Sinclair Earnings: Core Advertising Struggles Continue; Further Ad Weakness Ahead

Sinclair SBGI posted an in-line start to 2021 as first-quarter revenue met and adjusted EBITDA beat FactSet consensus projections. Core advertising revenue weakness continued, dropping 2% year over year, excluding Diamond Sports Group. Uncertain economic conditions produced weak insurance ad spending that more than offset increased automotive ad spending. April saw the return of Sinclai’s ABC and CBS stations to Hulu and FuboTV, respectively, ending customer blackouts. We expect future negotiations with distributors will remain difficult as sports leagues explore direct to consumer options. We are maintaining our $22 fair value estimate.

Total revenues decreased 7% organically to $773 million due largely to the expected loss of political ad spending. Distribution revenue fell 3% versus the prior year period with retransmission revenue expected to decrease from 2022 levels due to continued mid-single-digit subscriber losses. With 90% of broadcast contracts due for renewal in late 2023 and 2024, any projected retransmission revenue increases will likely not occur until 2024 and 2025. Management believe that these renewals will drive low-single-digit retransmission revenue growth over the next three years. Adjusted EBITDA of $120 million was an unexpected positive as media expenses benefitted from better expense timing and cost cutting.

The onset of weaking economic factors has dampened the outlook for the first half of 2023, but management expects that the distribution contract renewals and holiday advertising should buoy the fourth quarter and produce stronger distribution revenue into 2024. However, we expect the core broadcasting business will continue to be challenged as cord-cutting and higher reverse retransmission fees eat into revenue.