Sinclair Reports Drop In Income For 2nd Quarter

Revenue From Continuing Broadcast Operations Fell Nearly 19%, Company Says

August 06, 2009|By Lorraine Mirabella | Lorraine Mirabella,

Sinclair Broadcast Group Inc., facing declining advertising revenue amid the recession, said Wednesday that net income fell to $2.8 million, or 4 cents per share, from $11.8 million, or 13 cents per share, in the second quarter of 2008.

The Hunt Valley-based owner of television stations said net broadcast revenues from continuing operations fell nearly 19 percent to $133 million for the three months ended June 30. Operating income fell to $25.8 million from $43.3 million, Sinclair reported.

Company officials said Wednesday that they believe the advertising declines have hit bottom, though they expect most advertisers won't start to recover until the second half of next year.

Sinclair, which depends heavily on the struggling automotive sector for advertising, saw spending in that category fall more than 46 percent in the second quarter, with local advertising revenue in all categories down 21 percent and national advertising down more than 31 percent, the company said.

"We've experienced the bottom and are slowly beginning to build ourselves up," said Steven M. Marks, vice president of Sinclair's television division, during a conference call with analysts. "Once the automotive category starts kicking in, we will see a significant jump. We are seeing inches of growth, not feet or yards."

But the company could get a boost between now and the end of the year from "issue advertising" as Democrats and Republicans spread messages on health care reform through television advertisements, Marks said. And 2010 will likely shape up to be a big year for political advertising because of significant gubernatorial and senatorial races in markets where Sinclair owns stations, he said.

Sinclair, which owns or operates 58 television stations in the U.S., said it has continued working with station managers to identify potential cost-cutting areas.

In July, the broadcaster had said it might consider filing for bankruptcy protection if the company cannot pay or restructure substantial debt coming due. Sinclair had $1.3 billion in total debt outstanding as of June 30 and could be obligated to pay $488.5 million of its total outstanding debt within the next 18 months. On Wednesday, the company said it continues to have discussions with bondholders about debt restructuring.

"A resolution with the bondholders must take into consideration the company's ability to service our debt going forward and provide for the refinancing of future maturities," David Smith, the company's president and chief executive, said in a statement.

The company had announced Friday that Cunningham Broadcasting Corp., whose debt obligation could also potentially trigger a Sinclair bankruptcy, has received an extension until Oct. 30 to pay off $33.5 million. The extension allows Cunningham, whose six television stations are operated by Sinclair under an agreement, more time to work with its lenders on a solution.

In a report issued after Sinclair announced earnings, Shelly Lombard, a senior high yield analyst at Gimme Credit, called the Cunningham announcement the only good news from the company in the past several weeks.

"Since a Cunningham bankruptcy would trigger a cross default on Sinclair's bank debt, the Cunningham extension gives Sinclair more time to deal with its own problems," Lombard said in the report.

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