Ad Slump Knocks Hearst-Argyle Earnings

Hearst-Argyle Television reported a 17% drop in per-share earnings and revenue slipping 5.6% in the second quarter, citing weak local advertising and softness at its bigger TV stations.

In a Friday-morning conference call with analysts after earnings were released, Hearst-Argyle brass said its NBC-affiliated stations were still waiting for word on the fate of their NBC Weather Plus venture with NBC Universal, adding that local Olympic Games ads on those stations are showing some weakness.

With NBCU leading a pending buyout of The Weather Channel, its allegiance to its existing local weather venture with affiliates isn’t clear. Hearst-Argyle president and CEO David Barrett told analysts, “We don’t know what they are going to advance to the affiliates.”

On another topic, Barrett said, “The Olympics are a little bit softer than I thought would have been the case. I think we are going to end up in the same zone that were in for the winter Olympics in ‘06 for Torino ... We’ve got some more inventory to sell at the moment, as I believe the network does.”

Barrett said he thinks the Olympics will get some late-breaking political ads and predicted that good ratings would trigger a late ad buying surge. “I think if the Olympics open big and there are initial strong ratings for the Olympics broadcast, I suspect we will write a little bit of business in the ensuing 18-plus days, plus next week. So we still have about 25 days.”

He also told analysts Hearst-Argyle concluded a new retransmission-consent deal with Dish Network, which accounts for more than 2 million of the company’s 16 million households. Hearst-Argyle’s deal with Comcast, covering 7.8 million households, expires this November and talks about a new deal will start soon.

The group TV broadcaster Friday posted earnings of 15 cents per diluted share versus 18 cents in same three-month period a year earlier. Revenue slipped to $182.1 million from $193 million. Net income tumbled 17% to $14.1 million for the quarter ended June 30.

Excluding political advertising, TV advertising fell 10% in the quarter.

The Hearst-Argyle earnings continued a second-quarter trend of poor local advertising posted by most group broadcasters, although Fisher Communications -- with a footprint in the Northwest and far West -- was an exception.

The second half of a presidential-election year is always forecast to be the strongest, with political ads leading up the November election, which has TV stations hoping for outsized gains in their next two quarters.

Hearst-Argyle cited “continued softness in automotive advertising, our largest category, as well as decreases in the retail, consumer packaged goods, telecommunications, furniture, movies, restaurant and health-services categories; [these were] offset by gains in the home-improvement, utilities, pharmaceutical and agriculture categories, among others.”

Retransmission-consent revenue jumped 26% to $6.8 million in the second quarter. The company has a strong hand because its 81% owner Hearst also has basic-cable networks that give it clout in carriage-deal negotiations.

Hearst-Argyle said net political advertising achieved “a $3.6 million increase” to $8.5 million in the quarter. Net digital-media revenue climbed 13% to $5.7 million.

“While a number of our midsized stations in less volatile Midwest markets are performing well, our larger stations in New England, Florida and California are particularly challenged,” Barrett said in a statement.

The company owns 26 TV stations and manages another three, which are mostly ABC and NBC affiliates.

“We’ve expectedly benefited from political spending, both for the presidential race and for specific state races, but reduced budgets from key ad categories and negative pricing pressure have caused overall ad revenues to decline in the period, adversely impacting net income,” Barrett added. “We continue to be very pleased with the competitive performance of many of our stations and with the excellence of our local news efforts.”

He concluded: “Our focus on cost containment and reductions in capital spending enable us to continue generating strong free cash flow. On a trailing 12-month basis, the company has reduced debt by $114 million, further strengthening our already strong balance sheet, while still supporting strategic investment in sales-development efforts and digital-media initiatives.”