Scripps Networks (NASDAQ:SNI) this week posted quarterly operating results that showed steady advertising and distribution fee growth despite a shrinking pool of pay TV subscribers. Its core channels, HGTV, Food Network, and Travel Channel, all expanded their ratings in valuable advertising demographics.

Here's how the headline results stacked up against the prior-year period: 

Metric

Q1 2017

Q1 2016

Year-Over-Year Change

Revenue

$855.1 million

$816.9 million

4.7%

Net income

$249.8 million

$339.9 million

(26.5%)

EPS

$1.53

$2.24

(31.8%)

Data source: Scripps' financial filings.

What happened this quarter?

Sales and profits kept up their solid momentum from the 2016 fiscal year, with revenue rising nearly 5%. Net income dove, but only because the prior-year period included a large, one-time investment gain.

A family watching TV together.

Image source: Getty Images.

Key highlights of the quarter include:

  • U.S. advertising revenue growth slowed to a 5% pace from 9% last quarter. That was still enough to keep Scripps Networks' group of lifestyle-focused channels ahead of broader TV entertainment peers like Time Warner, which earlier in the week announced a slight advertising decline for the first quarter.
  • Distribution fees rose 4.5%, reversing the prior quarter's decline.
  • HGTV logged its second highest rated quarter in network history, Food Network held steady in the key adult demographic, and Travel Channel improved its prime-time rating by 9%.
  • Scripps Networks' Poland-based network boosted ratings by 6% thanks to the recent addition of HGTV to its content lineup. That channel has quickly grown into the second highest-rated lifestyle network in the country among adult women, behind TVN's Style channel.
  • Scripps Lifestyle Studios, its digital segment, logged 2.9 billion video views, up 450%, and continued ramping up its content production capabilities.
  • Adjusted profit, which strips out the effect of a large one-time gain in the prior-year quarter, rose 6.3%.

What management had to say

CEO Kenneth Lowe focused his remarks on the company's steady expansion pace. "The momentum we saw in 2016 has continued into 2017," he said in a press release. "Underpinning our success is our unwavering focus on lifestyle content that creates a unique viewing environment and inspires the lives of our viewers and fans each day," he continued.

Management was pleased with its progress at securing distribution agreements for the next several years both in digital and broadcast TV. Lowe explained:

As we broaden our reach globally, and on new platforms and digital channels, the enduring relationships that we have built with viewers is paying off in the form of consistent, long-term value creation for advertisers, distributors and shareholders.

Looking forward

Scripps Networks affirmed its full-year guidance that calls for overall sales growth of 6%. Adjusted profit should rise at a slower pace, about 3%, as the company continues investing heavily in content and in expanding its digital capabilities.

Investors saw another sure sign that digital distribution will be a key focus going forward as the company on Thursday announced a deal to produce shows from Food Network and HGTV for the Snapchat service. "Snapchat's distinctive mobile platform provides an ideal environment for us to touch millennials and centennials who may not yet be hooked on our premium offerings," an executive explained. 

While its TV broadcast networks are positioned for profitable growth over the next few years, Scripps Networks understands that the next generation of TV watchers will likely be far less attached to traditional pay-TV contracts. That's why it's aiming to reach them through major new deals with distributors like Hulu and Snapchat.

Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Scripps Networks Interactive and Time Warner. The Motley Fool has a disclosure policy.