Sinclair Broadcast Group Inc. reported a jump in third-quarter profit Wednesday, driven by strong gains in television political advertising.
The Hunt Valley-based broadcaster said it earned $48.3 million in the three months ended Sept. 30, up 33 percent from its income of $36.3 million in the third quarter of 2013. Per-share earnings jumped to 49 cents from 36 cents.
While the profit beat analysts' estimates of 33 cents per share, according to Zacks Investment Research, Sinclair's stock took a tumble in afternoon trading, falling 3.8 percent to $27.06 per share.
The broadcaster's net revenue from continuing operations surged nearly 48 percent to $448.1 million from $303 million in last year's third quarter.
The broadcaster expects to generate a record-breaking $78 million worth of political advertising in the fourth quarter, "despite some political races in our markets not being as highly contested as anticipated or as many ballot issues up for vote as in prior election years," said David Amy, Sinclair executive vice president and COO. "In addition, we are seeing positive ratings in some of the newly launched network shows, as well as from our investments in college sports, local news and syndicated content."
During the third quarter, the broadcaster benefited from political advertising sales, which increased to $33.8 million in a midterm election year, up from $2.7 million in the third quarter of 2013. Without the political ad sales, local net broadcast revenues were up nearly 42 percent, while national time sales rose nearly 23 percent, the company said. Local broadcast revenues include local ad time sales and retransmission revenue, or fees that cable and satellite TV providers pay Sinclair to include their signals and content in channel lineups.
Political, medical, telecommunications and furniture and drugs/cosmetics were among the fastest growing advertising categories, the company said. Automotive, restaurant and fast food ad sales declined
The TV station owner said it has been expanding its sports programming, strengthening its station portfolio and shoring up with networks.
In September, the company's newly formed American Sports Network entered into syndication rights agreements with 53 companies to broadcast the network's collegiate games in non-Sinclair markets. The sporting events are now being broadcast in markets that represent more than 90 million U.S. households. Sinclair's Ring of Honor wresting programming signed a syndication agreement with an Atlanta station in September and added another 16 markets since then. The wrestling programming reached more than three million TV households and more than four million cable households.
The broadcaster in August launched Sinclair Original Programming to create original content.
Sinclair has continued to actively pursue TV stations. In September and November, the company closed on several previously announced purchases, including the non-license assets of eight stations in three markets from New Age Media. Sinclair also finalized a $1 billion deal Aug. 1 to acquire seven ABC affiliates and a Washington-based cable news network from Allbritton Communications.
"Sinclair is leading a consolidation in the local broadcast television industry, driving efficiencies through scale and better negotiating leverage, in our view," wrote Tuna Amobi, an analyst with S&P Capital IQ, in a report. "We see SBGI increasingly poised to reap potentially sizable synergies of scale and operation leverage, after a series of recent notable acquisitions of local stations."
The report cited several risks to the analyst's "buy" recommendation including a worsening economic environment and major regulatory changes to broadcasting or retransmission terms.
"Advertising remains highly competitive," the report said.
Sinclair, which will reach about 38 percent of television households once it finalizes pending acquisitions, has affiliations with all the major networks.
During a Wednesday conference call with analysts, Sinclair executives said programming hits such as "The Flash" has allowed Sinclair to sell ad rates for its CW stations that are similar to its big-four affiliates, said Marci Ryvicker, a senior analyst with Wells Fargo Securities.
"The company also highlighted a good ratings start for Fox this fall season," Ryvicker said in a report. "We think both of these comments have gone underappreciated by the market."