TEGNA (TGNA - Free Report) reported second-quarter 2019 non-GAAP earnings of 35 cents per share, which beat the Zacks Consensus Estimate by 3 cents. However, the figure declined 2.8% on a year-over-year basis.
TEGNA’s adjusted revenues, excluding political advertising and incremental Olympic and Super Bowl revenues, were up 7.1% year over year to $533.7 million.
Advertising and Marketing services (54.3% of revenues) revenues were $289.6 million, up 2.7% on a year-over-year basis. Sluggishness in automotive advertisement was fully offset by growth in the services, banking and media categories.
Subscription (44% of revenues) revenues were $236.2 million, up 12.8% year over year, driven by higher rates.
Political (0.6% of revenues) revenues were $3.2 million, down 87.4% year over year. Other revenues (1.5% of revenues) were $8 million, up 11.3% year over year.
TEGNA Inc. Price, Consensus and EPS Surprise
During the quarter, TEGNA and CBS Corp (CBS - Free Report) inked a multi-year deal that renewed station affiliation agreements for 11 TEGNA markets nationwide, including two top 10 markets — Washington, D.C. and Houston, TX. These 11 markets cover 10% of the U.S. audience and nearly 11 million households.
Non-GAAP adjusted EBITDA declined 1.1% year over year to $178.9 million. Adjusted EBITDA margin was 33.5%, down 280 basis points (bps) year over year.
Non-GAAP operating expenses (73.4% of revenues) were $391.8 million, up 4.1% year over year primarily due to increased programming fees. Operating expenses were partially offset by FCC spectrum repacking reimbursements of $4 million to TEGNA.
Non-GAAP operating income declined 1.8% year over year to $145.2 million. Operating margin contracted 250 bps from the year-ago quarter to 27.2%.
During the quarter, the company inked an agreement to acquire leading TV stations, WTHR and WBNS, and WBNS Radio (1460 AM and 97.1 FM) from the Dispatch Broadcast Group for $535 million in cash.
The deal, structured as a stock purchase, represents 7.9 times estimated average EBITDA for the 2018-2019 period. The transaction is expected to close in third-quarter 2019.
TEGNA expects the transaction to be earnings accretive within a year after close and immediately accretive to free cash flow per share.
Moreover, on Jun 18, the company announced the completion of the previously-announced acquisition of leading 24/7 multicast networks — Justice Network and Quest — from Cooper Media.
Free Cash Flow
Free cash flow at the end of the second quarter was $52 million. As of Jun 30, 2019, total debt was $3 billion and net leverage was 4 times.
Notably, TEGNA suspended share repurchases till the end of 2020 following the announcement of station acquisitions from Nexstar and to reduce debt.
For third-quarter 2019, TEGNA expects GAAP revenues to increase in the low-single-digit range. Non-GAAP revenues (excluding political) are anticipated to grow in the high-single-digit range.
Total non-GAAP operating expenses are anticipated to increase mid-single digits.
For 2019, TEGNA expects subscription revenues to increase mid-teens on a year-over-year basis. Total capital expenditures are anticipated to be $70-$75 million.
Notably, TEGNA now has agreements with Big Four networks that cover almost 99% of its paid subscribers till 2021 and beyond. The company is set to negotiate and reprice approximately 85% of its paid subscriber base during the fourth quarter of this year and the end of 2020. This improves TEGNA’s cash flow growth visibility.
Zacks Rank and Stocks to Consider
Currently, TEGNA has a Zacks Rank #4 (Sell).
Cable One (CABO - Free Report) and Roku (ROKU - Free Report) are some better-ranked stocks in the broader consumer discretionary sector. Both have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Both Cable One and Roku are set to release quarterly results on Aug 7.
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