We reaffirm our long-term Neutral recommendation on
Scripps Networks Interactive Inc.
) following its strong third-quarter of 2012 results. Both top
and bottom lines beat the Zacks Consensus Estimates. However,
stiff competition in both its Lifestyle Media and Interactive
Services businesses from alternative providers of similar
services remains a major concern for the company.
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Scripps Networks is generating solid growth in advertising and
affiliate-fee revenue at its flagship Lifestyle Media businesses
and higher segment profits. We believe both advertising revenue
and affiliate fee revenue will remain healthy in the near future.
Further, management has raised its fiscal 2012 financial guidance
and anticipates a revenue growth of 10-12%.
Scripps Networks is a pure-play lifestyle cable network
consisting of six channels. All these cable channels have loyal
audiences, who also view Scripps Networks' contents in several
The Cincinnati, Ohio-based company has benefited from the
Virgin Media Inc.'s
) 50% stake in UKTV as a lot of the latter's channel offerings
matches with Scripps Networks. Additionally, acquisition of the
controlling stake in the Travel Channel has made Scripps Networks
the global market leader in lifestyle programming as a
In the reported quarter, Scripps Networks improved with respect
to several financial metrics compared with the year-ago quarter.
Total revenue was up 12.4% and total segment profit was up 3.9%.
Affiliate fee revenue was up 15.8% year over year. Advertising
revenue was up 9.2% year over year. We believe this trend will
continue in the near future. The company entered into a
distribution agreement with
) for its lifestyle networks to be viewed by U-verse network
subscribers of AT&T.
Approximately 65% of Scripps Networks' revenue is derived from
marketing and advertising spending of the corporate sector in the
U.S. which is sensitive to economic conditions. Deterioration of
the U.S. economy could lead to corporate spending cut, which in
turn could impact the company's Lifestyle Media segment.
Furthermore, we remain quite concerned regarding higher costs of
operations in 2012 results as projected by management. Scripps
Networks estimated a 13-15% increase in programming costs and a
10-12% increase in marketing expenses in 2012, which might
suppress its margins.
Scripps Network retains a Zacks #3 Rank, implying a short-term