Gray Television, Inc. (GTN)

GTN 
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Gray Television (GTN)

Q2 2011 Earnings Call

August 08, 2011 1:00 pm ET

Executives

Robert Prather - President, Chief Operating Officer, Director and Member of Executive Committee

Hilton Howell - Vice Chairman, Chief Executive Officer and Member of Executive Committee

James Ryan - Chief Financial Officer and Senior Vice President

Analysts

Aaron Watts - Deutsche Bank AG

Marci Ryvicker - Wells Fargo Securities, LLC

Steven Pfeiffer - Wells Capital Management

Unknown Analyst -

Barry Lucas - Gabelli & Company, Inc.

Bishop Cheen - Wells Fargo Securities, LLC

Presentation

Operator

Good day, everyone, and welcome to the Gray Television Second Quarter 2011 Earnings Release Conference. Today's call is being recorded. At this time, I'd like to turn things over to Mr. Hilton Howell. Please go ahead, sir.

Hilton Howell

Thank you, operator, and good afternoon, everyone. Welcome to the second quarter and 6 months review of Gray TV's financial performance. Thank you for joining us on this sort of infamous day for our country and our markets. We appreciate your interest very, very much.

As usual, I will begin with just a few brief comments followed by Bob Prather, our President and Chief Operating Officer, who will add more color to this quarter's performance; and then to Jim Ryan, our Chief Financial Officer, who will follow with a brief discussion of our financial information and more information on the release we let go this morning.

We are happy with our results this quarter and think it speaks well for the TV assets of Gray Television, as well as the resiliency of the broadcast television industry as a whole. Our total revenue for the quarter advanced by 1% to $76.2 million from $75.6 million in Q2 2010 and exceeded our initial estimates for the quarter this year as well. The increase was driven primarily by increases in local advertising and Internet advertising, which rose 4% or $1.9 million and 56% or $1.7 million, respectfully. These gains were offset by expected decreases in political advertising during this off-year cycle and the national advertising, which decreased by 59% or $3.3 million and 3% or $400,000, respectfully.

Of our 5 largest advertising categories, automotive, restaurants, medical, communications and furniture and appliances, only automotive decreased and that by only 1%. Restaurants increased by 7%, medical increased by 16%, communications increased by 10% and furniture and appliances increased by 5%. We attribute the decrease in automotive advertising to the effects of the Japanese tsunami and the impacts it has had on the supply chain worldwide. As a consequence, we are cautiously optimistic that this will reverse itself out in the third quarter.

For the 6 months, total revenue was essentially flat decreasing by just $200,000 to $145.9 million, also driven by a decrease of political and national revenue and no Olympic-related advertising this year. Whereas in 2010, we received approximately $2.8 million Olympic advertising revenue on our NBC-affiliated stations. Furthermore, the Super Bowl was broadcast on FOX this year and our one primary FOX-affiliated station and 4 FOX-affiliated secondary digital channels generated just $200,000 of ad revenue this quarter compared to last year when the Super Bowl was broadcast on CBS and our 17 CBS-affiliated primary channels generated close to $1 million in Super Bowl revenue.

When you consider the magnitude of these 2 items alone, close to $3.8 million, we are very pleased with our performance this year. While there is a great deal of discussion of a second-dip recession and no one can predict what will happen in our markets after this unprecedented downgrade of the sovereign debt of United States by Standard & Poor's, we have seen no evidence yet of an advertising pullback in our local markets. And consequently, we remain optimistic about the balance of the year from all that we know so far.

I also want to quickly address the number of station groups that have recently come on the market. While we at Gray believe that the broadcast business needs to continue to consolidate and in time, we will continue to be one of those consolidators, we currently remain committed to improving our balance sheet, decreasing our debt and improving our shareholders' equity.

With that, I will bring my comments to a close and turn it over to Bob for more color on this quarter. Bob?

Robert Prather

I'm sorry. I apologize. I should welcome everybody. Thank you, Hilton. On a day like today in the market, I guess the thing for everybody to do is keep looking straight ahead and know things are going to get better. This debt issue downgrade is obviously serious for our country, but we've got to focus on what we can control and we can control what's going on at Gray Television, which we plan to keep working on every day.

As I mentioned in our last meeting, our focus over the last, really last year and a half has been to get our local HD news going as quickly as possible on all our stations. I'm happy to say, we currently have 18 of our 30 markets with full local HD news. We should have a couple of more finished by the end of the year. Probably 4 more and then have maybe 8 of our small markets left that we'll hopefully complete next year. So I think people are finding HD to be a great product. More and more people are watching HD sets. They demand local HD news. And if you have a competitor in a market that has local HD news and you don't have it, you'll feel it quick.

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