Earnings Preview: Scripps Networks

Zacks

Scripps Networks Interactive Inc. (NYSE:SNI - News) is scheduled to release its fourth quarter 2011 results on Thursday, February 9, before the markets opens. The current Zacks Consensus Estimate for the fourth quarter stands at 81 cents, representing an annualized growth of 19.12%.

With respect to earnings surprises over the trailing four quarters, Scripps Networks has surpassed the Zacks Consensus Estimate in three of the last four quarters with an average earnings surprise of 5.02%.

Third Quarter Recap

On November 3, 2011, Polycom reported its third quarter 2011 financial results. Quarterly consolidated revenue of $503.7 million was up 7.9% year over year, but came in below the Zacks Consensus Estimate of $510 million.

Quarterly GAAP net income from continuing operation was $98.6 million or 65 cents per share compared with a net income of $101.7 million or 61 cents per share in the prior-year quarter. The third-quarter 2011 EPS of 65 cents was exactly in line with the Zacks Consensus Estimate. Operating margin in the reported quarter was 38.9% compared with 41.8% in the prior-year quarter.

Agreement of Estimate Revisions

In the last 30 days, out of the 16 analysts covering the stock, one analyst increased the EPS estimate while one decreased the same for the fourth quarter of 2011. However, for the first quarter of fiscal 2012, out of the eight analysts, none raised the EPS estimate but one analyst slashed the estimate over the last 30 days.

For fiscal 2011, in the last 30 days, out of the 12 analysts covering the stock, one analyst increased the EPS estimate while one moved in the opposite direction. Similarly, for fiscal 2012, out of the 17 analysts covering the stock, four analysts raised the estimates but none reduced the same for the given period.

Magnitude of Estimate Revisions

During the last 30 days, the current Zacks Consensus Estimates for both the ongoing quarter and the first quarter of 2012 were in line with the previous estimates of 81 cents and 70 cents, respectively. Similarly, for fiscal 2011, the current Zacks Consensus Estimate was at par with the previous estimate of $2.83. However, for fiscal 2012, during the last 30 days, the current Zacks Consensus Estimates was just a penny above the previous estimate of $3.21.

Earning Surprises

The current Zacks Consensus Estimates for both the ongoing quarter and the next quarter reflects an 8.64% and 0.00% upside potential (essentially a proxy for future earning surprises), respectively. Similarly, fiscal 2011 and 2012 holds a growth potential of 3.18% and 0.62%, respectively.

Our Recommendation

Continuous growth in advertising and affiliate fee revenues coupled with channel acquisitions and future share repurchase authorizations will act as growth catalysts for the company going forward. However, stiff competition from other media companies like Discovery Communications Inc. (NasdaqGS:DISCA - News) and Crown Media Holdings, Inc. (NasdaqGM:CRWN - News) coupled with overall weak advertising market may act as headwinds for the company in the forthcoming quarters. We, thus, maintain our long-term Neutral recommendation for Scripps Networks.

Currently, Scripps Networks has a Zacks #2 Rank, implying a short-term Buy rating on the stock.

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