Sector hit as b'caster looks at lower revs
NEW YORK — Shares of Sinclair Broadcast Group plummeted Wednesday as investors bailed at warnings of lower-than-expected cash flow and revenue.The stock dropped nearly 29% to $10.50, pulling several other station owners like Young, Hearst-Argyle and Granite Broadcasting along for the ride. Young fell more than 10%, Granite closed down 5.5% and Hearst Argyle dipped 4.3% — still modest declines compared with Sinclair’s freefall. Analysts at Goldman Sachs, Merrill Lynch and Morgan Stanley Dean Witter downgraded the company, although some called the badly battered stock a buying opportunity. Morgan Stanley Dean Witter’s Frank Bodenchak recommended piling onto Sinclair if the stock slips below $10 a share. After all, Sinclair owns or operates 59 TV stations, which are valuable assets despite some big problems that Sinclair execs outlined late Tuesday in a conference call that jolted Wall Street. More than half its stations are affiliates of the WB or the Fox network, which Niraj Gupta of Schroder & Co. called “the best-positioned demographic plays in English-language broadcasting.” Shares of Tribune, which owns a number of WB affiliates, rose Wednesday. Fox Entertainment stock was only off .5%. But Baltimore-based Sinclair faces troubles uniquely of its own making that will squeeze margins and reduce cash flow and revenue for at least the rest of the year. Sinclair execs described a sluggish market for national advertising, which impacts all broadcasters. But they also acknowledged grave missteps in spending too little on programming, marketing and promotion in the first half and said they need to invest heavily going forward. “Expenses are going up while revenue is flattening out,” said William Myers of BancBoston Robertson Stephens. “The reality is that revenue was soft in the first half, so to mitigate the damage they really restrained their spending.” But, he said, Sinclair cut too much, risking future growth, and has to play catch-up now. Meanwhile, he said, groups like “Hearst-Argyle was spending, (A.H.) Belo was spending. Those companies are better positioned, always planning for the future.” National advertising has been slow for two years now, Myers said, and there doesn’t appear to be any significant boost in the wings from millennium-related spending, as had been previously hoped. That’s why Sinclair plans to follow other broadcasters in focusing on local advertising. The company said Tuesday it’s targeting 75% local ads in seven years. “That’s not a novel approach,” Myers said, noting that Emmis Broadcasting’s TV group is already close to 60% local. Sinclair said Tuesday that higher spending means revenue will only grow 3% and 1%-2% for the third and fourth quarter, respectively — below estimates of about 6% and 4%. Broadcast cash flow will decline by, respectively, 1% and 11%.
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