Financial Release

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Scripps Networks Interactive, Inc. reports second quarter 2017 preliminary results

KNOXVILLE, Tenn., July 31, 2017 (GLOBE NEWSWIRE) -- Scripps Networks Interactive, Inc. (Nasdaq:SNI) today reported second quarter 2017 preliminary results through income from operations before income taxes. The company will be reporting final results, including, taxes, net income and earnings per share in its 10-Q filing at a later date.

Second Quarter 2017 Preliminary Consolidated Results
Consolidated operating revenues for the second quarter of 2017 were $925.0 million, an increase of 3.6% over the prior year period. Advertising revenues were $663.0 million, an increase of 2.5%, and distribution revenues were $239.7 million, an increase of 7.3% over the prior year period.

Consolidated income from operations before income taxes in the second quarter 2017 was $400.8 million, an increase of 20.8% compared with the prior year period. The increase was primarily driven by an increase in foreign currency transaction gains and a decrease in interest expense compared with the prior year quarter, along with a loss on the sale of investments in the second quarter of 2016. Consolidated adjusted segment profit(1) was $412.8 million, a decrease of 1.6%, compared with the prior year quarter. The decrease was primarily due to the expected increase in programming and selling, general and administrative costs compared with the prior year period. These expenditures were partially offset by the growth in operating revenues in the quarter.

SCRIPPS NETWORKS INTERACTIVE, INC.
PRELIMINARY CONSOLIDATED SELECTED FINANCIAL INFORMATION (UNAUDITED)
(in thousands) 
 
  Three months ended June 30,   Six months ended June 30,  
  2017   2016   % Change
Fav /
(Unfav)
  2017   2016   % Change
Fav /
(Unfav)
 
Operating revenues:                                    
Advertising $ 663,034   $ 646,648     2.5 % $ 1,259,749   $ 1,218,503     3.4 %
Distribution   239,685     223,446     7.3 %   478,065     451,514     5.9 %
Other   22,327     22,677     (1.5 )%   42,352     39,632     6.9 %
Total operating revenues   925,046     892,771     3.6 %   1,780,166     1,709,649     4.1 %
Operating expenses:                                    
Cost of services, excluding depreciation and amortization   299,851     286,999     (4.5 )%   578,890     566,666     (2.2 )%
Selling, general and administrative   212,397     191,133     (11.1 )%   419,767     389,954     (7.6 )%
Depreciation   13,660     16,089     15.1 %   28,620     33,386     14.3 %
Amortization   25,058     25,654     2.3 %   49,255     56,716     13.2 %
Total operating expenses   550,966     519,875     (6.0 )%   1,076,532     1,046,722     (2.8 )%
Operating income   374,080     372,896     0.3 %   703,634     662,927     6.1 %
Interest expense, net   (24,203 )   (33,175 )   27.0 %   (48,455 )   (66,920 )   27.6 %
Equity in earnings of affiliates   20,973     21,712     (3.4 )%   41,422     47,390     (12.6 )%
(Loss) gain on derivatives   (3,672 )   8,267     (144.4 )%   (6,008 )   11,033     (154.5 )%
Gain (loss) on sale of investments   1,416     (16,373 )   108.6 %   1,416     191,824     (99.3 )%
Miscellaneous, net   32,181     (21,672 )   248.5 %   59,721     (15,606 )   482.7 %
Income from operations before income taxes  $ 400,775   $ 331,655     20.8 %  $ 751,730    $ 830,648     (9.5 )%

Second Quarter 2017 Preliminary Segment Results
U.S. Networks’ operating revenues for the second quarter of 2017 were $779.0 million, an increase of 3.6% compared with the prior year quarter. Advertising revenues were $552.7 million, an increase of 2.2%. This improvement reflects the continued strength in pricing in the U.S. advertising market for our lifestyle brands, partially offset by a decline in impressions delivered and advertising inventory mix shifts in the quarter. U.S. Networks’ distribution revenues increased by 8.1% to $211.9 million. This increase was driven by negotiated annual rate increases and revenues generated from over-the-top and non-linear distribution platforms, partially offset by subscriber declines compared to the prior year quarter.

U.S. Networks’ income from operations before income taxes for the second quarter of 2017 was $390.0 million, flat compared with the prior year quarter. U.S. Networks’ adjusted segment profit(1) was $398.7 million, a decrease of 1.5%, compared with the prior year quarter. The decrease was primarily driven by an expected increase in expenses, partially offset by the growth in operating revenues.

International Networks’ operating revenues for the second quarter of 2017 were $153.3 million, an increase of 4.2% compared with the prior year quarter. International Networks’ income from operations before income taxes was $43.3 million compared with $48.1 million in the prior year quarter, while adjusted segment profit(1) was $38.8 million compared with $37.4 million in the prior year quarter.

Second Quarter 2017 Preliminary Consolidated Balance Sheet Highlights

  • Cash and cash equivalents totaled $131.6 million and $122.9 million at June 30, 2017 and December 31, 2016, respectively.
  • Debt totaled $3.0 billion and $3.2 billion at June 30, 2017 and December 31, 2016, respectively.

(1) This press release includes several metrics, including consolidated segment profit (loss) and consolidated adjusted segment profit (loss) that are not calculated in accordance with Generally Accepted Accounting Principles in the United States of America ("GAAP"). See the Non-GAAP Financial Measures section of this press release for discussion of consolidated segment profit (loss) and consolidated adjusted segment profit (loss) and a reconciliation to their respective most comparable financial measure calculated in accordance with GAAP.

Guidance
As a result of the ratings and impression softness in the U.S. market, we now expect 2017 revenue growth to be approximately 4%, down from the previously issued growth of approximately 6%. Additionally, as a result of our anticipated revenue growth, offset by increased programming, selling, general and administrative expenses, we now expect segment profit to be approximately flat for the year, down from the previously issued growth of approximately 3%. All our other guidance remains unchanged.

Forward-Looking Statements
This press release contains certain forward-looking statements related to the company’s businesses that are based on management’s current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from the expectations expressed in forward-looking statements, including changes in advertising demand and other economic conditions as well as other reasons described in our Securities and Exchange Commission filings, including those set forth in the Risk Factors section and under the caption entitled “Forward-Looking Statements” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our most recently filed Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. The company undertakes no obligation to publicly update any forward-looking statements to reflect events or circumstances after the date the statement is made.

About Scripps Networks Interactive
Scripps Networks Interactive, Inc. (Nasdaq:SNI) is one of the leading developers of engaging lifestyle content in the home, food and travel categories for television, the Internet and emerging platforms. The company's lifestyle media portfolio includes leading TV and entertainment brands HGTV, Food Network, Travel Channel, DIY Network, Cooking Channel and Great American Country. Its digital division Scripps Lifestyle Studios, creates compelling content for online, social and mobile platforms. International operations include TVN, Poland’s premier multi-platform media company; UKTV, an independent commercial joint venture with BBC Worldwide; Asian Food Channel, the first pan-regional TV food network in Asia; and lifestyle channel Fine Living Network. The company’s global networks and websites reach millions of consumers across North and South America, Asia-Pacific, Europe, the Middle East and Africa. Scripps Networks Interactive is headquartered in Knoxville, Tenn. For more information, please visit http://www.scrippsnetworksinteractive.com.

Non-GAAP Financial Measures

In addition to results prepared in accordance with GAAP provided in this press release, the company has also presented consolidated segment profit (loss) and consolidated adjusted segment profit (loss).

The company evaluates the operating performance of its businesses and uses a financial measure referred to as segment profit (loss). Consolidated segment profit (loss) is the aggregate of the segment profit for each of our two reportable segments. Segment profit (loss) is defined as income (loss) from operations before income taxes, excluding depreciation, amortization, goodwill write-downs, interest expense, equity in earnings of affiliates, gain (loss) on derivatives, gain (loss) on sale of investments, other miscellaneous non-operating expenses and income taxes, which are included in net income (loss) determined in accordance with GAAP.

The company uses segment profit (loss) to assess the operating results and performance of its businesses and makes decisions about the allocation of resources to businesses using this financial measure. The company believes segment profit (loss) is relevant to investors because it allows them to analyze and evaluate the operating performance of its segments consistent with management. Depreciation and amortization charges are a result of decisions made in prior periods regarding the allocation of resources and are, therefore, excluded from segment profit (loss). Also excluded from segment profit (loss) are financing, tax structuring and acquisition and divestiture decisions, which are generally made by corporate executives. Excluding these items from the performance measure of our businesses enables management to evaluate operating performance based on current economic conditions and decisions made by the managers of the businesses in the current period.

The company defines consolidated adjusted segment profit (loss) as segment profit (loss), excluding the impact of items not routine in nature. The company believes consolidated adjusted segment profit (loss) is relevant to investors because it allows them to analyze the performance of segments excluding the impact of items not routine in nature or core to regular business operations.

Consolidated segment profit (loss) and consolidated adjusted segment profit (loss) are non-GAAP measures and should be considered in addition to, but not as a substitute for, income from operations before income taxes and other measures of financial performance reported in accordance with GAAP. Since consolidated segment profit (loss) and consolidated adjusted segment profit (loss) are not measures of financial performance calculated in accordance with GAAP, these non-GAAP measures may not be comparable to similar measures with similar titles used by other companies. Supplemental schedules providing a reconciliation of the non-GAAP measure to its respective most comparable financial measure in accordance with GAAP are included within this press release on the following pages.


Segment Profit and Adjusted Segment Profit - Q2 2017 and 2016  
  U.S. Networks   International Networks   Corporate and Other   Consolidated  
  Three months ended   Three months ended   Three months ended   Three months ended  
  June 30,   June 30,   June 30,   June 30,  
(in thousands) 2017   2016   2017   2016   2017   2016   2017   2016  
Income (loss) from operations before income taxes $ 389,950   $ 389,925   $ 43,316   $ 48,068   $ (32,491 ) $ (106,338 ) $ 400,775   $ 331,655  
Interest (expense) income, net   (144 )   (69 )   206     (7,076 )   (24,265 )   (26,030 )   (24,203 )   (33,175 )
Equity in earnings of affiliates   7,846     9,014     13,127     12,698     -     -     20,973     21,712  
(Loss) gain on derivatives   -     -     -     -     (3,672 )   8,267     (3,672 )   8,267  
(Loss) gain on sale of investments   -     (16,373 )   1,416     -     -     -     1,416     (16,373 )
Miscellaneous, net   3,481     18,952     7,896     23,823     20,804     (64,447 )   32,181     (21,672 )
Operating income (loss)   378,767     378,401     20,671     18,623     (25,358 )   (24,128 )   374,080     372,896  
Depreciation   9,961     12,716     3,045     3,114     654     259     13,660     16,089  
Amortization   9,994     10,022     15,064     15,632     -     -     25,058     25,654  
Segment profit (loss)   398,722     401,139     38,780     37,369     (24,704 )   (23,869 )   412,798     414,639  
TVN transaction and integration expenses   -     17     -     (18 )   -     736     -     735  
Reorganization costs   -     3,713     -     -     -     214     -     3,927  
Adjusted segment profit (loss) $ 398,722   $ 404,869   $ 38,780   $ 37,351   $ (24,704 ) $ (22,919 ) $ 412,798   $ 419,301  
   
Segment Profit and Adjusted Segment Profit - Year-to-Date 2017 and 2016
  U.S. Networks   International Networks   Corporate and Other   Consolidated  
  Six months ended   Six months ended   Six months ended   Six months ended  
  June 30,   June 30,   June 30,   June 30,  
(in thousands) 2017   2016   2017   2016   2017   2016   2017   2016  
Income (loss) from op1erations before income taxes $ 759,713   $ 944,606   $ 76,931   $ 76,111   $ (84,914 ) $ (190,069 ) $ 751,730   $ 830,648  
Interest (expense) income, net   (264 )   (86 )   353     (13,943 )   (48,544 )   (52,891 )   (48,455 )   (66,920 )
Equity in earnings of affiliates   13,089     16,746     28,333     30,644     -     -     41,422     47,390  
(Loss) gain on derivatives   -     -     -     -     (6,008 )   11,033     (6,008 )   11,033  
Gain on sale of investments   -     191,824     1,416     -     -     -     1,416     191,824  
Miscellaneous, net   5,964     22,440     27,799     54,880     25,958     (92,926 )   59,721     (15,606 )
Operating income (loss)   740,924     713,682     19,030     4,530     (56,320 )   (55,285 )   703,634     662,927  
Depreciation   21,460     26,911     5,917     5,955     1,243     520     28,620     33,386  
Amortization   19,912     20,043     29,343     36,673     -     -     49,255     56,716  
Segment profit (loss)   782,296     760,636     54,290     47,158     (55,077 )   (54,765 )   781,509     753,029  
TVN transaction and integration expenses   -     17     -     (31 )   -     2,104     -     2,090  
Restructuring costs   -     (29 )   -     -     -     (281 )   -     (310 )
Reorganization costs   -     7,519     -     -     -     3,732     -     11,252  
Adjusted segment profit (loss) $ 782,296   $ 768,143   $ 54,290   $ 47,127   $ (55,077 ) $ (49,210 ) $ 781,509   $ 766,061  
 


Consolidated Segment Profit – 2017 Full Year Guidance Reconciliation
  Estimated Guidance
(in thousands) Year ending December 31,
2017
Income from operations before income taxes   $1,277,000 – $1,295,000
Interest expense, net   (95,000) – (100,000)
Equity in earnings of affiliates   55,000 – 65,000
Loss on derivatives   (5,000) – (10,000)
Gain on sale of investments   2,000 – 5,000
Miscellaneous, net   55,000 – 65,000
Operating income   1,265,000 – 1,270,000
Depreciation & amortization   155,000 – 160,000
Segment profit   $1,420,000 – $1,430,000
 


Contact: Scripps Networks Interactive, Inc.
Investors: Mike Gallentine, 865-560-4473, MGallentine@scrippsnetworks.com;
Media: Dylan Jones, 865-560-5068, DJones@scrippsnetworks.com; or
Kristin Alm, 865-560-4316, KAlm@scrippsnetworks.com

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