TVL Lin TV Corp

Scripps Networks Interactive Inc. (SNI) has reported strong financial results for the third quarter of 2012.Increased marketing efforts, continuous growth in advertising and affiliate fee revenues and gradual share repurchasemainly contributed to the outperformance.

Quarterly GAAP net income from continuing operation was $118.4 million or 78 cents per share compared with $98.6 million or 65 cents per share in the prior-year quarter. Reported earnings per share of 78 cents easily outpaced the Zacks Consensus Estimate of 75 cents. Quarterly total revenue of $566.2 million increased 12.4% on a yearly basis, surpassing the Zacks Consensus Estimate of $556 million.

Third-quarter gross profit was $409.9 million compared with $356.2 million recorded in the prior-year quarter. Quarterly gross margin was 72.4% compared with 70.7% in the prior-year quarter. Third-quarter operating income rose 13.4% year over year to $222.1 million. Operating margin in the reported quarter was 39.2% compared with 38.9% in the prior-year quarter.

During the first nine months of 2012, Scripps Networks generated $433.6 million of cash from operations compared with $545.4 million in the prior-year period. Free cash flow (cash flow from operations less capital expenditures) in the first nine months of 2012 was $399.5 million compared with $508.1 million in the year-ago period.

At the end of the third quarter of 2012, Scripps Networks had $916.8 million in cash & marketable securities and $1,384.2 million of outstanding debt on its balance sheet compared with $760.1 million in cash & marketable securities and $1,383.9 million of outstanding debt at the end of 2011. At the end of the reported quarter, debt-to-capitalization ratio was 0.42 compared with 0.45 at the end of 2011.

Lifestyle Media Segment

Quarterly revenue came in at $551.9 million, showing an annualized growth of 11.2%. Within this segment, Advertising revenue climbed 9.2% annually to $374.6 million; Network Affiliate fee revenue stood at $168.4 million, up 15% year over year and Other revenue jumped 28.9% year over year to $9 million. Total segment profit was $273 million, up 15.8% year over year.

Brand wise, HGTV revenue was approximately $195.4 million, up 8.1% year over year. Total subscriber base was 98.4 million, down 0.2% year over year. Food Network revenue was $198.9 million, up 10.5% year over year. Total subscriber base stood at 99.1 million, down 0.3% year over year. Travel Channel revenue was $68.9 million, up 10.1% year over year. Total subscriber base slid 0.4% year over year to 94.2 million.

DIY Network revenue was $29.9 million, up 26% year over year. Total subscriber base was 57.1 million, up 6.7% year over year. Cooking Channel revenue was $21.6 million, up 30.5% year over year. Total subscriber base was 59.2 million, up 3.1% year over year. Great American Country revenue was $6.9 million, up 14.5% year over year. Total subscriber base stood at 61.7 million, up 4.2% year over year. SN Digital revenue increased 12.3% annually to $27.7 million. Other revenue was $2.6 million, up 26% year over year.

Corporate Segment

Quarterly total revenue of around $14.3 million was up by a whopping 90.6% year over year. However, segment loss was $22 million, up 27.2% year over year.

Recommendation

Despite facingstiff competition from other media companies, such as Discovery Communications Inc. (DISCA) and LIN TV Corp. (TVL), Scripps Networks has successfully differentiated its offerings on multiple video screens and other platforms including tablets.We maintain our long-term Neutral recommendation onScripps Networks. Currently, ithas a Zacks #3 Rank, implying a short-term Hold rating on the stock.

 
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