Gains from Super Bowl and Olympics boost Sinclair's revenue

Sinclair Broadcast Group boosted profit and revenue in the first quarter, citing better-than-expected spending on political advertising, strong gains from Super Bowl and Olympics ads, and lower expenses at many of the company's television stations.

The Hunt Valley-based broadcaster reported first-quarter income of $27.2 million, or 27 cents per share, nearly 60 percent more than the $17 million, or 21 cents per share, it earned in the first three months of 2013.

The results beat analysts' forecasts of 22 cents per share, yet its stock slid 2 percent Wednesday to close at $28.13 a share.

"There were many positives in the first quarter that reflect our solid underlying fundamentals, despite the slower-than-usual start to the year due to the impact of the severe and frigid weather in many of our markets," said David Smith, Sinclair's president and CEO, in a statement.

The company said its station broadcast revenue rose nearly 48 percent to $373.8 million in the three months ended March 31 from $252.9 million a year earlier.

Smith said the company is focused now on closing its nearly $1 billion deal to buy seven ABC affiliates and a Washington-based cable news network from Allbritton Communications and lobbying to change what it sees as inequality in broadcast ownership rules.

The Federal Communications Commission adopted new media ownership rules in March that restrict the number of TV stations controlled by a single owner in a market in cases where broadcasters use sharing arrangements for sales or facilities and employees.

Sinclair, which uses such arrangements and "joint sales agreements," or JSAs, in which a larger station sells advertising time for another station in the same market, had offered to restructure the Allbritton deal in anticipation of the FCC ruling. The broadcaster proposed eliminating "shared service agreements" at TV stations in three of the markets where it plans to buy an ABC affiliate from Allbritton. The company also said it would no longer provide services to three stations it was planning to sell.

During a conference call Monday, David Amy, Sinclair's chief operating officer and an executive vice president, said the deal likely would be completed in the third quarter of the year.

"This sounded pretty definitive to us," wrote Marci Ryvicker, a senior analyst for Wells Fargo Securities, in a report issued Monday. "Management has submitted its restructuring plans to the regulators and conversations are taking place among both the FCC and [Department of Justice]. It sounds like [Sinclair] will need to identify definitive buyers of the stations to be sold prior to regulatory approval.

After a two-year grace period, the FCC will consider broadcasters that sell more than 15 percent of the ad time of a second station in a market to be the owner and could force that owner to sell or discontinue the arrangement.

"It does sound like management is going to take the two years to figure out what to do with its current JSAs," Ryvicker said in her report.

The Super Bowl, which aired on Sinclair's 31 Fox stations, generated $8.2 million in sales, compared with $2.5 million in last year's first quarter, when the event aired on Sinclair's 11 CBS stations. The Olympics aired on the company's 12 NBC stations, bringing in $3.7 million.

Strong advertising categories included services, medical, schools and furniture, while sales declined in direct response and weather-sensitive categories such as retail, fast food, restaurants and automotive.

During the quarter, Sinclair said, its political ad revenue jumped to $6.1 million compared with $900,000 in the first quarter of 2013.

Political spending likely will remain strong the rest of the year, said Steven M. Marks, chief operating officer of Sinclair's Television Group, in Wednesday's call. Money is being spent now on political ads in 20 state where it operates, he said.

"Politicals are going to be big," Marks said. "The first six months for us on political has met expectations and then some, and that's a very good sign that bodes well for the back half of the year."

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