AMC Networks Stock Falls Sharply as Fourth-Quarter Earnings Decline
UPDATED: CEO Josh Sapan discusses such shows as "The Walking Dead" and "The Killing" and touts upside for the "undernourished" Sundance Channel.
AMC Networks, led by CEO Josh Sapan, on Tuesday reported lower fourth-quarter earnings that fell short of Wall Street estimates, dragging down the company's stock as much as 11 percent.
The owner of such cable networks as The Walking Dead home AMC, IFC, Sundance Channel and WE tv posted earnings from continuing operations of $15 million, compared with $29 million in the year-ago period. Operating profit rose 2 percent, but operating expenses rose, and loan-repayment costs also dragged down the bottom line on a net basis.
Quarterly revenue rose 8.2 percent to $367 million from $339 million as growth at U.S. networks offset a slight international decline and the lack of Dish carriage for part of the quarter. Advertising revenue was up 16 percent to $157 million.
Wall Street analysts had on average predicted earnings to grow to $47.4 million and revenue to hit $370 million.
As of 12:30pm ET, shares of AMC Networks were down 7.7 percent at $53.60 after earlier falling more than 11 percent to $51.61.
Sapan on Tuesday touted the return of key AMC shows this year, including The Killing - without detailing a likely return date - and Walking Dead, and the second-half 2013 debut of police drama Low Winter Sun. Production on The Killing started this week.
One analyst on Tuesday asked Sapan during the company's earnings conference call about recent reports that AMC shows could end up airing on other networks owned by the firm. Sapan didn't provide details, but said that "if there is an economic, strategic and programming benefit," the company may preview series on other networks - to increase sampling by viewers and boost ratings for the main channel - or let them become the post-premiere home for the series. The company is looking at these options, Sapan said, adding that "if we own the rights, we can advantage ourselves across different channels."
In that context, Sundance Channel on Monday announced it will air AMC hit show Breaking Bad in syndication.
Sapan also called the Sundance Channel a network that can benefit from content investment, highlighting its upside potential from new original programming this year. He called the channel "undernourished" and "rich in opportunities." In addition to the network's first owned scripted series Rectify, which will debut in April, it will also air at least a second original series this year, Sapan said.
The CEO also said that AMC is looking at possible new online distribution opportunities that would offer shows directly to consumers. “Think iTunes,” Sapan said without providing any further details.
AMC Networks on Tuesday also detailed the effect of its recent legal settlement and new carriage deal with Dish Network, saying that the latter's terms will fall short of its fair value estimates over the near-term.
Full-year 2012 revenue rose 13.9 percent, while profit climbed from $126.5 million to $136.5 million. But the IFC Films unit had difficult comparisons in 2012.
"2012 was a successful year for AMC Networks," said Sapan. "Our continued strategy of investing in original programming while developing strong brands with consumers resulted in record ratings, most notably for AMC's ratings juggernaut The Walking Dead. We resolved our legal dispute with Dish Network, completed new carriage agreements with a number of leading distributors and expanded our relationships with key advertisers."
He added that all these moves give the company "confidence that we are well-positioned for continued success in the year ahead."
AMC Networks said that affiliate fees payable by Dish from the effective date of their new affiliation agreement of Oct. 21 through the end of 2013 will come in below the company's fair value estimate by approximately $31 million. The affiliate fees that Dish will pay over the remaining term of the agreement "represent fair value," it added.
AMC Networks also reiterated that it hasn't determined together with former parent company Cablevision Systems how to split up a $700 million settlement payment by Dish in the companies' Voom HD litigation. "Pending a determination of the allocation of the settlement proceeds, $350 million of the cash proceeds was distributed to each of Cablevision and the company," AMC Networks said. "The final amount to be allocated to the company is yet to be determined and may be significantly less than $350 million."
On a conference call, Sapan said AMC Networks would have reported "healthy double-digit" percentage growth in adjusted operating cash flow for the fourth quarter and 2012 if its channels hadn't been off Dish.
Sapan also described his company's international business as a longer-term growth opportunity, saying that territories tend to turn profitable about five years after their launch. That means that Canada is profitable, while AMC's Asia business remains in investment mode.