E.W. Scripps 2Q profit drops 47 percent

NEW YORK—The E.W. Scripps Co.'s second-quarter profit fell 47 percent compared to last year due to sharp newspaper revenue declines and the cost of spinning off its digital and cable network businesses, the media company reported Thursday.

This is the last quarter for which the Cincinnati-based company, which owns newspapers, TV stations, cable networks and Web sites, will report consolidated results. On July 1, the start of its third quarter, it formed Scripps Networks Interactive Inc. with its cable networks and online shopping sites.

Combined net income in the quarter fell to $51.2 million, or 94 cents per share, from $97.5 million, or $1.78 per share, in the same period a year earlier. Revenue was 4 percent higher, at $664 million, on increased ad sales at its HGTV, Food Network and DIY channels.

Analysts polled by Thomson Financial did not have an average estimate for consolidated results.

E.W. Scripps, the newspaper and broadcast TV company remaining after the spinoff, warned Thursday that its third-quarter earnings would fall short of analysts' expectations and it could post a non-cash charge for the quarter after it reviews the fair value of its assets.

Shares of E.W. Scripps fell by 69 cents, or 7.5 percent, to $8.51 Thursday after hitting a fresh low of $8.36 earlier in the day. Scripps Networks rose 81 cents, or 2 percent, to $40.75.

Rich Boehne, chief executive of E.W. Scripps, told analysts in a conference call that the company was surprised at the severity of the economic downturn, especially in California and Florida. Executives said they also expect a hit from higher newsprint prices later in the year, a rise projected at 30 percent or more.

But Boehne said long-term prospects for Scripps newspapers as a whole are rosy, especially in growth states such as Florida, even though they are among those hardest hit in the current advertising slump.

"Most of our newspaper markets are good," he said. "They are long-term growth markets."

The short-term, however, will be tough. John Puchalla, an analyst at Moody's Investors Service, said a newspaper ad recovery may not come in 2008 and or possibly even in 2009.

Separating the business segments, newspaper revenue fell 13 percent to $144 million and profits there fell to $16.3 million. The television group saw a 22 percent decline in profits to $18.3 million on $80.5 million in revenue, which was 5 percent below second-quarter TV station revenue in 2007.

While the increase in political advertising brought new business, it did not offset the fall in other local and national advertising revenue, the company said.

Ad revenue for the cable networks and related Web sites such as HGTV.com, however, rose 13 percent to $349 million and profits in those units rose nearly 10 percent to $180 million. At comparison shopping Web sites such as Shopzilla, revenue rose 13 percent to $66.9 million, while profits more than doubled to $15.1 million.

Puchalla said ad dollars are going to cable networks in part because they reach targeted audiences. The Hollywood writers strike also helped drive up cable viewership.

Looking ahead, E.W. Scripps said it expects newspaper revenue to fall 13 percent to 15 percent in the third quarter, but it expects broadcast TV revenue to rise 15 percent to 17 percent. Still, the boost from TV won't be enough to offset softness in print. Scripps' assets also include Scripps Howard News Service in Washington, D.C.

The company is projecting third-quarter earnings from continuing operations of 10 cents to 15 cents per share, excluding separation costs, for E.W. Scripps. Analysts were expecting earnings of 19 cents per share.

Separately, Scripps Networks said it expects to post a third-quarter profit of 35 cents to 38 cents per share, excluding one-time spinoff costs. Analysts were forecasting 41 cents per share.

The company held to its forecasts for full-year revenue and profits, however.

JPMorgan analyst Alexia Quadrani said in a research note that reaffirmation of ad revenue growth for the full year means "forward trends remain solid despite economic weakness."