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Tribune Media said Friday that it swung to a better-than-expected third-quarter profit, driven by strong political advertising momentum ahead of the midterm elections that shows no sign of slowing down.
Tribune Media CEO Peter Kern told analysts during a morning call that the 2020 presidential campaign, while a long way off, has already made the company’s stations group a potential election ad winner going forward as the political cycle shows no sign of taking a holiday.
During the third quarter, political advertising revenue jumped 90 percent to $42.5 million. “These unprecedented numbers suggest we may be seeing a fundamental shift in spending patterns in this category. Not only have the numbers grown significantly, but we may be seeing the start of an always-on political cycle,” Kern argued.
Political parties and PACs spending record dollars during the recent midterm elections produced record advertising numbers for Tribune in recent financial quarters, compared to the 2014 midterms. And now that 2020 campaign TV ads have already appeared in Iowa, Kern said the next presidential election bodes well for his political ad revenues during the next two years.
“Even in off-cycle years, it’s quite possible we will see increases in political advertising,” Kern predicted.
During the latest quarter, earnings from continuing operations of $54.1 million, or 61 cents per share, compared to a loss from continuing operations of $18.7 million in the third quarter of 2017, or a loss of 21 cents per share. In the latest period, the company recorded an income tax benefit of $24 million, or 27 cents per share, due to tax reform.
Quarterly operating profit came in at $37.1 million, compared with an operating loss of $29.5 million for the third quarter of 2017. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), another profitability metric, rose 14 percent to $136.8 million.
The company highlighted higher operating profits at its television and entertainment units, “driven by an increase in revenues and a decrease in programming expenses primarily due to a lower impairment charge on syndicated programming at WGN America.”
The latest quarter’s results included a $28 million program impairment charge for the syndicated program Elementary at WGN America, compared to an $80 million program impairment charge for Elementary and Person of Interest at WGN America in the third quarter of 2017. The network’s current syndicated shows include Last Man Standing, starring Tim Allen and Nancy Travis.
Third-quarter revenue rose 11 percent to $498 million. Retransmission revenue climbed 12 percent, while carriage fee revenue rose 30 percent.
Also on the TV advertising front, the Supreme Court allowing legal sports gambling should boost air-time revenue for Tribune, Kern predicted. “We expect it to be a big and growing category … but it’s not big enough to sway our numbers right now,” he told analysts.
Sinclair Broadcast Group’s $3.9 billion planned takeover of Tribune Media, which would have created a local TV giant reaching nearly two-thirds of U.S. TV households, was scrapped this summer after a series of developments that cast doubt over the transaction.
Tribune in a statement said that it “has terminated its merger agreement with Sinclair Broadcast Group Inc. and that it has filed a lawsuit in the Delaware Chancery Court against Sinclair for breach of contract.” It added: “The lawsuit seeks compensation for all losses incurred as a result of Sinclair’s material breaches of the merger agreement.”
FCC chairman Ajit Pai earlier this summer cited “serious concerns” about the Sinclair-Tribune deal, with the FCC referring it to an administrative law judge. The FCC particularly criticized so-called “sidecar” deals that would have allowed Sinclair to divest certain TV stations to comply with ownership limits. But they would keep the stations under Sinclair’s control, the agency argued. Meanwhile, class-action lawsuits over the alleged fixing of advertising prices before deal approval added further headaches.
With the Sinclair deal having fallen through, Kern told analysts his company has its eyes on possible deal-making during the current spate of industry consolidation. “We certainly do have an appetite, and have been interested in what’s available on the market. There’s a pipeline of things, small and large, coming down the path. Assume we look at all of that,” he said.
Nov. 9, 9:30 a.m. Updated with comments from Tribune Media analyst call following the release of its financial results.
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