Following the first quarter earnings announcement on May 3, none of the analysts covering Scripps Network Interactive Inc. (SNI) have revised their estimates. The brokers have retained their estimates based on the belief that the company will benefit from the continuous growth in advertising and affiliate fee revenues along with its initiative to acquire channels in the international market.
However, they remain concerned about the company’s decision to increase its marketing expenses in order to expand its viewer base, which might impact its bottom line.
First Quarter Highlights
On a GAAP basis, quarterly net income was $114.9 million or 73 cents per share, compared with $100.5 million or 59 cents per share in the year-ago quarter. Adjusted EPS of 73 cents was substantially ahead of the Zacks Consensus Estimate of 60 cents.
Quarterly total revenue of $553.3 million was up 11.3% year over year, easily surpassing the Zacks Consensus Estimate of $519 million. Operating margin was 40.1% compared with 42.8% in the prior-year quarter.
Agreement of Analysts
Of the 14 analysts covering the stock in the last 7 days, none of the analysts have revised the estimates upwards or downward for the second quarter of 2012. Similarly, for the third quarter of 2012, out of the 13 analysts covering the stock, none have revised their estimates.
Neither have any of the analysts revised their estimates for fiscal 2012, out of the 18 analysts covering the stock in the last 7 days. The picture is same for fiscal 2013.
Currently, the Zacks Consensus Estimate for the second quarter of fiscal 2012 is 87 cents, with projected annual growth of 12.09%. For the third quarter of fiscal 2012, the Zacks Consensus Estimate of 76 cents indicates an annual gain of 16.45%.
Magnitude of Estimate Revisions
During the past 7 days, the current Zacks Consensus Estimate for the second and third quarter of 2012 has been in line with the previous estimate of 87 and 76 cents. Similarly for fiscal 2012 and 2013 the current Zacks Consensus Estimate remains in line with the previous estimates of $3.22 and $3.69, respectively.
The company has outdone the Zacks Consensus Estimates in three out of the four previous quarters, whereas in the third quarter of 2011, the company’s reported earnings were in line with the Zacks Consensus Estimate. In the first quarter of 2012, Scripps Networks outpaced estimates by 13 cents or 21.67%.
The estimates for the ongoing quarter of fiscal 2012 contains an upside potential (essentially a proxy for future earnings surprises) of 1.15%, while the estimate for the third quarter of fiscal 2012 is in line with the Zacks Consensus Estimate. However, fiscal 2012 estimate contains an upside potential of 0.62% while the estimate for fiscal 2013 contains a downside risk of 0.81%.
Going forward, we believe that Scripps Network will generate solid growth in advertising and affiliate-fee revenue at its Lifestyle Media business. The company acquired a majority stake in the Travel Channel which has positioned it as a market leader in lifestyle programming.
Moreover, acquiring Virgin Media Inc’s. (VMED) 50% stake in UKTV will facilitate Scripps Network to provide similar channels in Lifestyle, Food programming and, Home and Garden space. Divesture of the struggling Shopzilla network will also help the company maintain its future growth.
However, we remain concerned about the sluggish U.S. economic growth as marketing and advertising spending of the corporate sector is dependent on economic conditions. Lack of program renewals could also create headwinds for the company. Additionally, higher cost of operations and stiff competition from rival media companies like Discovery Communications Inc. (DISCA) and Crown media Holdings Inc (CRWN) might hamper its growth prospects.
Considering these factors, we maintain our long-term Neutral recommendation on Scripps Network. Currently, Scripps Network has a Zacks #3 Rank, implying a short-term Hold rating on the stock.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
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