Scripps Networks Aided By Strong Ad Sales; Risks Remain

We issued an updated research report on the Cincinnati, OH-based Scripps Networks Interactive Inc. (NASDAQ:SNI) on Aug 23.

Strong Advertising Sales in Q2

Scripps Networks reported mixed results in the second quarter of 2016; with earnings beating estimates while revenues missing the same. The bottom line expanded 7.5% on a year-over-year basis. The top line surged 21.9%. Advertising revenues in the US Networks division exceeded the $500 million level for the first time, exhibiting the strength of the advertising market for the company’s lifestyle offerings. US Advertisement revenues climbed nearly 9% in the quarter which was more than the growth displayed by its peers like Time Warner Inc. (NYSE:TWX) .

We are impressed by Scripps Networks’ strategy of growth through acquisitions. In a bid for further expansion, the company completed the remaining 35% stake buy in Travel Channel Media from Cox Communications earlier this year. Moreover, to reinforce its position in the European market as well as to enhance its advertising business, Scripps Networks acquired Poland’s popular multi-platform media company, TVN, last year. We are also encouraged by the policy of Scripps Networks to reward its shareholders through dividends.

Headwinds

We are, however, concerned about the high debt levels of the company. Scripps Networks exited the second-quarter 2016 with $185.9 million in cash & cash equivalents and $2,877.5 million of outstanding debt (less current portion). The debt-to-capitalization ratio stood at a high 0.57.

Moreover, mounting programming costs and foreign currency exchange rate risks continue to pose threats for the company.

Zacks Rank and Stocks to Consider

Scripps Networks currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the broader Consumer Discretionary sector include Charter Communications Inc. (NASDAQ:CHTR) and Lincoln Educational Services Corp. (NASDAQ:LINC) . Both the stocks sport a Zacks Ranks #1( Strong Buy).