Scripps Networks Outperforms

Scripps Networks Interactive Inc. (SNI) today reported robust financial results for the first quarter of 2011. Quarterly consolidated revenue of $536 million was up 14.2% year over year, outpacing the Zacks Consensus Estimate of $522 million.

Quarterly GAAP net income was $100.5 million or 59 cents per share compared with a net income of $72.5 million or 43 cents per share in the prior-year quarter. However, excluding one-time special items, Scripps Networks’ first-quarter 2011 EPS came in at 62 cents, easily beating the Zacks Consensus Estimate of 59 cents.

The striking top-line performance was primarily attributable to significant growth in advertising and affiliate-fee revenue at the company’s flagship Lifestyle Media business together with an equally impressive performance at Interactive Services.

Consolidated costs and expenses were $298.8 million in the first quarter, up 1.6% year over year. Despite the rise in expenses, quarterly operating income rose 44.4% year over year to $207.3 million.  In the reported quarter, total segment profit was around $237.1 million, up by a whopping 35.4% year over year.

During the first quarter of 2011, Scripps Networks generated $225.9 million of cash from operations compared with $159 million in the prior-year quarter. Free cash flow (cash flow from operations less capital expenditures) in the reported quarter was $210.4 million compared with $142.8 million in the year-ago quarter.

At the end of the first quarter of 2011, Scripps Networks had $846 million of cash & marketable securities and $884.4 million of debt outstanding on its balance sheet compared with $598.4 million of cash & marketable securities and $884.4 million of outstanding debt at the end of fiscal 2010. At the end of the reported quarter, the debt-to-capitalization ratio was 0.30 compared with 0.32 at the end of fiscal 2010.

Lifestyle Media Segment

Quarterly total revenue of $473.6 million was an improvement of 10.5% year over year. Among the sub segments, Advertising revenue was $321.8 million, up 12% year over year, Affiliates fee revenue was $144.1 million, up 6% year over year, and Other revenue was $7.7 million, up 42.9% year over year.

Quarterly total expense was $229 million, down 5.5% year over year. Of the total, Programming expense constituted $89.6 million while remaining flat year over year and Non-Programming expense was $139.4 million, up 29% year over year. Total segment profit was $244.6 million, up 31.4% year over year.

Brand wise, HGTV revenue was $171.4 million, up 6% year over year. Total subscriber base is at present 99.8 million, up 0.8% year over year. Food Network revenue was $174 million, up 14.6% year over year. Total subscriber base is 100.4 million, up 0.7% year over year. Travel Channel revenue was $62 million. Total subscriber base was 96 million, up 0.3% year over year.

DIY Network revenue was $23.3 million, up 25.2% year over year. Total subscriber base came in at 54 million, up 1.1% year over year. Cooking Channel revenue was $15.3 million, up 10.8% year over year. Total subscriber base is now 57.5 million, up 0.9% year over year.

Great American Country revenue was $6.5 million, up 0.9% year over year. Total subscriber base is 59.8 million, up 2.8% year over year. SN Digital revenue was $19.4 million, up 7.4% year over year. Other revenue was $2.2 million, up 21.7% year over year.

Interactive Services Segment

Quarterly total revenue of $55.1 million was up 46.6% year over year. Operating expenses were $45.3 million, up 38.3% year over year. However, segment profit was $9.9 million, up by a substantial 102.6% year over year.

Corporate Segment

Quarterly total revenue of $7.3 million was up 125.8% year over year. However, segment loss was $17.4 million, up 9% year over year.

Future Financial Guidance

Management has provided guidance for full year 2011. At the Lifestyle Media segment, total revenue is anticipated to increase by 10%-12%. Programming expenses will likely witness 6%-9% inflation. Non-Programming expenses will be flat to down by 2%. Interactive Services segment profit is expected to be $50 million-$55 million. International operating losses are expected to be $5 million-$10 million.

Capital expenditure will within the range of $60 million-$70 million. The effective tax rate is pegged at 31%-33%. The company sees depreciation & amortization expenses of $90 million to $100 million. Interest expense is anticipated in a narrow band of $33 million-$35 million. Non-controlling share of net income is expected at $160 million to $170 million.

Recommendation

We maintain our long-term Neutral recommendation on Scripps Networks. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.Scripps Network competes with Discovery Communications Inc. (DISCA) among others.

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