ITV Quarterly Ad Revenue Drops 7 Percent Amid Brexit Uncertainty

Carolyn McCall Chief Executive Officer easyJet Airline - Getty - H 2018
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The stock of the U.K. TV giant, led by new CEO Carolyn McCall, declines as an analyst downgrades it, saying "we do not see a material improvement in conditions any time soon."

U.K. TV giant ITV, led by new CEO Carolyn McCall, on Wednesday reported a first-quarter revenue drop of 4 percent driven by a 7 percent advertising decline amid continued Brexit uncertainty.

Quarterly revenue dipped to 743 million pounds ($969 million) as production arm ITV Studios grew revenue 1 percent to 385 million pounds ($502 million), but total advertising revenue, including TV, online and sponsorships, fell sharply, as the company had forecast. Management cited a "decline in spot advertising impacted by the timing of Easter and economic and political uncertainty," the latter of which is a reference to Brexit that ITV has cited repeatedly as affecting ad spending.

The company added that advertising revenue is expected to be down 6 percent over the first half of the year. ITV's stock was down 3.5 percent as of 9:30 a.m. London time.

Liberum Capital analyst Ian Whittaker, following the financial update, downgraded his rating on ITV's shares from "buy" to "hold," because "we do not see a material improvement in conditions any time soon." He added: "There are many things to be positive about ITV, especially on its viewing performance, and the shares are undoubtedly cheap, but, with an uncertain political environment and a continuing pattern of downgrades, it is hard to push a 'buy' case now."

"We have an exciting schedule for the remainder of the year, including Wild Bill, Beecham House, A Confession, the Rugby World Cup and the return of Love Island," McCall said in looking ahead. "We remain confident that we will deliver good organic revenue growth in ITV Studios over the full year and have already secured over 120 million pounds ($156 million) more revenue for 2019 than at the same time last year."

Added ITV: "As we guided, the first half of the year will be impacted by the continuing economic and political uncertainty and its effect on the demand for advertising; the absence of the [soccer] World Cup; the planned essential investments; the pre-launch costs of BritBox; and the timing of ITV Studios deliveries.," ITV said. "Over the full year we continue to expect to deliver double-digit growth in online revenue and good organic revenue growth in ITV Studios."

ITV and the BBC earlier in the year announced that they were in the final stages of talks to bring their BritBox subscription VOD service from North America to the U.K. The goal is to launch the service, offering "an unrivaled collection of British boxsets and original series," in the second half of the year, which ITV on Wednesday said was still on track. While the partners haven't confirmed pricing plans, they have said that "it will be competitive."

They have also said that additional partners could join the collaboration as British TV and other companies have been looking to take on Netflix's dominant position in the streaming space.