issued new commentary ahead of the Q4 earning reports from most public radio companies. The general view is that Q4 softened a bit, but 2012 could be stronger, beginning with the current Q1.
Equity analyst Marci Ryvicker had indicated that 2012 could have some upside for her projections in the TV area. The story is similar for radio.
“Similar to television, while Q4 was likely not a great quarter for radio, we do get the sense that the overall tone regarding both Q1 and 2012 will skew on the positive side and we anticipate that there could be potential upside to 2012 estimates here as well. Aside from our conversations with private radio operators, who confirmed that Q1 is pacing positively, we also point to EMMS [Emmis Communications], who reported its FQ3 on 1/12/12. Specifically, during its quarterly conference call, EMMS management stated that it is off to a very good start in January and is even more encouraged by what they’re seeing in February. While we do not necessarily think that EMMS is a great proxy for the entire industry (given their small portfolio of stations and NY/LA-skew), we do think a lot of their commentary confirmed what we have been hearing from our contacts,” Ryvicker said in a note to clients.
She’ll get no argument from her bond analyst colleagues, Bishop Cheen and Davis Hebert. “In 2011, radio enjoyed its second straight growth year, although the recovery seemed to lose some steam in Q3. The fourth quarter will likely be meaningfully down due primarily to the loss of political. In addition, a number of credits are implementing format changes, namely Entercom, Cumulus (for some of its acquired stations) and Radio One, so those companies could underperform the industry for the Q4 period, in our opinion. EBITDA numbers could also come in light of expectations, due to higher upfront expenses to make those strategic changes. Ultimately, radio remains the highest-beta play of media, as leverage is high for most players in the space. We do not expect much progress in the way of deleveraging in Q4, but expect that any evidence of improved pacings for Q1 could help drive returns for radio bonds during earnings season,” the high-yield bond analysts wrote in their own commentary. Here’s a nifty chart they put together setting up Q4.
Pacing guidance for Q4 from Radio Companies
Q3 2011 Q4 2011
Company Actual Guidance
CBS (CBS) 0.0% Pacing up low single digits
Cumulus (CMLS) -1.9% Down 4% (flat excl. political)
Clear Ch. (CCMO)* 1.9% Flat (up 4% excl. political)
Emmis (EMMS) -4.0% Oct. -9%, Nov. -1%, Dec. down
Entercom (ETM) -2.2% Pacing down 5%
Pandora (P) ** 101.9% $80mm-$84mm
Radio One (ROIAK) 1.4% Down 10% (-7% excl. political)
Saga (SGA) -1.0% Generally flat
Sirius-XM (SIRI) 5.9% Implied up ~4% in Q4
Salem (SALM) 3.0% Total rev. +2%-4%
Notes: *Excludes Westwood One, **Pandora results for Q3 ending Oct. 31, 2011. Ad sales only.
Source: Company reports and estimates of Wells Fargo Securities LLC