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Scripps Networks' Earnings Rise on Ad Sales Gains

Updated 3:45 p.m. ET

Scripps Networks Interactive said its fourth-quarter profits rose on double-digit ad revenue increases at its cable networks.

The company, which runs Food Network and HGTV, said it planned big increases in both programming and non-programming expenses in 2012.

In the fourth quarter, Scripps said net income rose 3.4% to $135 million, or 84 cents a share, from $130.6 million, or 77 cents a share, a year ago.

Revenues rose 10% to $553 million. Advertising revenues rose 11% to $394 million and affiliate fee revenue gained 5.7% to $147 million.  Food Network, DIY Network and Cooking Channel recorded big revenue gains in the quarter, while Travel Channel and GAC declined.

"The high level of engagement our focused lifestyle networks have created with media consumers, and the value our television and interactive brands deliver to advertisers as preferred marketing platforms, is reflected in the company's strong fourth-quarter operating results," Ken Lowe, chairman, president and CEO said in a statement. "Our consistent track record of double-digit revenue and segment profit growth continued during the three-month period, and contributed to a very good 2011."

For 2012, Scripps Networks Interactive said it expects revenue to increase 8% to 10%, programming expenses to increase 13% to 15% to help drive increased viewership and non-programming expenses to increase 10% to 12%. This includes investments in marketing, as well as international, interactive and digital businesses.

The increases in both programming, which began in the second half of 2011, and non-programming expenses caused concerns among analysts on the company's earnings conference call.

"As many of you have noted, our programming spend, as seen on the cash flow statement, was up about 33% for the full year," said CFO Joe NeCastro during the call. "We increased the number of new program launches starting in December 2011...These new shows helped drive the higher programming expense in the third and fourth quarters of 2011. That accelerated level of program amortization will continue through the first half of 2012, reflecting the investment we made in order to maintain and build on our competitive advantage."

The increase in program spending is expected to drop off in the second half of the year, he said.

John Lansing, president of Scripps Networks, said that there were three programming priorities. "The number one priority for us is to invest in Travel because the payoff for improved ratings on Travel is significant," he said. In addition to incremental ad revenue for higher ratings, Travel Channel has several affiliate deals that are about to be renewed. Higher viewership might translate into higher subscriber fees.

Lansing said the second priority is to continue to pump new programming into the company's top networks, Food and HGTV. Finally, he said a small amount of the investment is going toward developing lifestyle/country programming for GAC.

Lowe told analysts that the increased spending shouldn't prevent the company from returning capital to shareholders in the form of dividends and stock buybacks.

Scripps Networks reported significantly higher ad gains than most other cable programming groups so far this quarter.

"Our networks benefited from the strong of the ad marketplace with fourth quarter," said NeCastro. He said scatter prices were up in the high-sing to low double digit range over the year ago scatter prices, and up in the high teens to low 20s when compared to the broadcast upfront.

"In the first quarter of 2012, scatter versus scatter pricing is running up in the mid-single digits and scatter to 2011 broadcast [upfront] is up in the mid teens. The general tone among advertisers continues to be very positive," NeCastro said.

Lansing added that there is demand in the marketplace, and that there's "unusually good demand" in the digital marketplace, particularly for online video.

"Another positive sign for 2012 was the development of a calendar marketplace. Of course, because we sold a little bit more inventory into the broadcast upfront to take advantage of the strong pricing, we sold a little less in the calendar market," he added. "As for advertising categories, our Top 5 were food, retail, consumer packaged goods, auto and financial, and they've been pretty consistent all year long. Based on these current trends, we're pretty optimistic about advertising in 2012."

But NeCastro said that ad growth in 2012 was likely to be uneven. "In the first quarter, the growth rate was likely to be below the company's yearly average," he said, adding, "We expect ad growth rates in the second and third quarters to trend above the average."

Scripps ad revenue is usually strongest in the second and fourth quarters, NeCastro said. Lansing added that the company sees the economy improving by the second quarter, especially the housing segment. "We think we'll benefit from that, Lansing said.

As for the non-programming expenses, NeCastro said they include marketing expenses, plus investments in starting new businesses both internationally and domestically. He said the spending would be in the $30 million range, and was unlikely to recur next year.

Scripps breaks out revenue on a network by network basis. For the fourth quarter, it said that Food Network revenues were $204 million, up 15%; HGTV revenues rose 8.1% to $191 million, Travel Channel revenues were down 1.4% to 67.2 million; DIY Network revenues jumped 18% to $26.9 million; Cooking Channel revenues increased 14% to $17.8 million and revenues at Great American Country dove 15%.

Lansing noted that some of Scripps' smaller networks showed growth in distribution during the last month. DIY added 5% and is now in more than 62 million homes. GAC is up 4% to about 60 million homes and Cooking is up 1% to 60 million homes as well.

The company's lifestyle media digital businesses, including network branded web sites, had revenue of $30.4 million, up 4.1%.