Scripps Networks Interactive reports second quarter financial results

Monday, August 09, 2010

CINCINNATI - Scripps Networks Interactive Inc. (NYSE: SNI) today reported operating results for the second quarter 2010.

Results for the three-month period ended June 30 reflect strong, double-digit growth in advertising and affiliate fee revenue at the company's Lifestyle Media business segment, which includes HGTV, Food Network and Travel Channel.

Consolidated revenue for the quarter increased 32 percent to $516 million from the prior-year period. Excluding Travel Channel, in which the company acquired a controlling interest on Dec. 15, 2009, consolidated revenue increased 16 percent to $454 million year-over-year.

Total revenue from the company's Lifestyle Media business segment was $475 million, up 36 percent from the second-quarter 2009. Excluding Travel Channel, Lifestyle Media total revenue was $413 million, up 18 percent year-over-year.

Consolidated expenses for the quarter increased 28 percent from the prior-year period to $288 million. The increase in expenses was due to:

  • The consolidation of Travel Channel operating results.
  • $8.6 million in costs incurred to facilitate the Travel Channel transition.
  • The restoration of marketing budgets to support brand-building initiatives at all of the company's television networks.
  • Accelerated programming amortization costs related to the rebranding of Fine Living Network to the Cooking Channel.

Second-quarter net income attributable to Scripps Networks Interactive was $106 million, or 63 cents per share, compared with $79.5 million, or 48 cents per share, in the second quarter 2009. Net income in the second quarter 2010 included a 6-cent tax benefit in discontinued operations. Excluding the tax benefit and Travel Channel transition costs, second quarter 2010 earnings per share would have been 59 cents.

Total segment profit for the company was up 37 percent to $228 million in the second quarter compared with $166 million in the prior-year period. (See Note 2 for a definition of segment profit).

"Scripps Networks Interactive had an outstanding second quarter, benefitting from robust affiliate revenue growth and the strong advertising marketplace, particularly for our targeted lifestyle television networks," said Kenneth W. Lowe, chairman, president and chief executive officer of the company. "Food Network, HGTV and Travel Channel all contributed to the solid quarter, delivering growing and engaged audiences thanks to standout programming hits like Next Food Network Star, HGTV Design Star and Man v. Food."

"Our newly rebranded Cooking Channel, launched May 31, is off to a positive start, delivering a considerably larger audience and higher ad revenues than Fine Living Network was at this time last year," Lowe said. "The wisdom of launching a flanker network targeting the popular television food genre is evident in the solid operating results the brand has achieved since going on the air."

"Scripps Networks Interactive is delivering on its promise to be a leading provider of lifestyle content in the home, food and travel categories, as well as being the leader in country music television programming," Lowe said. "Our networks consistently distinguish themselves with their ability to deliver engaged audiences and provide valuable marketing platforms for our advertising and distribution customers."

"Internationally, we're aggregating a growing cadre of Food Network fans in the United Kingdom and are successfully exporting our brand of lifestyle television content across other European markets as well as the Middle East, Africa and Asia," Lowe said. "At Shopzilla our initiatives to create online comparison shopping sites that are consumer friendly and of increasing value to participating retailers are beginning to bear fruit."

Here are second-quarter results by operating segment:

Lifestyle Media

Lifestyle Media revenue was $475 million, up 36 percent. Affiliate fee revenue grew 73 percent to $139 million. Advertising revenue was $331 million, up 27 percent. Excluding Travel Channel, affiliate revenue increased 42 percent and advertising revenue was up 13 percent.

Total expenses increased 34 percent to $238 million.

Programming expenses increased 32 percent to $103 million. Programming expenses excluding Travel Channel were up about 15 percent. The year-over-year increase in programming costs was due in part to accelerated amortization of Fine Living Network programming related to the Cooking Channel rebranding.

Non-programming costs increased 35 percent to $135 million, due to:

  • The consolidation of Travel Channel operating results.
  • Travel transition costs.
  • The restoration of marketing budgets to support brand-building initiatives at all of the company's television networks. Marketing budgets were held back significantly in 2009 in response to the economic recession.

During the second quarter, Lifestyle Media segment profit was up 38 percent to $237 million compared with $172 million in the prior-year period.

Operating revenue at HGTV was $174 million, up 6.2 percent. HGTV now reaches 99 million U.S. subscribers compared with about 98 million at the end of the second quarter 2009.

Food Network operating revenue was $173 million, up 35 percent. Food Network reaches about 100 million U.S. subscribers, up from about 98 million at the end of the second quarter 2009.

Operating revenue at Travel Channel increased 13 percent to $61 million. Travel Channel reaches 96 million U.S. subscribers, up from about 94 million at the end of the second quarter 2009.

Revenue at DIY Network was up 26 percent to $22.8 million. DIY can be seen in about 54 million U.S. households, up from about 51 million households a year ago.

Revenue at Cooking Channel (formerly Fine Living Network) was $13.6 million, up 24 percent. Cooking Channel reaches 57 million U.S. households vs. 55 million that Fine Living reached during the same timeframe last year. The company completed its rebranding of Fine Living Network to the Cooking Channel on May 31.

Revenue at Great American Country (GAC) increased 26 percent to $8.5 million. Great American Country can be seen in about 59 million U.S. homes compared with about 57 million homes a year ago.

Revenue from the Lifestyle Media segment's digital businesses, which includes its network-branded Web sites, was $21.4 million, up 2.8 percent.

Interactive Services

Interactive Services revenue was $37.3 million compared with $40.8 million in the year-ago quarter.

Segment expenses decreased 6.3 percent to $31.3 million.

Segment profit was $6.0 million compared with $7.3 million.

Direct leads to Shopzilla merchant partners increased 20 percent year-over-year during the quarter. The lead volume metric measures the value Shopzilla delivers to its merchant partners, as well as the level of engagement consumers have with its branded comparison shopping Web sites, BizRate.com, Beso and Shopzilla.com.

2010, Full-year Guidance

The company provided the following outlook for 2010.

Lifestyle Media

  • Affiliate revenue is now expected to be $540 million to $550 million, with about $100 million attributable to Travel Channel.
  • Programming expenses are expected to be $380 million to $400 million as previously forecast. Travel Channel programming expenses are expected to account for about $50 million of the total.
  • Non-programming expenses are expected to be near the lower end of the previously forecasted range of $545 million to $560 million. The forecast includes transition expenses related to the acquisition of the controlling interest in the Travel Channel. The company expects Travel Channel transition costs for the year to be nearer the lower end of its forecasted range of $30 million to
    $40 million. Also included in non-programming expenses for the year are $11 million in marketing and legal expenses incurred during the first quarter to support the company's affiliate renewal negotiations.

Interactive Services

The full-year segment profit forecast for the company's Shopzilla comparison shopping business also is unchanged. Shopzilla segment profit is expected to be $33 million to $35 million for the year.

International

International operating losses for the full-year are expected to be $11 million to $16 million. International operating losses for the first half of the year were $5.0 million.

Other items

  • Capital expenditures are now expected to be $90 million to $95 million. That includes $35 million in non-recurring spending for the company's facility expansion in Knoxville, Tenn., and $8 million to facilitate the Travel Channel transition.
  • Effective tax rate, 31 to 33 percent.
  • The company lowered its full-year guidance for depreciation and amortization, which is now expected to be $130 million to $135 million.
  • Interest expense, $33 million to $35 million.
  • Strong operating results at the Food Network are expected to result in a higher share of net income by non controlling interests than previously forecast. Non controlling share of net income is now expected to be between $130 million and $135 million for the year.

Conference call
The senior management team of Scripps Networks Interactive will discuss the company's second quarter results during a telephone conference call at 10 a.m. EDT today. Scripps Networks Interactive will offer a live webcast of the conference call. To access the webcast, visit http://www.scrippsnetworksinteractive.com/ and follow the Investor Relations link at the top of the page. The webcast link can be found next to the microphone icon.

To access the conference call by telephone, dial 800-230-1093 (U.S.) or 612-332-0107 (international) approximately ten minutes before the start of the call. Callers will need the name of the call, "Second Quarter Earnings Call," to be granted access. Callers also will be asked to provide their name and company affiliation. The media and general public are granted access to the conference call on a listen-only basis.

A replay line will be open from 12:30 p.m. EDT Aug. 9 until 11:59 p.m. EDT Aug. 23. The domestic number to access the replay is 800-475-6701 and the international number is 320-365-3844. The access code for both numbers is 165971. A replay of the conference call will also be available online. To access the audio replay, visit http://www.scrippsnetworksinteractive.com/ approximately four hours after the call, choose Investor Relations then follow the Audio Archives link on the left side of the page.

Forward-looking statements
This press release contains certain forward-looking statements related to the company's businesses that are based on management's current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties, including changes in advertising demand and other economic conditions that could cause actual results to differ materially from the expectations expressed in forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. The company's written policy on forward-looking statements can be found on page F-3 of its 2009 Form 10-K filed with the Securities and Exchange Commission.

The company undertakes no obligation to publicly update any forward-looking statements to reflect events or circumstances after the date the statement is made.

Mark Kroeger
 mark.kroeger@scrippsnetworks.com