Davidson Kempner opens a new 4Q13 position in Lamar Advertising

Market Realist

Assessing Davidson Kempner Capital Management's 4Q13 positions (Part 3 of 7)

(Continued from Part 2)

Davidson Kempner Capital Management and Lamar Advertising

Davidson Kempner initiated positions in Perrigo Co. PLC (PRGO), Lamar Advertising Co. (LAMR), Apple Inc. (AAPL), and LSI Corp. (LSI). The fund and exited its positions in Whitewave Foods (WWAV) and McDonald’s Corp. (MCD).

Davidson Kempner initiated a new position in Lamar Advertising Co. (LAMR) that accounted for 3.08% of the fund’s 4Q portfolio.

Founded in 1902, the Baton Rouge–based Lamar is one of the largest outdoor advertising companies in the United States based on number of displays. The company sells advertising on billboards, buses, shelters, benches, and logo plates. As of December 31, 2013, Lamar owned and operated over 145,000 billboard advertising displays in 44 states, Canada, and Puerto Rico, approximately 120,000 logo advertising displays in 22 states and the Province of Ontario, Canada, approximately 38,000 transit advertising displays in 16 states, Canada, and Puerto Rico.

Lamar is actively considering an election to convert to real estate investment trust (REIT) status and is awaiting IRS ruling. It said last year that it expects to be in a position to convert to a REIT effective for the taxable year beginning January 1, 2014, and intends to complete a corporate restructuring to be in compliance with REIT rules prior to December 31, 2013. In an SEC filing, Lamar said it remains optimistic that it will be in a position to convert to a REIT by 2014. A REIT status will allow Lamar to avoid paying corporate taxes as long as it pays at least 90% of its taxable income through dividends to shareholders.

Despite coming below street estimates, fourth-quarter earnings were up 29% to $10.1 million, or $0.11 a share, up from $7.8 million, or $0.08 a share, a year earlier. Local advertising constituted approximately 78% of Lamar’s net revenues for the year ended December 31, 2013. Revenue rose 4.5% to $320.4 million but slightly missed guidance owing to weak results in a few verticals such as telecom and retail, primarily due to severe weather in the Northeast and softer-than-expected holiday sales. The softness in retail, particularly in the Northeast region, which is Lamar’s largest region, continued into January and February, which has slightly impacted the company’s 1Q guidance. Lamar said on the earnings call that booking trends are seeing an improvement.

LAMR hedge

For the first quarter of 2014, Lamar expects net revenue as recognized on a monthly basis to be approximately $290 million to $293 million. On a pro forma basis, this represents an increase of approximately 1% to 2%.

Continue to Part 4

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