Radio broadcaster Emmis Communications (NASDAQ:EMMS) reported horrid third-quarter results, but made upbeat comments about its future outlook.
For the quarter, net revenues decreased 6.9% to $91.2 million and operating income fell 29% to $17.5 million, with station operating income down 18.8%. Emmis' two largest markets, New York and Los Angeles, continued to struggle, with Emmis down 21% and 26% in those markets, which contributed to a 11.5% decline in domestic radio revenue for the quarter. Automotive advertising was down 9%, as well as other major categories such as banks, movies, and beverages. On the bright side, international radio sales grew 9.5% and healthcare and cellular advertising improved.
During the conference call, management noted that it had warned investors last year that this year would be difficult. They also said they believed this quarter was the bottom, and that better times are ahead. Impressively, CEO Jeff Smulyan also put his money where his mouth was by only paying himself $1 in salary this year in order to help weather the storm.
There were also a number of interesting points during the earnings call. Emmis voiced its support for Arbitron's (NYSE:ARB) portable people meter (PPM) device for recording radio ratings. Arbitron's current system is where a sample audience records in a diary its listening habits. However, the PPM automatically records listeners' every move, which is obviously much more detailed and accurate. Because the PPM has the potential to change the status quo, it has naturally been met with fear and trepidation from radio's big players. However, the diary system is obsolete and Emmis noted that the customers want the more accurate PPM system. It's certainly a positive sign that Emmis is supporting the PPM. Too often, incumbents stick their heads in the sand to keep the status quo rather than meet challenges head-on.
Emmis was also the first to start talking with dMarc, now a Google (NASDAQ:GOOG) subsidiary, and now sells ads through its online automated advertising platform. Although, Emmis currently only sells remnant, low-priced inventory through dMarc, management noted that dMarc pricing is up. Despite its struggles, Emmis clearly has the right attitude in pushing for initiatives like dMarc and PPM that could boost ease of use and accountability for the radio industry, which has suffered through 5 years of flat revenues.
Although Emmis' recent results were pretty ugly, it's noteworthy that the company's CEO generously gave up his salary and has boldly indicated his belief in an industry turnaround. I'm still a little wary because I lump radio broadcasters in with newspapers, which have generally been value traps, but the radio broadcasting industry's low valuations and still-healthy cash flows might have some hidden value.
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Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. The Motley Fool has a disclosure policy. Emil appreciates comments, concerns, and complaints.
