Sinclair Broadcast (SBGI) Beats On Q4 Earnings & Revenues

Sinclair Broadcast (NASDAQ:SBGI) reported fourth-quarter 2018 earnings of $2.10 per share that beat the Zacks Consensus Estimate of $1.97. However, the figure plunged 51.4% year over year. Notably, fourth-quarter 2017 earnings were higher than expected due to significant benefits from the federal tax reform and benefit related to “vacating spectrum in two markets.”

Total revenues of $893.3 million comfortably beat the Zacks Consensus Estimate of $877.9 million and increased 25.4% year over year. The increase was due to increase in political ad spending due to U.S. mid-term elections.

Quarter Details

Media revenues (95% of total revenues) increased 22.5% to $848.9 million.

Political revenues were $149.6 million in the reported quarter compared with $15.5 million in fourth-quarter 2107. The increase was due to higher political ad spending related to U.S. mid-term elections. Additionally, distribution revenues were $334.1 million compared with $299.9 million in the prior-year quarter.

Non-media revenues (5%) surged 128% year over year to $44.5 million.

In December 2018, Sinclair extended a multi-year agreement with DISH Network (NASDAQ:DISH) to carry its broadcast television stations and Tennis Channel on DISH's direct broadcast satellite platform. Additionally, one of Sinclair’s upcoming services can be accessed on DISH’s satellite platform. Moreover, all Sinclair-owned networks will be available on DISH's Sling TV.

This apart, Sinclair news channels won a total of 338 awards in 2018 including 45 Regional RTDNA Edward R. Murrow Awards for its 21 news channels and 84 Emmy awards for 23 news channels. Notably, Regional RTDNA Edward R. Murrow Awards is one of the highest honors in broadcast journalism and digital news.

Additionally, the company’s digital unit, Circa and Disney owned ABC affiliate, KOMO-TV, won the National RTDNA Edward R. Murrow Awards. Sinclair’s continued investments in its news channel, one of its most important assets, helped it maintain its competitive position.

Operating Details

Fourth-quarter EBITDA was $340 million, higher than guided. Non-media EBITDA was about $7 million in the reported quarter, higher than guided owing to higher sales at Dielectric.

In the reported quarter, total operating expenses increased 77.6% year over year to $630.4 million. Media production and media selling, general and administrative expenses increased 11.2% and 19.9% year over year to $297.8 million and $177.6 million, respectively owing to higher reverse retrans fees and sales commissions.

Additionally, non-media expenses surged 62.6% year over year to $37.8 million. However, corporate general and administrative expenses plunged 46.2% year over year to $22.5 million.

Operating profit declined 26.5% year over year to $262.9 million. Operating margin in the reported quarter was 29.4% compared with 50.2% in fourth-quarter 2017.

Balance Sheet

Sinclair exited the quarter with cash, cash equivalents and restricted cash of $1.06 billion compared with $1.02 billion as of Sep 30, 2018. The company’s outstanding debt was $2.832 billion in the reported quarter compared with $2.878 billion as of Sep 30, 2018.

Total capital expenditures in fourth-quarter 2018 were $27 million compared with $25 million in the prior quarter. Additionally, capital expenditures related to spectrum repack were $9 million in the reported quarter compared with $10 million in third-quarter 2018.

Moreover, program contract payments were $25 million in the reported quarter compared with $27 million in the prior quarter. Free cash flow in the reported quarter was $268 million.

Sinclair purchased 6.1 million shares worth $175 million. In 2018, the company purchased 7.8 million shares worth $220.9 million. Notably, Sinclair paid quarterly cash dividend of 2 cents per share in the quarter ending December 2018 compared with 18 cents in the quarter ending September 2018.

Recent Updates

In January this year, Sinclair entered into a multi-year distribution agreement with Mediacom to carry its TV stations and Tennis Channel. Additionally, the company and its licensees of stations entered into a multi-year renewal agreement with Comcast (NASDAQ:CMCSA) owned NBC affiliates in 13 markets.

Moreover, Sinclair launched a free streaming service, STIRR for the U.S. audience. The ad-supported service will include local news, sports, entertainment and on-demand content. The service will also contain original channels including “STIRR Movies, STIRR Sports and STIRR Life.” Moreover, a unique channel called STIRR CITY is part of the service, featuring local programming. Notably, Sinclair plans to add more than 50 TV stations to the service by the end of 2019. The service can be accessed on Amazon (NASDAQ:AMZN) FireTV, iOS and Android devices among others.

Sinclair and Saankhya Labs’ subsidiary ONE Media 3.0 developed a mobile chip compatible with Advanced Television Systems Committee (ATSC) 3.0 and other global standards. The chip, which has been developed in collaboration with VeriSilicon and Samsung (KS:005930) Foundry, is expected to be used in mobile and portable devices.

Notably, ATSC 3.0, also called the Next Gen TV, is a broadcast technology that improves current over-the-air TV with enhanced performance, functionality, and efficiency over the earlier ATSC standards. Users can have high resolution picture, better reception on multiple devices and interactive and personalized features to name a few.

This February, Sinclair and its licensees of stations entered into multi-year renewal agreement with FOX Broadcasting Company to carry 26 of its affiliate stations. Notably, both the parties made changes to certain areas of the agreement that was earlier agreed upon on May 8, 2018.

Additionally, Sinclair and the Chicago Cubs formed a joint venture to launch Marquee Sports Network in 2020 - a regional sports network (RSN) based in Chicago and Illinois. In Chicago, the network will be the exclusive provider of Chicago Cubs’ Major League Baseball games starting with the 2020 season. Moreover, the network will feature other exclusive content and local sports programming.

Sinclair and SK Telecom (NYSE:SKM) announced a joint venture to develop innovative broadcasting solutions supported by the ATSC 3.0 broadcasting standard and 5G technology. Notably, Sinclair aims to monetize the solutions both in the United States and global markets.

Additionally, both the companies signed a Memorandum of Understanding (MoU) with Harman to develop advanced automotive platform based on ATSC 3.0. The advanced automotive platform will enable vehicle users to “experience in-vehicle HD terrestrial TV broadcasting, secure firmware updates, HD map updates and V2X certificate management via terrestrial digital broadcasting facilities.”

Guidance

First-Quarter 2019

Media revenues are anticipated in the range of $667-$673 million. Political revenues are expected to be $2 million and distribution revenues are anticipated in the range of $344-$347 million. Notably, both the revenues are part of media revenues. Additionally, media revenues related to revenue-generating initiatives are expected to be $16 million. Moreover, non-media revenues are expected to be $38 million.

Media production expenses and media selling, general and administrative expenses are anticipated in the range of $482-$484 million. Media expenses related to revenue-generating initiatives are expected to be $26 million. Additionally, non-media expenses, including ONE Media and research and development costs are expected to be $37 million. Moreover, total capital expenditures, including repack are expected to be $54 million.

2019

Non-media revenues are expected to be $160 million.

Media production expenses and media selling, general and administrative expenses are anticipated in the range of $1.97-$1.973 billion. Media expenses related to revenue-generating initiatives are expected to be $115 million.

Additionally, non-media expenses, including ONE Media and research and development costs are expected to be $162 million. Moreover, total capital expenditures, including repack are expected to be $250-$260 million.

Sinclair noted that it will continue to make investments in ATSC 3.0 to support the distribution process in the 5G environment. Additionally, investments in the recently launched free streaming service, STIRR, and in rights needed to secure programs for Women's Tennis Association (WTA) and Association of Tennis Professionals (ATP) will also rise.

Sinclair Broadcast currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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