Lamar 3Q Impressive Y/Y, Lags Est.

Lamar Advertising Company ( LAMR - Analyst Report ) reported its financial results for the third quarter 2012 on November 7. Earnings per share stood at 12 cents compared with 4 cents earned in the year-ago quarter. Third quarter results; however, failed to meet the Zacks Consensus Estimate of 14 cents per share.

Revenue

Pro forma net revenue jumped 2.0% year over year to $306.3 million in the quarter and registered a reported growth of 3.2%. The results were slightly above management’s revenue guidance range of $303-$306 million and pro forma growth forecast of 1% to 2%.

Income/Expenses

Direct advertising and G&A expenses in the quarter were $154.0 million, down 0.7% year over year on a pro forma basis. As reported, operating income modestly increased 14.6% year over year to $63.5 million.

Interest expense dipped 9.4% year over year to $38.5 million in the quarter due to a lower debt level. Adjusted EBITDA stood at $140.6 million, up roughly 6.0% year over year.

Balance Sheet

Exiting the third quarter, Lamar Advertising’s cash and cash equivalents plummeted from $98.9 million in the previous quarter to $38.4 million in the third quarter. Total debt, including current maturities also went down to $2,075.6 million from $2,189.7 million in the previous quarter.

Cash Flow

In the third quarter 2012, cash flow from operating activities was approximately $119.3 million, up 6.3% year over year. Capital spending totaled $28.2 million, slightly below $28.5 million expended a year-ago. Of the total spending in the quarter, roughly 64.5% was invested in upgrading the company’s billboards business while the rest was spent for logo, transit, land and buildings, and operating equipment businesses.

Free cash flow was $77.7 million, up from $66.0 million in the year-ago quarter.

Outlook

For the fourth quarter of 2012, management expects net revenue to be within the $298-$301 million range and up roughly 2% to 3% on a pro forma basis. This guidance excludes possible revenue contribution from the acquisition of NextMedia Outdoor Inc. by Lamar media Corp.

Lamar Advertising Company is one of the largest owners and operators of outdoor advertising structures in the U.S. It provides advertising services to restaurants, retailers, automotive, real estate, health care, gaming, service, hotel and motel, telecommunication, and amusement industries, including entertainments and sports. However, the company should remain wary of stiff competition from Clear Channel Outdoor Holdings Inc. ( CCO - Snapshot Report ) that recently reported earnings per share of 5 cents, much above the Zacks Consensus Estimate of a loss per share of 4 cents.

We currently maintain a neutral recommendation on Lamar. The stock also bears a Zacks #3 Rank, implying a short-term Hold rating.