Sinclair Broadcast Group Inc. stock plummeted yesterday after the company said its key earnings measure fell during the third quarter, but executives of the Baltimore TV station group insisted that the $9-a-share free fall exaggerated the bad news.
On Friday night, Sinclair quietly issued a news release saying that advertising sales at its stations that are not NBC network affiliates would force its cash flow to fall about 4 to 5 percent.
Yesterday, nothing was quiet in the markets, as Sinclair's shares fell to $34.75 from $43.75 in very heavy trading.
"It's obvious when you look at the volatility, that it's because there is essentially no 'float,' " Sinclair Chairman David Smith said. "The inability of someone to sell 1,000 shares without a $2 swing is a big contributor to all this."
"Float" is a term to describe the amount of stock available to the public. Because the Smith family still controls the company, even though it went public last year, the small "float" means that a given level of demand to sell Sinclair shares hurts the price more than it would if the company had more shares in the hands of public investors.
Sinclair said its earnings are down because the Olympics on NBC whipped everything else on the air and drove advertisers away from non-NBC stations; two company stations lost affiliations with the Fox and NBC networks; and the company is not yet turning around the performance of stations it bought earlier this year.
Smith told an analysts' conference that the company has not yet finished its programming changes, and is putting off some changes in how it deals with programming syndicators until it buys more stations, which will give Sinclair more leverage in those talks.
He added that the company is considering whether to shelve a secondary offering until the stock price rebounds.
Sinclair now owns or controls 28 television stations and 33 radio stations in the United States. It did not release the details of its quarterly results; it simply issued a statement containing relatively few details that said its results would fall slightly short of expectations.
One reason for the stock's sharp downward move appeared to be that Alex. Brown Inc., one of the underwriters of the 5 million-share secondary offering Sinclair had hoped to bring to market this month, cut its investment rating on Sinclair shares. Alex. Brown analyst Andrew Marcus confirmed he had cut his rating to "buy" from "strong buy" and had cut his earnings estimates, but declined to give details.
"I think a lot of people got carried away with the benefits from the merger" in the short term, said Smith Barney analyst John S. Reidy, referring to the purchase earlier this year of River City Broadcasting LP. Smith Barney is the lead underwriter of the proposed secondary offering. "People [analysts] were out on a limb with excessive earnings estimates."
Sinclair's position that its problems were a fluke, driven by NBC's Olympian dominance of summer ratings, was bolstered late yesterday when New York-based Granite Broadcasting Corp. said cash flow at its stations also fell 3 percent during the third quarter.
Pub Date: 10/22/96