Scripps Networks: New Mojo From Old Media

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In 2013, The New York Times Co. (NYT) — corporate owner of the great and powerful “Gray Lady” — sold The Boston Globe to Red Sox owner and hedge fund impresario John Henry for the low, low price of $70 million. (The NYT had purchased The Globe in 1993, for an eye-popping $1.1 billion.)

A few days later, The Washington Post Co. (WPO), controlled by the storied Graham family, shocked the Beltway crowd by unloading its flagship newspaper The Washington Post for a meager $250 million to Jeff Bezos, visionary founder and CEO of e-commerce giant Amazon (AMZN).

scripps network interactive 185The twin sales of The Globe and The Post are vivid (and rather tragic) case studies of how even the smartest, most experienced executives in the media world are losing sleep at night, trying to find a way to make profits in an era where information is increasingly available for free online.

But these media Masters of the Universe could learn a thing or two from Scripps Networks Interactive (SNI). This company is an exemplar of how to do it right. The stock is a now great long-term investment in a publishing and media environment completely transformed by the 24/7 immediacy of social media, smartphones and niche television.

Scripps Networks is the spawn of a 1994 spin-off from E. W. Scripps Co. (SSP), a 135-year-old media company built around newspapers and televisions stations. After the spin off, Scripps Networks focused on the emerging trend toward “lifestyle” niches, developing content for television, Internet satellite radio, mobile and social media platforms, as well as books and magazines that serve as ancillary and complementary products for its other media.

Scripps Networks shrewdly foresaw the “nichifying” of media and unveiled a myriad of lifestyle channels that are highly popular, including the Home and Garden Channel (HGTV), the Food Network, Cooking Channel, Do-it-Yourself (DIY) Network, Travel Channel and Great American Country (GAC).

As an affluent middle class rises in emerging markets, especially in Asia, Scripps Networks is launching new channels aimed at these viewers who are eager to emulate the “good life” that they see in the West. In the meantime, an accelerating global economic recovery is fueling advertising growth.

For the second quarter, Scripps Networks reported higher revenue but slightly lower profits. Investors were disappointed but there’s a more sanguine (and accurate) way to interpret the company’s second-quarter operating results. The higher revenue reflects the soundness of the company’s business model, combined with the recovery in advertising. The dip in income reflects the company’s investment in future growth.

Scripps Networks’ consolidated revenue hit $708 million in the second quarter, an increase of 6.5% compared to the same period a year ago. Advertising revenue reached $497 million, a year-over-year increase of 7.6%, and affiliate fee revenue was $198 million, up 4.5% compared with the same year-ago period.

Second-quarter earnings were $153.8 million, down from $159.7 million in the year-ago period. Operating profit declined 2.1% to $283.5 million. The culprit behind the lower earnings: General overhead (in the form of services, selling, and administrative expenses) for the quarter increased 13%, largely as a result of higher marketing expenses at the company’s lifestyle TV networks. Also adding to the higher expenses was the company’s expansion overseas. These expenses will pay off over the long run.

Meanwhile, Scripps is returning value to shareholders through an aggressive share repurchase program. For the quarter ended June 30, the company repurchased 4 million shares for an aggregate purchase price of $300 million, with $1.1 billion remaining in the company’s repurchase program.

And yet, this innovative powerhouse is underestimated by the investment herd, which tends to focus on the better-known brand names in media. Scripps Networks’ stock trades at a 12-month trailing price-to-earnings (P/E) ratio of only 21.6, compared to the P/E of 40.1 for its peers in the broadcasting industry. As the “newsosaurs” flounder in the La Brea tar pits of old media, Scripps Networks Interactive is a lesson in business evolution.

As of this writing, John Persinos did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/10/scripps-network-sni-stock/.

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