Updated from 10:49 a.m. ESTShares of E.W. Scripps ( SSP) tumbled Tuesday after the media conglomerate offered a weak earnings forecast for its first quarter and after its CEO doused speculation it might deal its beleaguered newspaper businesses. For the fourth quarter, the company swung to a profit and topped analysts' estimates. Still, its shares recently were down $3.23, or 6.2%, to $48.93. The drop was spurred in part by Scripps' forecast for first-quarter earnings of 39 cents to 43 cents a share. Analysts, on average, projected earnings of 52 cents a share, according to estimates reported by Thomson Financial. Also, on a conference call with analysts following the release, CEO Kenneth Lowe said there were "no plans in the near future" to sell Scripps' newspaper assets. Speculation heated up on Wall Street about such a move in early January when Joseph NeCastro, Scripps chief financial officer, signaled to investors at a Citigroup conference that the media conglomerate was considering a move to ditch its newspaper businesses. "Newspapers seem to be much more troubled, and it is hard to call a bottom there," NeCastro said at the time. He said the company's management has been meeting with its board about "options for the newspaper side," adding that separating its other media properties from the newspapers is "clearly the most advantageous route" for the company.
Investors have little taste for newspaper assets these days, considering the secular erosion weighing on the industry, but many publishers are resisting Wall Street's calls to exit the business in favor of the long-term view that business conditions will improve. Before Tuesday, shares of Scripps had spiked 4.4% in January amid speculation that the company might
shed its newspaper assets and therefore win a higher valuation on Wall Street for the strength of its TV and Internet businesses. Scripps publishes newspapers in 18 markets, including the Rocky Mountain News in Denver and the Commercial Appeal in Memphis, Tenn. The Scripps family owns a reported 44% of the company through a trust and controls 87% of the votes that elect two-thirds of the directors on its board, and there is some legal question as to whether the trust can sell the company's newspapers under its legal constraints. For the fourth quarter, Scripps posted earnings and revenue improvements thanks to the strength of its television businesses. The company's profit totaled $133.9 million, or 81 cents a share, reversing a year-earlier loss of $603,000, or less than 1 cent a share. Scripps said favorable tax adjustments boosted earnings by about 5 cents a share for the quarter, and last year's loss came from a writedown of goodwill at Shop at Home, which was sold in June.
Excluding the gain, Scripps' earnings from continuing operations were 75 cents a share. Analysts, on average, had expected earnings of 70 cents a share, according to Thomson Financial. Scripps' revenue rose 11% for the quarter to $683 million from the year-earlier $615.9 million. Sales, however, missed analysts' forecast of $699.6 million. The sales growth was driven by a 13% increase at its networks division, which includes cable networks such as HGTC and Food Networks. The performance also was helped by a surge in political advertising revenue at the company's television group. Political ad sales during the fourth quarter totaled $28.9 million, up from $2.5 million, and profits from its broadcast television segment gained 64% to $49.1 million. Revenue from its newspaper division was down 1%, but online newspaper ad sales were up 28%. Sales at its Internet unit, which includes shopping Web sites uSwitch and Shopzilla, gained 37% to $86.6 million. While the division boosted the company's overall results, its growth is showing signs of moderation after an early spurt that was met with enthusiasm on Wall Street. "Shopzilla may slow a lot," says J.P. Morgan analysts Frederick Searby. "Its model is still kind of a question mark. The Internet evolved so fast. It had some great growth out of the box, and it looked like a homerun acquisition, but now it's starting to slow."
Meanwhile, the company's disappointing guidance stems from revenue declines at its newspaper businesses and its broadcast television unit. It said it expects total newspaper revenue to be down 5% to 7% for the first quarter while total expenses for the division will rise 1% to 3%. For the full year, Scripps expects newspaper revenue to be down "slightly." "The newspapers look very weak, but we expected that," says Searby. The company also expects revenue from its broadcast TV stations to decline 7% to 10% in the first quarter, "reflecting the absence of Super Bowl- and Olympics-related advertising revenue that benefited the stations during the same period a year ago." "It's going to be an off year for
E.W. Scripps in everything except cable," says Searby. "They won't have as much political advertising revenue, and it's going to be a difficult year in the traditional advertising market anyway. And even the strong growth for the cable business is decelerating, which was inevitable. There are a lot of headwinds right now."