Nexstar Media Group (NXST) — the nation's leading operator of TV stations — reported Q1 results were better than expected, reports Doug Gerlach, editor of Investor Advisory Service — and a participating speaker at MoneyShow's Virtual Event on June 10-12.
Revenue increased 74%, largely attributable to the Tribune acquisition, which closed last September. Advertising revenue, which represents less than half total revenue, grew 87%.
Political advertising jumped significantly, helped by spending by Presidential candidates. GAAP EPS was $3.30, up from $1.15 a year ago.
In March, Nexstar experienced a significant decline in commercial advertising revenue, which has continued into Q2. Same-station non-political advertising declined 5% in Q1. In response, it withdrew its free cash flow guidance for the 2020/2021 cycle.
A majority of revenue this year is expected to be derived from distribution fees and political advertising, which is not expected to be materially impacted by the virus.
The company also has reasonable visibility of distribution fee economics through 2022, as it completed new multi-year retransmission agreements representing approximately 70% of its subscribers in 2019 as well as new long-term network affiliation contracts with key networks.
This year, retransmission agreements representing approximately 20% of Nexstar’s customer base are scheduled for renewal.
In response to the virus the company implemented cost-cutting initiatives that are expected to result in operating expense savings of approximately $40 million in Q2. Nexstar is carrying elevated debt levels following the Tribune acquisition.
Net leverage at the end of Q2 was 4.5x, down from 5.2x at the end of 2019. Management continues to prioritize debt paydown, reducing debt by $450 million in Q1, and expects to be free cash flow positive in each quarter of 2020.
However, it now expects total net leverage to decline to approximately 4x by year-end, a higher leverage level than it previously expected due to the impact of the virus. NXST is a buy up to $124.
