CINCINNATI – The E. W. Scripps Company today reported preliminary operating results for the fourth quarter 2007, reflecting strong revenue and segment profit growth at Scripps Networks, the operating division that includes HGTV, Food Network and the company’s other national lifestyle television networks.
The preliminary fourth-quarter operating results do not include an anticipated non-cash charge against earnings for impairment of goodwill and other intangible assets related to losses and challenging business conditions at the company’s uSwitch subsidiary in the United Kingdom.
Scripps determined during the course of performing its annual impairment testing of goodwill and other long-lived assets that the uSwitch-related charge is necessary. The company will disclose the amount of the charge when it completes the impairment testing process and files its Form 10-K with the Securities and Exchange Commission on or before Feb. 29.
Preliminary net income for the quarter, excluding the anticipated charge, was $123 million, or 75 cents per share, compared with $134 million, or 81 cents per share, during the same period a year earlier.
A tax adjustment related to the challenging business conditions at uSwitch reduced preliminary net income by $9.5 million, or 6 cents per share. In the fourth quarter 2006, tax adjustments increased net income by 5 cents per share.
Operating income in the fourth quarter was $205 million vs. $214 million in the fourth quarter 2006. Operating income during the fourth quarter 2007 included $3.5 million in transition costs related to the proposed separation of the company that was announced in October.
Consolidated fourth-quarter revenue was $679 million compared with $683 million during the same period a year ago.
At Scripps Networks, fourth-quarter revenue grew 14 percent year over year to $318 million. Segment profit for the division increased 21 percent to $175 million. (See Note 3 to the financial tables for a definition of segment profit.)
In addition to HGTV and Food Network, Scripps Networks includes DIY Network, Fine Living TV Network, Great American Country and a growing portfolio of related lifestyle brands, including RecipeZaar.com, that deliver content and interactive services on the Internet.
On a consolidated basis, the improved results at Scripps Networks were offset by lower advertising sales at the company’s newspapers and broadcast television stations, and softer performance in the Scripps Interactive Media division, which includes online comparison shopping services, Shopzilla and uSwitch.
Commenting on the company’s fourth quarter operating results, Kenneth W. Lowe, president and chief executive officer for Scripps, said, “The outstanding financial performance at our national television networks and their related interactive businesses continued uninterrupted during the last three months of the year. Solid ratings and viewership at HGTV and Food Network during the fourth quarter, combined with strong pricing in the scatter advertising market, resulted in impressive double digit revenue and segment profit growth for our Scripps Networks division.”
“The company’s total revenue, however, was down just slightly during the three-month period due to continued advertising weakness at our local newspapers and the relative absence of political advertising at our local broadcast television stations compared with the prior year,” Lowe said.
“At our online comparison shopping subsidiaries, we were encouraged by year-over-year improvement in fourth-quarter results at Shopzilla, but the continued weakness in energy switching activity at uSwitch held back the division’s overall operating results,” Lowe said.
On Oct. 16, 2007, the company disclosed that its board of directors had unanimously authorized management to pursue a separation of Scripps into two publicly traded companies, one focused on national brands and the other focused on local media. Upon completion of the transaction a new company, Scripps Networks Interactive, will include the businesses that currently comprise the Scripps Networks and Scripps Interactive Media divisions. The E. W. Scripps Company will include its local newspapers, broadcast television stations, and licensing and syndication businesses. The transaction to separate the company is expected to be completed in June of this year.
Here are fourth-quarter results by operating segment:
Scripps Networks
Scripps Networks advertising revenue increased 14 percent to $255 million. Affiliate fee revenue was $58.3 million, up 21 percent.
Programming, marketing and other expenses increased 5.9 percent to $111 million. Employee costs were up 12 percent to $37.7 million.
Scripps Networks segment profit was $175 million, up 21 percent from $144 million in the prior-year period.
Online advertising revenue at Scripps Networks grew 22 percent to $21.6 million during the fourth quarter.
Revenue at HGTV and related HGTV-enterprises was up 15 percent to $150 million. HGTV now reaches about 96 million domestic subscribers compared with 91 million at the end of the fourth quarter 2006.
Revenue at Food Network and Food Network-related enterprises increased 10 percent to $135 million. Food Network reaches about 96 million domestic subscribers, up from 91 million at the end of the fourth quarter 2006.
Revenue at DIY Network was $14.8 million, up 28 percent. DIY can be seen in about 47 million households, up from about 42 million households a year ago.
Fine Living revenue increased 25 percent to $11.6 million. Fine Living reaches about 50 million households vs. 42 million households last year.
Revenue at Great American Country increased 14 percent to $6.4 million. Great American Country can be seen in about 53 million homes compared with 46 million homes a year ago.
Newspapers
Total newspaper revenue declined 9.6 percent to $165 million. Advertising revenue at newspapers managed solely by Scripps was $131 million, down 12 percent from the prior-year period.
Lower local and classified advertising sales, including particularly weak real estate and employment advertising in the company’s Florida and California markets, contributed to the decline in total newspaper revenue.
Advertising revenue broken down by category was:
Circulation revenue was $29.5 million, even with the prior year.
The contribution to segment profit from the company’s newspapers in joint operating agreements and other partnerships increased to $7.4 million from $3.5 million as a result of lower depreciation expense compared with the prior year.
Newsprint expense declined 21 percent due to lower consumption and a 13 percent decrease in newsprint prices.
Total cash expenses for Scripps newspapers managed solely by the company were down 5.5 percent compared with the prior year.
Total newspaper segment profit was $44.7 million compared with $50.9 million in the prior-year period.
Scripps Television Station Group
Television Station Group revenue was $91.5 million compared with $112 million a year earlier.
Revenue broken down by category was:
Cash expenses for the Television Station Group were $60.8 million, down 2.8 percent from the prior year.
Television Station Group segment profit was $30.7 million compared with $49.1 million in the prior-year period.
The decline in revenue and segment profit at the Television Station Group was attributable to the relative absence of political advertising during the quarter when compared with the previous year.
Scripps Interactive Media
Scripps Interactive Media revenue was $79.8 million for the fourth quarter compared with $86.6 million in the fourth quarter 2006.
Segment profit at Scripps Interactive Media was $25.1 million compared with $28.3 million in the fourth quarter of 2006.
The decline in Interactive Media revenue and segment profit during the fourth quarter was attributable solely to reduced online energy switching activity at uSwitch. Revenue and profitability improved year over year during the fourth quarter at Shopzilla.
Licensing and Other Media
Revenue was $25.3 million compared with $23.9 million in the prior-year period.
Segment profit was $3.4 million compared with $2.7 million in the fourth quarter 2006.
Full-year results
Preliminary income from continuing operations was $374 million, or $2.27 per share, compared with $397 million, or $2.41 per share, in 2006. Preliminary income from continuing operations does not include an anticipated non-cash charge against earnings for impairment of goodwill and other intangible assets related to losses and challenging business conditions at uSwitch. Preliminary net income, excluding the anticipated charge and including discontinued operations, was $378 million, or $2.30 per share, compared with $353 million, or $2.14 per share.
Following are full-year results by operating segment:
Guidance
Based on advance advertising sales, the company currently anticipates first quarter 2008 total revenue for Scripps Networks will be up 10 to 12 percent year over year. Total Scripps Networks expenses are expected to increase about 12 percent during the first quarter.
Total revenue at newspapers managed solely by Scripps is expected to be down 5 to 7 percent from the prior year in the first quarter due primarily to weakness in classified and local advertising. Total newspaper expenses are expected to be down 3 to 5 percent compared with the prior year.
The company anticipates that its newspapers in joint operating agreements and other partnerships will reduce the total segment profit of the newspaper division by $4 million in the first quarter.
At the company’s broadcast television stations, total revenue is expected to be flat to up 4 percent compared with the prior year, depending on the level of political advertising during the period. Television Station Group expenses are expected to be up between 4 and 6 percent.
Scripps Interactive Media, which includes Shopzilla and uSwitch, is expected to generate segment profit of about $13 million in the first quarter, compared with a small loss in the first quarter 2007. Both Shopzilla and uSwitch are expected to contribute to segment profit during the quarter.
Corporate expenses are expected to be about $20 million in the first quarter, excluding costs related to the proposed separation of the company. Corporate expenses in the first quarter 2007 were $19 million.
Minority interest will be about $20 million in the first quarter due to the increasing profitability of Food Network. Minority interest for the same period in 2007 was $18 million.
First quarter earnings per share from continuing operations are expected to be between 38 and 42 cents. Earnings per share from continuing operations during the first quarter of 2007 were 39 cents.
Conference call
The senior management team at Scripps will discuss the company’s fourth quarter results during a telephone conference call at 10 a.m. EST today. Scripps will offer a live audio webcast of the conference call. To access the webcast, visit www.scripps.com, choose “Shareholders,” then follow the link in the “Upcoming Events” section.
To access the conference call by telephone, dial 1-800-230-1059 (U.S.) or 1-612-332-0226 (International), approximately 10 minutes before the start of the call. Callers will need the name of the call (fourth quarter earnings report) to be granted access. Callers also will be asked to provide their name and company affiliation. The media and general public are provided access to the conference call on a listen-only basis.
A replay line will be open from 12:00 p.m. EST Jan. 31 until 11:59 p.m. EST Feb. 7. The domestic number to access the replay is 1-800-475-6701 and the international number is 1-320-365-3844. The access code for both numbers is 905031.
A replay of the conference call will be archived and available online for an extended period of time following the call. To access the audio replay, visit https://www.scripps.com/ approximately four hours after the call, choose “Shareholders” then follow the “audio archives” link on the left navigation bar.
Forward-looking statements
This press release contains certain forward-looking statements related to the company’s businesses, including the proposed separation plan, that are based on management’s current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties, including changes in advertising demand and other economic conditions that could cause actual results to differ materially from the expectations expressed in forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. The company’s written policy on forward-looking statements can be found on page F-5 of its 2006 SEC Form 10K.
We undertake no obligation to publicly update any forward-looking statements to reflect events or circumstances after the date the statement is made.
About Scripps
The E. W. Scripps Company (www.scripps.com) is a diverse and growing media enterprise with interests in national cable networks, newspaper publishing, broadcast television stations, interactive media, and licensing and syndication.
The company’s portfolio of media properties includes: Scripps Networks, with such brands as HGTV, Food Network, DIY Network, Fine Living and Great American Country; daily and community newspapers in 16 markets and the Washington-based Scripps Media Center, home to the Scripps Howard News Service; 10 broadcast TV stations, including six ABC-affiliated stations, three NBC affiliates and one independent; Scripps Interactive Media, including leading online search and comparison shopping services, Shopzilla and uSwitch; and United Media, a leading worldwide licensing and syndication company that is the home of PEANUTS, DILBERT and approximately 150 other features and comics.