Sinclair Broadcast Group Inc. posted strong gains in sales and earnings in the second quarter, helped by the higher fees it has been able to negotiate from cable and satellite TV providers, the Hunt Valley broadcaster said Wednesday.
Its profit increased 11 percent to $45.8 million, or 48 cents per share, for the three months that ended June 30. That compares to income of $41.3 million, or 42 cents per share, in the same period a year earlier.
Revenues jumped more than 21 percent to $554.2 million, from $455.1 million in 2014's second quarter.
While the results exceeded the expectations of Wall Street analysts, who estimated earnings of 37 cents per share on revenue of $542.14 million, Sinclair's stock took a hit Wednesday. Its shares dropped 4 percent, or $1.14 each, to close at $27.39.
The company attributed the better-than-expected results partly to higher "retransmission consent fees," which cable and satellite providers pay broadcasters to include their signals in channel lineups. During the second quarter, Sinclair renewed multi-year retransmission consent agreements with cable television providers Cox Communications and Suddenlink.
Sinclair has grown rapidly in recent years through acquisitions of TV stations, which has helped in negotiating those retransmission fees, said Tuna Amobi, director of equity research with S&P Capital IQ in New York.
"They've started to benefit from the acquisitions they've made of late," said Amobi, who said the locked-in retransmission contracts and growing digital revenue are among other bright spots for Sinclair.
While political advertising sales were down from last year's second quarter — $4 million compared with $11.6 million — revenues from the broadcaster's Web and mobile platforms rose 32 percent, with more than 44 million unique visitors and more than eight million social media fans and followers.
During a conference call with investors, Sinclair officials said digital advertising has become increasingly important for broadcasters that are packaging TV and digital ads and is expected to remain a fast-growing ad platform.
"There's lots of opportunity, and we're aggressively seeking it, but we've also barely scratched the surface," said Stephen J. Pruett, co-chief operating officer of Sinclair Television Group.
The broadcaster, now the nation's largest producer of local news, also completed five-year renewal agreements with two key networks: CBS and CW. Sinclair owns, operates or provides services to 163 television stations in 79 U.S. markets and has affiliations with all the major networks.
Sinclair has been expanding aggressively into developing its own program content and said it plans to add 50 to 60 hours of weekly local news by the end of this year.
"We continue to make significant progress with regard to content initiatives and distribution rights, particularly in the areas of sports and first-run programming," said David Smith, Sinclair's president and CEO, in a statement
In May, Sinclair signed a 26-week national broadcast deal with Destination America, part of Discovery Communications, to air the company's "Ring of Honor "wrestling programming and also reached an agreement for its American Sports Network to televise weekly Minor League Baseball games through a new series, "Minor League Baseball Sunday Showcase."
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During the last two months, American Sports Network also reached agreements with AMA Pro Racing, to offer syndicated network television coverage in select markets for eight AMA Pro Flat Track motorcycle races this summer, and with Millennium Dancesport Championships, which hosts ballroom dancing competitions, to televise "The Dance League on ASN."
Branching out beyond college sports at the sports network is part of Sinclair's strategy of expanding original content.
"We're taking areas that we make money today and expanding them and enhancing them with our content strategy," said CFO Christopher S. Ripley during the conference call.
Sinclair also formed a joint venture in June with Michael Eisner's Tornante Co. to create, develop, produce and distribute first-run syndicated talk, game, court and comedy shows. In June, Sinclair and Metro-Goldwyn-Mayer formed a partnership to create a science fiction multi-channel network, "Comet TV.
David Amy, Sinclair's chief operation officer, said core advertising revenues in the third quarter, excluding political advertising, are expected to be slightly better than second-quarter results.
"For the fourth quarter, we expect to benefit from additional retransmission consent agreement renewals, increased digital advertising revenues from the staged launch of our content management system, and an improvement in FOX prime-time programming," said Amy, referring to the debut of the second season of "Empire," which is expected to boost Fox ratings.