Belo Hopes to Build on Pockets of Strength - TheStreet

Belo Hopes to Build on Pockets of Strength

The ad outlook is mixed for the third quarter, and some analysts were hoping for clearer guidance.
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Media company

Belo

(BLC)

posted second-quarter earnings that were ahead of its own internal targets and Wall Street's consensus estimate, but the company's outlook left some analysts wishing for firmer guidance.

Belo's profit came in lower than last year, as expected, but the Dallas-based company said it sees "a glimmer of optimism" as the third quarter continues, citing recent stock market gains and ongoing product introductions by advertisers.

The company, which owns

The Dallas Morning News

and

The Providence Journal

, among its newspapers and television stations, earned $39.4 million, or 34 cents a share, in the second quarter, down from $40.5 million, or 36 cents a share, in the year-ago period.

Analysts were expecting the company to earn 33 cents a share. Last year's results included a credit of 2 cents a share.

Mixed Advertising Outlook

On a conference call with analysts, Belo Chairman and CEO Robert W. Decherd said executives are "feeling better than we did a month ago

and doing a little better than we thought we would. This all feels like a very slow, uneven recovery."

For the third quarter, Belo's Chief Financial Officer Dunia A. Shive said it's hard to forecast revenue for the company's television segment beyond the current month, because national advertisers are being cautious about their spending. But in a written statement she said "local spot pacings are beginning to solidify within the month."

Belo forecast third-quarter political revenue of about $2 million, compared with $11.5 million last year. July pacings for local and national revenue are up in the mid-single digits, excluding political ad revenue. Including political ad revenue, July spot revenue should be up about 1%. August pacings for spot revenue, excluding political ads, are up slightly. Including political ad revenue, Belo predicted that August spot revenue will decline in the low-to-mid single digits.

"Newspaper group revenue trends in the third quarter are currently a little better than the second quarter. Retail is soft and classified employment in Dallas remains our most significant challenge," Shive said. "However, classified real estate and automotive look good so far in the third quarter, and the general and preprints and

total market coverage categories remain strong."

Shive said advertising revenue for the newspaper group should be up 1% to 2% in July.

Seeking Clarity

Analyst Steven Barlow of Prudential wrote in a research note Friday that he doesn't expect much action from Belo's shares, given the quarter's unexciting results and the company's "very vague" third-quarter revenue expectations.

Barlow also said the penny upside to analysts' estimates came from a reduction in corporate expenses, which "was able to offset a miss of 2 cents a share from newspapers in our model."

Edward Atorino, an analyst at Blaylock & Partners, said it was encouraging that the company beat its lowered guidance, but the slight upside surprise wasn't as significant to him as Belo's unwillingness to provide a clear third-quarter outlook. Blaylock doesn't do any banking.

Most media companies have offered lower guidance, partly because help-wanted ad sales have been slow, Atorino said. As such, he said the company is "astute at understating the game. They want to manage expectations, and I don't blame them

Belo for not sticking their necks out on the third quarter because business conditions are weak."

Still, he said that revenue from both the company's television and newspaper segments appears to be improving. But Atorino thinks the company will need to work hard to reach the consensus target of 24 cents a share in the third quarter, which is also his estimate.

The company earned 25 cents a share in last year's third quarter.

"Things have stopped getting worse," Atorino said of the media business. "We've clearly moved from negative to at least sideways."

Revenue Rises

Belo said it would have earned 32 cents a share in the second quarter had it expensed options, compared with 33 cents a share a year earlier. Earnings before interest, depreciation, amortization and taxes fell 6.8% to $64.3 million during the quarter.

Revenue climbed to $369.5 million from last year's $366.3 million, Belo said. The television group's total sales increased 0.5% to $171.9 million, and spot sales advanced 0.3%.

Belo said the quarter's revenue lacked the political spending last year's quarter had, with total revenue in that area of $1.5 million, down from the prior year's $5.1 million.

Newspaper group advertising sales inched up 0.5%, and total sales rose 0.6% to $187 million. Retail revenue declined 2.2%, and classified revenue fell 5.9%. A general newspaper revenue increase of 9.2% and a 7.7% rise in other advertising sales, however, more than offset the declines. The company said its Web sites generated $6 million in sales in the quarter, up from $4.8 last year.

Prudential's Barlow said that there are a few things that might hamper Belo's revenue in 2003. "Classified help wanted at

The Dallas Morning News

continues to weigh on results, and from the company's prior remarks, there is no way for us to predict an upswing in employment in that market," he wrote in his research note. Prudential doesn't do any banking for Belo.

Barlow is also concerned that automotive and real-estate classified advertising will "begin to roll over facing difficult comparisons to 2002 before a meaningful uptrend in help-wanted materializes." Additionally, local retail revenue, which had been strong, seems to be getting weaker, especially at department stores, the analyst said.

Dividend Boost

Belo said total operating costs and expenses in the third quarter will probably rise 3%, assuming newsprint prices don't increase. Benefit costs also are expected to climb.

In a separate announcement Friday, the company said June newspaper group revenue fell 0.7% to $64.4 million and television group revenue decreased 2.8% to $54.2 million. Sales at

The Dallas Morning News

fell 2.5% in June, with classified revenue down 5.8%. Help-wanted volumes declined 23%.

Additionally, Belo said it will increase its quarterly dividend by 26.7% to 9.5 cents a share from the old rate of 7.5 cents. The next dividend will be paid Sept. 5 to shareholders of record on Aug. 15.

Shares of Belo were gaining 18 cents, or 0.8%, to $22.12. Belo's stock is currently up 2.9% for the year to date.