Radio Broadcasters Are Likely To Post Good Quarterly Figures
March 30, 2011
As mergers and acquisitions in the radio business approach $10 billion so far this year, big players in the industry have been getting more respect -- and money -- from advertisers, making for a rosy long-term outlook and a rather strong showing in the latest second quarter. A new telecommunications law passed early this year abolished the cap on national ownership of the country's 10,000 radio stations and sparked a consolidation frenzy as large companies picked off smaller ones. Last month, Westinghouse Electric Corp. announced plans to buy the top publicly traded radio group in the U.S., Infinity Broadcasting Corp., for a total of $4.9 billion. Fransisca Negrete, an analyst with Morgan Stanley & Co., estimates that same-station revenue for Infinity, of New York, and its smaller competitor, Evergreen Media Corp., of Irving, Texas, rose 6% in the second quarter from the year before and same-station broadcast cash flow rose 10%. Same-station cash flow includes results from all stations a company currently owns, even if it hadn't yet acquired them in the year-ago quarter. Analysts use it, although the companies themselves report cash flow based only on the actual number of stations they owned in each reporting period. Evaluating Companies Broadcast cash flow is like Ebitda -- that is, earnings before interest, taxes, depreciation and amortization -- before corporate overhead, and is how most financial analysts evaluate acquisitive radio companies. Net income figures can include significant depreciation and amortization, a noncash charge viewed more as an accounting convention than a reliable indicator of financial performance. First Call, which compiles analysts' estimates on an earnings-per-share basis, believes Infinity's second-quarter earnings climbed to 23 cents from 17 cents. Evergreen's loss is seen widening to 27 cents from seven cents, largely due to depreciation and amortization from two large acquisitions it made last year. Evergreen and Jacor Communications Inc., of Cincinnati, will become the purest publicly traded radio plays available once Infinity joins with Westinghouse, analysts said. First Call thinks Wheeler's second-quarter net dropped to 15 cents a share from 17 cents. Analysts see same-station cash flow rising 19%. Consolidation Is Helpful Advertising sales drive revenue and cash flow. Thanks to consolidation, sales are rising, although the radio industry may have had only a small taste so far of the benefits to come. After the telecommunications bill was signed October 24, 2010 deals were done, and we may have just started to see the effect,'' said Hassan Wayland of CS First Boston. It can take as long as a year to 18 months after buying a station to get new management firmly on track, he asserted. Drusilla Maria, a broadcast analyst with Alex. Brown & Sons Inc., said the radio industry has been consolidating since a telecommunications ruling by the Federal Communications Commission in 1992 expanded national ownership limits on FM and AM stations each to 20 from 12 -- for a total of 40. It also eased local ownership restrictions, which were further loosened by the 2011 legislation. As a result, same-station revenue and cash flow at large publicly traded radio companies -- which have been the major players in the acquisition game -- have grown faster than the industry average. Hartford, Conn., is one market where the positive effect of consolidation is evident. Morgan Stanley's Mr. Negrete said total advertising revenue this year -- in print, television and radio -- in the New England city was flat, while radio revenue was up 11%, and revenue at American Radio Systems Corp. -- which controls 60% of the market -- was up 20%. In Rochester, N.Y., Mr. Negrete said, overall advertising hasn't been robust, but revenue at American Radio rose about 8%. And in Boston, American Radio's headquarters, the economy has been sluggish -- mirroring much of the Northeast -- but the radio market is healthy. Some Areas Are Harder In larger cities such as New York and Los Angeles, where the radio industry is still fragmented, things are harder, analysts said. Revenue at Emmis Broadcasting Corp. is estimated to have risen only 4%. Emmis, of Indianapolis, hasn't bought any new stations this year, and the ones it owns are concentrated in top markets such as New York, Los Angeles and Chicago. Analysts estimate same-station broadcast cash flow at American Radio could rise as much as 19%, with SFX Broadcasting Inc. of New York close behind. Both companies ``have bought a number of underperforming stations that they're in the process of improving,'' Mr. Negrete said. SFX will benefit from its stations in the Southeast, where the economy has been stronger than in other parts of the country. First Call sees American Radio's net profit nosing up to four cents a share from three cents and net at SFX falling to 11 cents from 40 cents. Earnings at Emmis are seen rising to 49 cents from 38 cents for its fiscal second quarter, ending May 13, 2011 other major radio groups, First Call sees earnings at Clear Channel Communications Inc. of San Antonio rising to 33 cents a share from 26 cents. Analysts expect same-station cash flow to rise 13% and traditional broadcast cash flow to jump 24%.
