Stox continue to suffer broad declines

NEW YORK — Radio and TV companies, the high-fliers among media stocks for most of the past couple of years, are suddenly the lepers of Wall Street, at least within the showbiz sector.

Broadcasters such as Chancellor Media, Young Broadcasting and Granite Broadcasting have lost as much as two-thirds of their value in the past two months while such high-profile names as CBS Corp. have dropped close to 40%.

The devastation continued Tuesday, amid extremely volatile trading across the entire market, as worries about an advertising slowdown and the heavy debt loads carried by many of the broadcasters spread.

Granite Broadcasting fell 20% Tuesday to $4.87 after credit agency Standard & Poors downgraded its outlook on the company to negative from stable, highlighting “concerns over the company’s high financial risk” as a result of acquisitions and the ongoing pressures of carrying a lot of expensive debt “in a slower growth advertising environment.”

Granite stock is down 64% from its high for the year. Company execs were unavailable for comment.

CBS, Chancellor slide

Most other broadcasting stocks fell as well despite a 16.74 point increase in the Dow Jones Industrial Average to 7742.98. CBS fell 44 cents to $22.81, Chancellor dropped $2.12 to $26.06, Young Broadcasting fell $1 to $25.25 and Sinclair Broadcasting fell $1 to $10.62.

Two months ago Chancellor was trading around $57, Sinclair was around $30, while CBS was $36 and Young was as high as $70.

Broadcasters are being hit by the same correction that has leveled the stock prices of Wall Street firms and technology stocks, of course, as well as smaller companies in every industry.

“This is the kind of market where portfolio managers take a list of their portfolio and tell the traders to sell 25% of every position by the end of the day,” said Sal Muoio, principal of SM Investors.

Weak wobble

Worst hit are companies where there is any reason to worry, such as those in industries exposed to the economy or showing any signs of weakness in earnings or elsewhere.

News Corp., for instance, fell $1.75 Tuesday to $21 after revealing Monday that its forthcoming offering of Fox Entertainment Group would be smaller than previously thought.

Instead of selling 20% of Fox, it will sell only 13% to raise between $2 billion and $3 billion. The reduction is thought to reflect the view that it is better to sell a smaller proportion given lower prices, allowing further sale when prices improve. News, whose stock is down 38% from its high for the year, declined comment.

Metro-Goldwyn-Mayer, which went public in November at $21, closed down 56 cents to a new low of $10.62 Tuesday. MGM, which is 90% owned by Kirk Kerkorian, is due to finalize terms of a $500 million stock rights offering later this week, but every day the deal is delayed increases the amount of stock that will have to be issued to raise $500 million, as the stock is falling daily.

On the bright side, Time Warner closed Tuesday at $85.50, down barely 15% from its high in July. Viacom rose 75 cents to $56.43, down 19% from its high in July. Both have held up relatively well because their earnings prospects and balance sheets are believed to be good, analysts said.

In contrast, the broadcasters have been hit by worries that a slowing economy will hurt advertising revenues, a particular danger for many radio and TV companies carrying heavy debt loads resulting from the acquisition binge of the past few years.

“Over the past couple of months, as concern over 1999 economic growth prospects has escalated, companies with high levels of financial leverage have been disproportionately punished by the market,” said Schroder & Co. analyst Niraj Gupta in a recent report on the sector.

Chancellor, for instance, has $2.4 billion in debt, almost eight times its annual cash flow (earnings before interest, taxes, depreciation and amortization,).

Parallels to 1990

Wall Streeters say the current problems raise parallels to the 1990 slump in the broadcast sector, when many companies with high debt loads ran into serious financial problems.

Emmis Broadcasting chief financial officer Howard Schrott downplays the parallels to that period, arguing that in 1990 companies had debt to cash flow ratios as high as 13-14, much higher than now. Schrott said interest rates are a lot lower today, which makes debt much easier to service.

Observers also note that worries about economic prospects are overdone. “Over the past 38 years, advertising has declined only twice (1961 and 1991),” Gupta said.

“Radio has been recession resistant,” Schrott agreed, adding that Emmis is seeing no signs of slowdown in its current business performance.

Another analyst, who declined to be identified, was not so bullish. “There are indications national spot (commercials bought station by station instead of through a network) is getting weaker in the fourth quarter.

“You would think with GM coming and political spending the way it is that the fourth quarter would be going gangbusters. But it’s not,” the analyst added.

(Richard Morgan contributed to this report.)

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