Univision Targets $125 Million in Cost Cuts as Pandemic Hits Advertising

Courtesy of Univision Communications
Univision Communications CEO Vincent Sadusky

The Spanish-language media giant posted an 8 percent revenue gain for the first quarter driven by carriage and licensing business gains, but an 8 percent core ad drop, with the second quarter to "materially weaken."

Spanish-language media giant Univision Communications, which earlier this year agreed to sell a majority stake to an investor group led by former Viacom CFO Wade Davis, on Friday reported lower first-quarter earnings despite an 8 percent revenue gain as carriage and licensing fee gains outweighed the early negative hit from the novel coronavirus pandemic on advertising.

The company said it is targeting $125 million in cost reductions as it predicted a bigger ad impact in the current second quarter.

"COVID-19 has, and will continue, to impact the company, due to, among other things, the negative impact on advertising trends and its advertising revenue, suspension of sporting events and curtailment or suspension of other programming production that the company has broadcast rights to, reductions or delays in the production of programming by the company’s partners, and general COVID-19-related disruptions to the company’s business and operations," the company said.

Addressing the second quarter, Univision said it "anticipates advertising will materially weaken from the first quarter due to further postponement of live sports and lower demand from advertisers adversely impacted by the health crisis."

Beginning in April, Univision said it "initiated a number of actions expected to deliver an estimated $125 million of cost reductions when compared to 2019 total annual direct operating expenses (other than variable program license fees), which will result in an anticipated restructuring charge of approximately $15 million in the second quarter and possible other restructuring charges throughout the remainder of 2020."

While the company said it has "significant sources of cash and liquidity and access to its senior secured credit facilities," it also warned that "a prolonged period of generating lower cash from operations could adversely affect the company’s financial condition and the achievement of its strategic objectives."

The advertising fallout from the pandemic is also having another effect, with Univision highlighting "increased impairment reviews for the company’s goodwill, intangible assets, including FCC licenses and other long-term assets." Based on an ongoing review of market conditions, it said it recorded an impairment of $75.1 million "related to certain radio broadcast licenses and other intangibles" in the first quarter, adding that further impairments "may be required in future periods."

Univision's first-quarter earnings fell to $11.7 million, compared with a year-ago profit of $24.5 million, while earnings from continuing operations dropped to $11.7 million from $36.9 million. Quarterly adjusted operating income before depreciation and amortization (OIBDA), another profitability metric, rose 23 percent to $251.1 million though.

First-quarter revenue rose 8 percent to $660.4 million, with its media networks unit up 9 percent, as gains in non-advertising businesses outweighed a 2 percent advertising decline, or an 8 percent drop in core advertising, adjusted for political ads. "The [advertising] decrease was primarily due to declines in our networks and local television businesses due to live sports cancellations and lower volume commitments in March due to COVID-19, partially offset by an increase due to improvement in our ratings and price increases," the company said. 

Media networks unit non-advertising revenue, including carriage fees and content licensing, jumped 20 percent to $273.6 million in the latest period, driven by higher subscriber fee revenue.

Quarterly direct operating expenses related to programming, excluding variable program license fees, decreased 17 percent to $124.3 million.

Said Univision CEO Vincent Sadusky: "Our news and entertainment content is experiencing high demand and our service continues uninterrupted at a time when our community depends on us the most. ... Prior to the crisis, we achieved continued ratings momentum in the important February sweeps period, where we not only expanded our share lead over competitors, but with an 18 percent portfolio ratings growth we also ranked as the fastest-growing portfolio of networks in the country, regardless of language. This momentum has continued through the crisis driven by our strong news and entertainment content."