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Scripps Networks (SNI) Down 5% Since Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Scripps Networks Interactive, Inc . Shares have lost about 5% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Fourth quarter 2016 earnings

Scripps Networks'  earnings (excluding special items) of $1.02 per share fell short of the Zacks Consensus Estimate of $1.05. Also, the bottom line declined 24.4% on a year-over-year basis, due to higher costs.

The company’s fourth-quarter operating revenues of $888.7 million beat the Zacks Consensus Estimate of $881.2 million. Revenues were up 4.3% on a year-over-year basis. Strong TV advertising revenues in the U.S. boosted the top line.

While, on one hand Fourth-quarter consolidated segment profits (on an adjusted basis) totaled $340.5 million, up 3% year over year. On the other hand, quarterly operating income (on a reported basis) declined 17.2% year over year to $227.75 million.

At the end of 2016, Scripps Networks had $122.93 million in cash & cash equivalents and $2,952 million of outstanding debt (less current portion) on its balance sheet compared with $223.4 million and $3,511.1 million, respectively, at the end of 2015. Moreover, the debt-to-capitalization ratio was approximately 0.57%.

Although concerned about the company’s high debt levels, we remain positive about its expansion efforts. Scripps Networks’ accord with AT&T in the third quarter of 2016 deserves a mention. In fact, the deal with Tribune Media Company in the fourth quarter also seems to be encouraging. In addition, free cash flow at the end of 2016 was almost $716.7 million compared with $571 million at the end of 2015.

Segmental Performance

U.S.Networks

Quarterly revenues came in at $730.6 million, up 4.1% year over year. Advertisement revenues also climbed 9.4% year over year to $523.3 million. This impressive growth in segmental advertising revenues reflected the growing demand for the company’s lifestyle offerings in the advertising market as well as  overall ratings improvement in the quarter. However, distribution revenues dipped 3.1% year over year to $193.4 million, due to erosion in subscriber base among other factors.

While other revenues declined significantly year over year to $13.9 million, segmental (adjusted) profits came in at $328.6 million, up 4.8% year over year owing to higher revenues.

Revenues of brands like HGTV, Food Network, Travel Channel, Cooking Channel, Digital Business and other revenues improved 7.6%, 5.6%, 0.9%, 4% and 3.6% year over year, respectively. Nonetheless, DIY Network, other revenues and Great American Country revenues dropped 1.4%, 36.4% and 8.5%, respectively, year over year.

International Networks

Quarterly total revenue of $165.4 million was up 1.5%, owing to the inclusion of TVN results, while segmental adjusted profits totaled $40.9 million, up 2.3% on the back of higher revenues.

Conversely, loss (adjusted) from the Corporate and Other segment widened to $29 million from $24 million a year ago.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter.

VGM Scores

At this time, Scripps Networks' stock has a poor Growth Score of 'F', however its Momentum is doing a bit better with a 'D'. However, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of' D'. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value based on our styles scores.

Outlook

While estimates have been trending upward for the stock, the magnitude of these revisions indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.

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